By Ron Kramer
Seyfarth Synopsis: The PBGC is seeking more information on hybrid or two-pool withdrawal liability calculation methods. This is a sign that the PBGC may be re-evaluating its role in approving hybrid proposals, although it may be too early to tell which way it will dive, especially under a Trump administration.
The Pension Benefit Guaranty Corporation (PBGC) issued a Request For Information (RFI) , to be published January 5, 2017, asking 24 questions about hybrid or two-pool alternative arrangements for multiemployer pension plans. Under a hybrid plan arrangement, a plan creates two pools for withdrawal liability purposes: The old pool for the “old employers,” and a new pool for “new employers” (and those old employers who “withdraw” from the old pool and move to the new pool). New employers are generally assessed withdrawal liability under a direct attribution method, and are not subject to the unfunded vested benefit liability of the old pool. Old pool members who agree to withdraw, pay their old pool liability, and move to the new pool often receive special considerations such as discounted withdrawal liability, lower contribution increases, and waivers of some or all potential old pool mass withdrawal liability risk. Funds began seeking PBGC approval for hybrid plans as a way to generate revenue, entice new employers to participate, and provide old employers concerned about their withdrawal liability risk a way to pay their current liability and continue to participate at a reduced risk.
Since 2011 the PBGC has received approximately 20 requests for approval of hybrid withdrawal liability arrangements. Notable plans that have had their requests approved include the Central States and New England Teamsters Pension Funds. When the first plans submitted their requests, the PBGC had not been asked to — nor did it — take into consideration the benefits offered existing employers to move to the new pool. Some plans offered considerable deals in terms of discounted assessments, frozen contribution rates, and mass withdrawal relief. In its RFI, the PBGC admits that, had it known of the terms of the settlements offered employers to move to the new pools, that “could have affected PBGC’s analysis of whether the statutory criteria [for adopting an alternative assessment method] had been satisfied.” The PBGC has since begun to analyze proposed withdrawal liability settlement terms to see how that impacts any potential risk of loss and the overall validity of a proposed hybrid arrangement.
The PBGC in its RFI is particularly interested in learning about the terms and conditions that apply to new and existing employers that enter into hybrid arrangements, including alternative benefit schedules, special withdrawal and mass withdrawal payment terms, alternative withdrawal liability arrangements, and the pros and cons of such hybrid arrangements for participants and the PBGC as the insurer of multiemployer plans. Some of the more interesting queries include:
l How the PBGC should factor in discounted withdrawal liability settlements and changes to plan mass withdrawal liability rules in its determination of whether to approve a hybrid plan arrangement, and whether the PBGC should approve proposed withdrawal liability payment terms and conditions.
l Whether plans that have adopted a hybrid model have increased their contribution base (i.e., did they add employers or at least more participating employees as intended) or retain employers that otherwise would have withdrawn.
l Whether there have been legal challenges to the hybrid model, and what role collective bargaining played in creating and implementing such models.
l Whether plans are considering other alternative arrangements for withdrawal liability that would address the concerns addressed by the hybrid arrangement.
The PBGC also has asked what information and resources it can provide to interested parties about the innovative means plans are using in alternative withdrawal liability arrangements and what it can provide regarding the PBGC’s process for considering hybrid models.
What is unclear is where the responses to an Obama PBGC RFI may take the Trump PBGC. Will it assume more oversight of such arrangements, or less? Will it support alternatives or oppose them? As for current pending proposals, the PBGC claims the RFI is independent of and without prejudice to its ongoing review of those requests. Yet some of those requests have been pending for a very long time.
Interested parties have 45 days to submit their comments.