PBGC Partition Rules Give Clear Guidance, Will Help Preserve Plans, Commentators Say

Posted by on Thu, Jun 25, 2015 @ 12:06 PM

By Sean Forbes - BNA Construction Labor Report

Regulations issued by the Department of Treasury and the Pension Benefit Guaranty Corporation will help troubled multiemployer plans from sliding into insolvency, but not without forcing participants and beneficiaries to make hard choices, pension professionals told Bloomberg BNA in interviews conducted June 18-22.

 Under tight deadlines for implementing the Multiemployer Pension Reform Act, both agencies June 17 issued proposed and interim final rules intended to serve as guidance on both plan partitions and benefit suspensions (see related story).

 Before the MPRA was enacted, the PBGC had very limited authority to help troubled multiemployer plans improve their financial condition by partitioning off some of the unfunded liabilities. The MPRA, enacted as part of an appropriations bill (60 CLR 1127, 12/18/14), gave the PBGC expanded discretion to approve plan partitions in situations beyond employer bankruptcies.

 Partitioning Authority

“The interim final rule definitely telegraphs that the PBGC will be active in using its partitioning authority,” said W. Andrew Douglass, a shareholder and practice chair in the Chicago office of Polsinelli PC.

 The rules aren't burdensome and allow endangered plans to understand the procedures they must follow before the PBGC can use its authority to approve partitions, Douglass said.

Before the passage of the MPRA, the PBGC had partitioned only three plans in its 40-year history.

Randy G. DeFrehn, executive director of the National Coordinating Committee for Multiemployer Plans (NCCMP), said he is “very pleased” that Treasury and the PBGC stayed as close as possible to the statutory deadlines set for releasing regulations. The MPRA gave Treasury, the PBGC and the Labor Department 180 days from the date of enactment, Dec. 16, 2014, to issue guidance.

 The timeliness is important because “a couple of plans are very, very close to the edge” and “need to move as fast as possible,” DeFrehn said.

 The NCCMP's proposal to preserve multiemployer plans, called “Solutions Not Bailouts,” formed the basis for the MPRA.

 “The earlier they act, the less pain that has to be inflicted,” DeFrehn said.

 Robert E. Andrews, former New Jersey congressman and of counsel with Dilworth Paxson LLP in Washington, said the guidance is “a necessary step in the right direction.”

 After resigning from office in 2014, Andrews joined Dilworth Paxson's government affairs group and lobbied on behalf of the NCCMP to push the group's proposal through Congress.

 “The purpose of this law is to empower trustees to make wise decisions to protect pensions in difficult economic circumstances,” Andrews said. “And I think these rules now give those trustees some guidance on how to do that and what they can and cannot do.”

 Although the rules might give trustees a roadmap, few plans may be eligible to take advantage of the provisions, according to George M. Kraw, founder of the Kraw Law Group in Mountain View and Newport Beach, Calif.

 Partitions Before Reductions

The MPRA's most controversial amendment to the Employee Retirement Income Security Act allows multiemployer pension plans that are in danger of not being able to pay pensioners' benefits to voluntarily reduce benefits to themselves.

 Until it was amended under the MPRA, Section 411(d)(6) of the tax code, known as the “anti-cutback provision,” prohibited plans from reducing by amendment a participant's accrued benefits.

 Under the changes to the cutback rules, issued by Treasury and coordinated with the PBGC, a plan sponsor of a multiemployer plan in critical and declining status for a plan year can implement a suspension of benefits by plan amendment.

 Most plan trustees would prefer to partition their plans without benefit adjustments, but may have little choice than to propose reductions, according to Joshua Gotbaum, former PBGC director and guest scholar at the Brookings Institution. That's because the law requires plans to take “all reasonable measures,” including benefit adjustments, he said.

 If a plan submits a proposal stating it can save the plan with a benefit adjustment, “what the regs make clear is PBGC will say we will approve partition conditional on Treasury approving” the adjustment, Gotbaum said.

 Not all see the rules as wholly beneficial. Kraw said his “chief concern” is that participants should be protected from “unfair” pension reductions.

 “The complexity of the process will provide opportunities to manipulate the cutbacks in ways that inequitably favor certain participants over others,” he said.

 Repeal Seen as Unlikely

Companion bills introduced by Sen. Bernie Sanders (I-Vt.) and Rep. Marcy Kaptur (D-Ohio) would repeal the benefit cutback provisions of the MPRA (see related story).

 The Keep Our Pension Promises Act is supported by consumer and plan participant advocacy groups such as the AARP and the Pension Rights Center.

 Although the bill has support, Andrews said it isn't likely to advance.

 There are two “realistic choices” for how to help plans that aren't going to be able to provide their participants and beneficiaries the level of benefits that they were promised, Andrews said. The first is to let the plans collapse and go to the PBGC, which would result in “massive cuts” to people's pensions. The second is the rules “give trustees the tools to make careful decisions to protect as much of the pension as possible,” he said.

 “I completely agree with the sentiment in the senator's bill, but sentiment doesn't write the check,” Andrews said. “Somebody has to have the resources. I know that some people say put more money in the PBGC, but that's a totally unrealistic option. It's a great press release, but it is misleading to the pensioners.”

Gotbaum was equally blunt in his assessment of the repeal, pointing out that an earlier bill with similar provisions failed to gain traction.

 Sen. Robert Casey (D-Pa.) introduced a similar bill to the Sanders bill in 2010, which would have used taxpayer funds to help prop up the PBGC, Gotbaum said (56 CLR 423, 6/3/10), but the bill never advanced.

 Five years after the failed 2010 legislation, Sanders also is proposing to use taxpayer money to prop up the PBGC and multiemployer plans, Gotbaum said.

 “It will not happen,” Gotbaum said. “The danger is that by continuing to pretend that there is a tooth fairy, pension plans may decide not to go to the dentist, or may delay going to the dentist. People don't want to deal with the fact that some pension plans are bankrupt.”

 Plan trustees may have no choice but to comply with the MPRA's partitioning and pension reduction provisions, Gotbaum said.

 “I think the issue is whether or not trustees of some of these plans as fiduciaries are obligated to take advantage of MPRA” to save their plans, he said.

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