PBGC Addresses Withdrawal Liability Assumptions For First Time In New Proposed Rule

Published date24 October 2022
Subject MatterEmployment and HR, Retirement, Superannuation & Pensions, Employee Benefits & Compensation
Law FirmSeyfarth Shaw LLP
AuthorMr Seong Kim, Alan Cabral, Ronald Kramer and Ryan Tzeng

Seyfarth Synopsis: On October 14, 2022, the Pension Benefit Guaranty Corporation ("PBGC") published its proposed rule under ERISA Section 4213 (the "Proposed Rule"), which sets forth for the first time the agency's guidance on what interest rate assumptions may be used by a multiemployer plan actuary to calculate withdrawal liability.1 This follows-up the PBGC's interim final rule on Special Financial Assistance (SFA) published on July 12, 2021, in which the PBGC indicated its intent to propose a separate rule of general applicability under ERISA Section 4213. Comments to the Proposed Rule must be received by November 14, 2022 for agency consideration. Click here for our earlier Legal Updates titled "PBGC Finally Publishes Final Rule On Special Financial Assistance Program" and "PBGC Issues Much Anticipated Interim Final Rule On Special Financial Assistance Under American Rescue Plan Act."

The following is a high level summary of the key developments from the Proposed Rule.

Calculation of Withdrawal Liability

Under ERISA Section 4201, when a contributing employer withdraws from an underfunded multiemployer plan, the employer may be assessed "withdrawal liability," which represents its share of the plan's unfunded vested benefits ("UVBs"). Withdrawal liability is calculated by the plan's actuary as of the end of the plan year immediately preceding the plan year in which the employer withdraws (i.e., the valuation date), and the plan's total UVBs are calculated as the amount by which the present value of the nonforfeitable benefits exceeds the value of plan assets (as of the applicable valuation date).2

The present value of nonforfeitable benefits is determined by the plan actuary using the appropriate actuarial assumptions and methods. These assumptions include the interest rate that is used to discount future benefit payments to their present value (also referred to as the "discount rate") and the mortality table used to determine the probability that each benefit payment will actually be made.3

PBGC Guidance Under ERISA Section 4213(a)

Previously, guidance released by the PBGC regarding interest rate assumptions applied only to plans terminated by mass withdrawal. Those regulations prescribed the use of the average market price of a life annuity, determined by the PBGC from its quarterly survey of insurance companies, and which was used as the interest rate in terminations of single employer plans ("PBGC Plan Termination Rate"). This was true even though, since the adoption of the Multiemployer Pension Plan Amendments Act of 1980, Congress had provided the PBGC with the authority to establish actuarial assumptions for withdrawal liability purposes.

For ongoing (i.e., non-terminating) multiemployer plans, ERISA Section 4213(a) states, in relevant part:

"(a) Use by plan...

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