PBGC issues multiemployer withdrawal liability proposal

The Pension Benefit Guaranty Corp. has proposed a rule to provide interest rate assumptions for determining a withdrawing employer's liability to a multiemployer plan.

An employer that withdraws from an underfunded multiemployer plan may owe withdrawal liability to the plan under the Employee Retirement Income Security Act of 1974. The amount owed represents the withdrawn employer's share of the amount by which the present value of the plan's non-forfeitable benefits exceed the value of the plan's assets, according to the PBGC. The plan actuary determines the present value of the plan's non-forfeitable benefits using actuarial assumptions and methods.

The proposal, announced Thursday, clarifies that it is reasonable to base the interest assumption used to calculate an employer's withdrawal liability on the market price of purchasing annuities from private insurers, such as by use of settlement interest rates prescribed by PBGC under Section 4044 of ERISA, the PBGC said in a news release. The proposed rule would specifically permit the use of 4044 rates either as a standalone assumption or combined with funding interest rate assumptions, to determine withdrawal liability.

If enacted, the proposal would "tend to increase the amount of withdrawal liability that multiemployer plans assess and collect," the proposal stated. The PBGC added that it believes more plans would use 4044 rates, which would tend to increase withdrawal liability and a plan's collection of withdrawal liability assessments.

The PBGC in the proposal said the rule would have other benefits if implemented, including reducing the litigation risk for plans associated with selection of the interest assumption.

"The delay, expense, and risk of adverse judgment involved with arbitration and litigation may provide an incentive for plans to settle withdrawal liability claims for less than the amount of withdrawal liability determined by the plan actuary, even in cases where the withdrawal liability dispute is not arbitrated or litigated," the PBGC said in the rule proposal.

Also, increasing plans' withdrawal liability income would have an overall positive effect on the multiemployer system and PBGC's multiemployer program, the PBGC said.

Christian E. Benjaminson, chairman of the American Academy of Actuaries' multiemployer plans committee, said higher withdrawal liability could benefit plan solvency. "PBGC wants to encourage sustainability of the program for the plan and for themselves, and I think this helps accomplish that," he said.

The proposal's public comment period will end Nov. 14.