President Signs Bill Reforming Multiemployer Pension Plan Rules

Practical Law Legal Update 9-592-5765 (Approx. 9 pages)

President Signs Bill Reforming Multiemployer Pension Plan Rules

by Practical Law Employee Benefits & Executive Compensation

Amendments to the Pension Protection Act of 2006

Certain portions of the PPA related to multiemployer plans were scheduled to sunset in 2014. The Act repeals the sunset provision and makes changes and enhancements to the multiemployer plan critical and endangered funding status rules, including:

Election to be in critical status earlier than required. A plan sponsor of a plan that is not in critical status but is projected to be in critical status by the plan actuary in any of the succeeding 5 plan years may elect to be in critical status for the current plan year within 30 days of the date of the annual actuarial certification. The Act also outlines notice and additional certification requirements.
Emergence from critical status. A plan will remain in critical status until the plan actuary certifies that the plan:
- does not fall within the definition of critical status;
- is not projected to have an accumulated funding deficiency for the plan year or the succeeding 9 plan years; and
- is not projected to become insolvent for any of the 30 succeeding plan years.
Plans that are meeting funding improvement plan requirements are not in endangered status if no additional action is required. A plan is not in endangered status if:
- the plan actuary certifies that, without additional action, the plan will no longer be in endangered status by the end of the tenth plan year after the plan year to which the certification relates; and
- the plan was not in critical or endangered status for the immediately preceding plan year.
The Act also outlines notice and additional certification requirements.
Corrective plan schedules when parties fail to adopt in bargaining. The Act imposes an initial contribution schedule and subsequent contribution schedule where the parties to a collective bargaining agreement fail to adopt a funding improvement plan or rehabilitation plan for an underfunded multiemployer plan.
Repeal of reorganization rules. The Act repeals the reorganization rules for multiemployer plans.
Certain contribution increases disregarded for withdrawal liability purposes. Benefit reductions and surcharges will be disregarded for purposes of determining withdrawal liability. Similarly, increases in contribution rates to meet the requirements of a funding improvement plan or rehabilitation plan will be disregarded, but once the plan emerges from endangered or critical status an increase will generally not be disregarded for purposes of determining withdrawal liability.
Guarantee for qualified preretirement survivor annuities. A qualified preretirement survivor annuity (QPSA) payable to a surviving spouse of a participant under an insolvent or terminating multiemployer plan will not be forfeitable solely because the participant had not died on the date that the plan became insolvent or terminated.
Expanded disclosure requirement. Subject to certain limitations, a plan administrator, upon written request by an appropriate party, must furnish a copy of certain documents listed in Section 111 of Division O.

Plan Mergers

Upon the request of the plan sponsor, the PBGC may take actions to facilitate the merger of two or more multiemployer plans if the transaction is:

In the interest of at least one of the plans.
Not expected to be adverse to the overall interests of the other plan(s).

If the PBGC determines that the merger is necessary to enable one or more of the plans to avoid or postpone insolvency, the PBGC can provide financial assistance, subject to certain limitations.

Plan Partitions

If the plan sponsor of an "eligible multiemployer plan" applies for a partition of the plan, the PBGC must make a determination on the application not later than 270 days after the date the application was filed. The plan sponsor must notify the participants of the application within 30 days after submission. A plan is an eligible multiemployer plan if:

The plan is in critical and declining status.
The PBGC determines that the plan sponsor has taken all reasonable measures to avoid insolvency.
The PBGC reasonably expects that partition is necessary for the plan to remain solvent and to reduce expected long-term losses for the PBGC.
The PBGC certifies to Congress that its ability to meet existing financial assistance obligations to other plans will not be impaired.
The cost of the partition is paid exclusively from the fund for basic benefits guaranteed for multiemployer plans.

Also outlined are the payment obligations of the plan that was partitioned to the participants and beneficiaries and to the PBGC.

The PBGC must notify Congress and affected beneficiaries within 14 days of the partition order.

Increase in PBGC Premiums

In an effort to strengthen the PBGC, the Act increases the flat-rate premiums that multiemployer plans pay to the PBGC from $13 to $26 per participant for plan years beginning after December 31, 2014. For plan years beginning after 2015, this figure will increase based on increases in the national average wage index.

Suspension of Benefits to Prevent Insolvency

Plan sponsors of plans in "critical and declining status" may temporarily or permanently reduce any current or future payment obligations owed to participants, if certain conditions are met, without violating the anti-cutback rules of the IRC in Section 411(d)(6). Critical and declining status, a new term, generally means a plan in critical status that is projected to become insolvent in the current plan year or within the next 14 plan years. The suspension will remain in effect until the plan sponsor provides benefit improvements or the suspension expires.

The suspension of benefits is subject to several limitations, including:

The monthly benefits of any participant may not fall below 110% of the benefit guaranteed by the PBGC.
Certain protections apply to participants and beneficiaries age 75 or more.
Benefits based on disability cannot be suspended.
The aggregate suspension of benefits must be reasonably estimated to achieve the level necessary to avoid insolvency.
The suspension of benefits must be equitably distributed across the participant and beneficiary population, taking various factors into account.

The plan sponsor can provide benefit improvements during a suspension of benefits, subject to certain limitations.

In addition, the plan sponsor must follow the notice and approval procedures:

Notice and approval by the Secretary of the Treasury. The plan sponsor must submit an application for approval to the Secretary of the Treasury. The Secretary of the Treasury will then publish a notice in the Federal Register and solicit comments on the application. The application must be approved or denied within 225 days after submission. Applications will be approved unless it is determined that the plan sponsor's determinations were clearly erroneous.
Notice to other necessary parties. The plan sponsor must send a notice, meeting certain content, form and manner requirements, to:
- plan participants and beneficiaries;
- employers that have an obligation to contribute under the plan; and
- any employee organization that represents the participants.
Participant ratification. Within 30 days of approval, the Secretary of the Treasury will administer a vote of the plan participants and beneficiaries. Unless a majority of all participants and beneficiaries vote to reject the suspension, the suspension will go into effect. If the Treasury determines that the plan is a "systemically important" plan, the suspension will be implemented regardless of the vote. The Secretary of the Treasury will then issue a final authorization to suspend no later than 7 days after the vote.

Substantial Cessation of Operations

The Appropriations Act amends ERISA Section 4062(e) (29 U.S.C. § 1362) to redefine "substantial cessation of operations" to mean a permanent cessation of operations at a facility which results in a workforce reduction of a number of eligible employees at the facility equivalent to more than 15% of the number of all eligible employees of the employer. If there is a "substantial cessation of operations" at a facility, as defined in Division P, the employer will be treated with respect to any single employer plan as if the employer were a substantial employer under a plan where more than one employer makes contributions. The Appropriations Act also allows an employer to elect to satisfy its liability for a substantial cessation of operations by making additional contributions to the plan. In certain circumstances, these rules do not apply to plans with limited underfunding.

ACA Exemption for Expatriate Health Plans

Expanding on earlier FAQ guidance issued by the DOL, HHS and Treasury, the Appropriations Act also exempts expatriate health plans from many requirements under the ACA (see our Legal Updates, Expatriate Plans Receive Extra Time for ACA Compliance and ACA FAQs Address Wellness Programs, Preventive Services, Expatriate Plans and More). The exemption applies to:

Expatriate health plans, both insured and self-funded.
Employers (though only in their capacity as plan sponsors of expatriate health plans).
Expatriate coverage offered by health insurers.

The exemption applies only to expatriate health plans issued or renewed after July 1, 2015, and the DOL, HHS and Treasury may issue regulations as necessary to implement the exemption.

Scope of Expatriate Health Plans

An expatriate health plan for purposes of the exemption must satisfy several criteria, including that:

Almost all of the plan's primary enrollees are "qualified expatriates" who satisfy certain requirements, for example that:
- their skills, qualifications or experience is such that it caused the individuals' employer to transfer them to the US for specific, employment-related purposes;
- they are determined by the plan sponsor to need health insurance in more than one country; and
- they are periodically offered multinational benefits (for example, compensation for cross border moving expenses).
Another classification of qualified expatriates applies to individuals who work outside the US for at least 180 days during a consecutive 12-month period that overlaps with the plan year.
The plan satisfies minimum coverage standards, including:
- coverage that is actuarially equivalent to "minimum value" under the ACA (as defined in 26 U.S.C. § 36B(c)(2)(C)(ii)).
- inpatient, outpatient facility, physician and emergency services.
If the plan covers dependent children, the coverage (in most cases) must be available until the adult child is 26 years old (see generally Practice Note, Coverage for Adult Children to Age 26 under the ACA).
The plan must satisfy certain requirements under ERISA that would apply but for the ACA's enactment (for example, the limits on preexisting condition exclusions under HIPAA's portability rules).

Some ACA Provisions Continue to Apply to Expatriate Plans

Expatriate health coverage offered to primary enrollees is treated as minimum essential coverage (an eligible employer-sponsored plan) under the ACA. Also, the exemption for expatriate health plans does not apply to ACA information reporting:

For employers that self-insure and insurers (see Practice Note, Information Reporting for Employers That Self-Insure and Insurers (Section 6055)).
Of health insurance coverage by large employers (see Practice Note, Information Reporting of Health Insurance Coverage by Large Employers (Section 6056)).

However, the Appropriations Act provides that statements furnished to individuals under these ACA reporting rules may be given electronically (in contrast to the DOL's existing rules for providing notices electronically, see Practice Note, DOL Safe Harbor for Electronic Disclosure of Plan Information). An insured individual will be deemed to have consented to receiving the Sections 6055 and 6056 in electronic form, unless the individual expressly refused to consent.

In addition, the ACA's tax on high-cost health coverage (see Practice Note, Cadillac Plan Excise Tax under the ACA) will apply in the case of qualified expatriates who are assigned (as opposed to being transferred) to work in the US.

Practical Impact

Divisions O and P of the Appropriations Act make significant changes to the multiemployer pension plan rules. Employers with multiemployer plans should review the rules to understand the clarifications and definitions. Distressed multiemployer plans should pay special attention to the benefit suspension provisions and determine whether they can take advantage of them to avoid bankruptcy.

The exemption for expatriate health plan suggests the government's acknowledgement that expatriate health plans face unique challenges in complying with the ACA. For example, but for the exemption it could be difficult for an expatriate health plan to contract abroad with an independent review organization, as required under the ACA's enhanced internal claims and external review requirements (see Practice Note, External Review under the ACA). That said, the exemption comes with some significant strings attached and certain compliance questions will need to be addressed in subsequent guidance.

President Signs Bill Reforming Multiemployer Pension Plan Rules | Practical Law