PBGC Proposes Actuarial Assumptions for Determining Multiemployer Plan Withdrawal Liability

On October 14, 2022, the Pension Benefit Guaranty Corporation (PBGC) proposed a rule to provide interest rate assumptions that may be used by a plan actuary to determine a withdrawing employer’s liability under a multiemployer defined benefit pension plan. Generally, a multiemployer plan is a collectively bargained plan involving two or more unrelated employers.

Under ERISA, an employer that withdraws from a multiemployer plan may be liable to the plan for withdrawal liability, which generally represents the employer’s share of any unfunded vested plan benefits (UVBs) at the end of the preceding plan year. UVBs are the amount by which the present value of vested plan benefits exceeds the value of plan assets as of the valuation date.

For plans terminated by mass withdrawal, under ERISA Section 4044, the PBGC has specified actuarial assumptions for valuing benefits, including interest rates used to discount future benefit payments to their present value. These interest rates (the 4044 rates) are based on the average market price of a life annuity, which the PBGC determines from a quarterly survey of insurance companies. The 4044 rates can be used to approximate the cost of purchasing annuities to cover benefits.

For ongoing (i.e., non-terminating plans), the PBGC had not previously issued regulations regarding assumptions for determining withdrawal liability. Accordingly, in these situations, present value determinations have been based on actuarial interest and mortality assumptions and methods that represent the plan actuary’s best estimate of anticipated experience under the plan. According to the PBGC, three common approaches actuaries use to determine the appropriate discount rate include:

1. Use of interest rate assumptions for determining minimum funding requirements.
2. Use of the 4044 rate assumptions for determining the present value of vested benefits in a terminating single-employer pension plan or in a multiemployer plan that has incurred a mass withdrawal.
3. A blend of both the minimum funding and 4044 rate assumptions.

However, the actuarial estimates have often resulted in disputes between the plan and employers that are resolved through arbitration or litigation.

Therefore, the proposed rule makes clear that using the 4044 rates, either as a standalone assumption or combined with minimum funding interest assumptions, represents a valid approach to selecting an interest rate assumption to determine withdrawal liability in all circumstances. In the PBGC’s view, it is reasonable to base the amount needed to settle an employer’s share of the liability on the market price to purchase annuities from private insurers because this represents the amount necessary to fund the promised pension liability, considering investment risk, mortality risk and other asset and liability risks. The proposed rule specifically permits the use of the 4044 rates, the minimum funding rates, or an interest rate anywhere in the spectrum between the 4044 rates and minimum funding rates. Actuarial assumptions and methods (other than interest assumptions) would have to be reasonable and offer the actuary's best estimate of anticipated experience under the plan.

PBGC requests comments on various aspects of the proposed rule, including whether the final rule should restrict the allowable options to a narrower range of interest rates or to only specific methodologies for determining interest rates and whether the final rule should specify assumptions or methods other than interest assumptions. Comments must be received by November 14, 2022, to be assured of consideration.

The changes in this proposed rule would apply to the determination of withdrawal liability for employer withdrawals from multiemployer plans that occur on or after the effective date of the final rule. Employers who participate in multiemployer plans should be aware of the guidance and consult with counsel or plan actuaries for further information.

Federal Register: Public Inspection: Actuarial Assumptions for Determining an Employer's Withdrawal Liability »