The Pension Benefit Guaranty Corporation (PBGC) has proposed a regulation to provide interest rate assumptions that may be used for calculating withdrawal liability under a multiemployer defined benefit plan. In general, the proposed regulation would permit the use of the interest rates under section 4044 of the Employee Retirement Income Security Act of 1974, as amended, (ERISA), the interest rate(s) used for purposes of determining the minimum funding requirements for the plan, or an interest rate between the two rates.

Comments on the proposed regulation are due by November 14, 2022. The proposed regulation is found here.

Background

Under ERISA, an employer that withdraws from a multiemployer defined benefit plan can be liable to the plan for withdrawal liability, which is based upon the employer’s allocable share of unfunded vested benefits as of the end of the plan year preceding the plan year in which the employer withdraws from the plan. The calculation of the unfunded vested benefits requires that the plan’s actuary determine the present value of vested benefits. The present value of vested benefits is based upon the actuarial assumptions used by the plan’s actuary with the most significant assumption being the interest rate (often referred to as the “discount rate”).

Section 4213 of ERISA authorizes the PBGC to issue regulations providing the actuarial assumptions used to determine withdrawal liability. Up to now, the PBGC has not issued any regulations. However, due to recent litigation,¹ the PBGC issued the proposed regulation to clarify what interest rate may be used to determine the present value of vested benefits for withdrawal liability purposes.

The Proposed Regulation

The proposed regulation provides that withdrawal liability may be determined using actuarial assumptions that satisfy the requirements of proposed section 4213.11. The interest rate used to determine the plan’s liability for vested benefits will satisfy the requirements if it is the single effective interest rate for the interest assumption that is

• The interest rate assumption specified in section 4044.52 of the PBGC regulations (the 4044 rate) for the date as of which withdrawal liability is determined,
• The interest rate assumption used for minimum funding purposes for the plan year in which the date as of which withdrawal liability is determined falls², or
• An interest rate between the two rates.

The other actuarial assumptions will satisfy the requirements if each assumption is reasonable (taking into account the experience of the plan and reasonable expectations) and, in combination, offer the actuary’s best estimate of anticipated experience under the plan.

Proposed Effective Date

The PBGC has proposed that the regulation will apply for withdrawals that occur on or after the effective date of final rules.

Cheiron Observations:  The proposed regulation would appear to resolve some of the issues that have arisen in recent years with respect to the interest rate used to determine withdrawal liability. However, the wording of the regulation raises a number of questions. If the interest rate can be within a specified range, who decides what rate will be used? Can the interest rate be decided after a plan year is over?

 The proposed applicability date applies to withdrawals after the effective date of the final rule. Therefore, it appears that employers who withdrew prior to the effective date and employers who withdrew after the effective date would have different regulatory requirements apply even though the withdrawal liability for each is determined at the same date (the end of the prior plan year). Plans may want to raise these issues in any comments submitted.

Comments Requested

The PBGC requested comments as to whether the final rule should specify a narrower range of interest rates, and whether the top of the range should be lower than the interest rate used by the plan for minimum funding purposes. The PBGC is also interested in knowing whether the final rule should restrict the options to only specific methodologies for determining interest rates.

The PBGC also requested comments on whether the final rule should specify actuarial assumptions other than the interest assumptions. Also, if PBGC were to specify actuarial assumptions under section 4213(a) of ERISA that included demographic assumptions, such as the mortality table assumption, that differ from the plans’ demographic assumptions, would plans be unlikely to use the PBGC assumptions because of those differences? If so, why?

Comments may be submitted by any of the following methods:

• Federal eRulemaking Portal: https://www.regulations.gov. Follow the online instructions for submitting comments.
• E-mail: comments@pbgc.gov with subject line “4213 proposed rule”.
• Mail or Hand Delivery: Regulatory Affairs Division, Office of the General Counsel, Pension Benefit Guaranty Corporation, 445 12th Street SW, Washington, DC 20024-2101.

Commenters are strongly encouraged to submit comments electronically. PBGC expects to have limited personnel available to process comments submitted on paper by mail or hand delivery. Until further notice, any comments submitted on paper will be considered to the extent practicable.

All submissions received must include the agency’s name (Pension Benefit Guaranty Corporation, or PBGC) and refer to the 4213 proposed rule. All comments received will be posted without change to PBGC’s website, www.pbgc.gov, including any personal information provided. Do not submit comments that include any personally identifiable information or confidential business information.

Cheiron pension consultants can assist you in providing any comments to the PBGC on the proposed regulation.

Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Accordingly, we do not provide legal services or tax advice.

¹ See footnote 3 of the preamble to the proposed regulation for a list of cases.

² This will be the interest rate used for the plan year preceding the plan year in which the withdrawal occurred.