A hotly debated (and litigated) issue for multiemployer pension plans in recent years has been the appropriate interest rate to determine a multiemployer pension plan’s liabilities when calculating the plan’s underfunding for withdrawal liability purposes.  The Pension Benefit Guaranty Corporation (the “PBGC”) is now poised to end the debate.  The PBGC proposes to allow multiemployer pension plans to use any interest rate for withdrawal liability calculations as long as it is not below the PBGC’s conservative mass withdrawal interest rate or greater than the pension plan’s investment return assumption.

This story starts back in 1980.  While the rest of us were dancing to Blondie’s “Call Me,” Congress was busy authorizing the PBGC to issue regulations on the actuarial assumptions and methods used to calculate withdrawal liability.  Congress also provided that, absent any regulations by the PBGC, multiemployer pension plans must use actuarial assumptions and methods that “in the aggregate, are reasonable (taking into account the experience of the plan and reasonable expectations) and which, in combination, offer the actuary’s best estimate of anticipated experience under the plan.”

For 42 years, the PBGC has not issued regulations on the appropriate actuarial assumptions and methods for withdrawal liability calculations.  In the meantime, the alternative codified by Congress has been interpreted in a number of ways, leading to a high degree of variability in how withdrawal liability is calculated from plan to plan and, more recently, the possibility of split courts on the issue.  The interest rate used is a key driver in the calculation of withdrawal liability because the lower the interest rate used to calculate the present value of a pension plan’s future benefit liabilities, the higher the present value of those liabilities and, consequently, the higher the withdrawal liability.

In the summer of 2021, the PBGC indicated that regulations on this issue were forthcoming, and the proposed regulations finally landed on October 14.  The proposed regulations, if finalized in their current form, would allow pension plans to use any rate within the permitted spectrum – rates as low as the PBGC’s mass withdrawal interest rate and as high as the pension plan’s investment return assumption – without any specific methodology or constraints on how the rate is selected.

All other actuarial assumptions and methods are acceptable under the proposed regulations as long as “(1) [e]ach is reasonable (taking into account the experience of the plan and reasonable expectations), and (2) [in] combination, they offer the actuary’s best estimate of anticipated experience under the plan.” The proposed regulations do not change the PBGC-mandated conservative interest rate that must be used for mass withdrawal liability calculations.

Importantly, however, the proposed regulations do not (and likely could not) modify how an employer’s withdrawal liability payment schedule is calculated or the 20-year cap that applies even if the employer will not fully pay its nominal liability in 20 years under the payment schedule.  Thus, even if a pension plan lowers the interest rate it uses for withdrawal liability calculations in accordance with the proposed regulations, employers that are already subject to the 20-year cap on installment payments should not see any change in their effective withdrawal liability exposure.  The impact of these proposed regulations is, therefore, plan and employer-specific.

Although the changes in the proposed regulations would apply only to the calculation of withdrawal liability that is triggered after the final regulations are effective, the PBGC specifically noted that the proposed rule does not preclude the use of an interest rate permitted by the regulations before the final regulations are effective.  As a result, we may continue to see disputes between plans and employers withdrawing prior to the proposed rule’s effective date.

Comments on the proposed regulations are due by November 14, 2022.

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Photo of Justin Alex Justin Alex

Justin S. Alex is a partner and a member of the Employee Benefits & Executive Compensation Group.

Justin advises private and public companies on all aspects of their employee benefits and executive compensation arrangements and plans.

He has particular experience in the sports…

Justin S. Alex is a partner and a member of the Employee Benefits & Executive Compensation Group.

Justin advises private and public companies on all aspects of their employee benefits and executive compensation arrangements and plans.

He has particular experience in the sports industry, including employment agreements for executives at the highest levels in professional sports and the benefits and compensation aspects of numerous transactions, such as the purchase or sale of the Buffalo Bills, Carolina Panthers, Denver Broncos, Miami Marlins, Real Salt Lake, OL Reign, Professional Hockey Federation, the Licensed Sports Group Unit of VF Corporation, Full Swing Golf, and ADPRO Sports and the merger of the USFL and XFL.

In addition to Justin’s general benefits and compensation practice, he spends a significant portion of his time advising employers and financial sponsors with respect to pension liabilities. He also advises the trustees of collectively bargained single-employer and multiemployer plans with respect to their administration, governance, and legal compliance.

Prior to joining Proskauer, Justin was an attorney in the Office of Chief Counsel at the Pension Benefit Guaranty Corporation (PBGC), where he gained significant experience with pension termination and underfunding issues. He also represented the PBGC in corporate bankruptcies and federal court litigation.

Justin is the co-editor of Proskauer’s Employee Benefits & Executive Compensation Blog and the Hiring Partner for Proskauer’s Washington office. He also serves on the Board of the Washington Lawyers’ Committee for Civil Rights and Urban Affairs.

Photo of Robert Projansky Robert Projansky

Robert M. Projansky is a partner in the Employee Benefits & Executive Compensation Group and is currently a member of the Firm’s Executive Committee.

Rob has a broad practice advising both multiemployer and single employer clients on all issues related to the legal…

Robert M. Projansky is a partner in the Employee Benefits & Executive Compensation Group and is currently a member of the Firm’s Executive Committee.

Rob has a broad practice advising both multiemployer and single employer clients on all issues related to the legal compliance and tax-qualification of ERISA-covered pension and welfare plans. Rob’s clients include the largest and highest-profile U.S. media and entertainment industry clients, as well as a broad range of Fortune 500 companies.

In the multiemployer context, he serves as counsel to the boards of trustees of a number of large and small funds and frequently assists clients in addressing issues related to the funding of defined benefit pension plans, including zone status, benefit suspensions, special financial assistance and withdrawal liability. He also advises these clients on healthcare compliance, cybersecurity and government investigations. In addition, his practice includes advising corporate clients on their responsibilities related to multiemployer plans, with particular expertise on the impact of multiemployer and collectively bargained plans in corporate transactions.

Rob has extensive experience advising corporate clients regarding general compliance issues and fiduciary compliance matters, including plan asset and prohibited transaction issues. He also has addressed a myriad of issues related to complex plan investments, including negotiation of separately managed and collective investment vehicles for both traditional and alternative investments such as hedge funds, private equity funds and fund-of-funds vehicles.

Rob is described in Chambers USA as “incredibly smart and creative, and a really effective, zealous advocate” who “adroitly communicates complicated ERISA matters to clients in understandable language and well-timed levity.”  He is a widely sought after speaker on topics related to employee benefits, fiduciary, cybersecurity and government investigations and speaks each year at the annual conference and various other conferences sponsored by the International Foundation of Employee Benefit Plans, the largest educational organization in the employee benefits industry. Rob currently serves as one of the nine Advisory Directors on the Board of Directors of the International Foundation.

Photo of Jesse T. Foley Jesse T. Foley

Jesse T. Foley is a labor associate and a member of the Employee Benefits & Executive Compensation Group.

Jesse has a diverse practice advising multiemployer and single-employer clients on all aspects related to the legal compliance and tax qualification of ERISA-covered pension and…

Jesse T. Foley is a labor associate and a member of the Employee Benefits & Executive Compensation Group.

Jesse has a diverse practice advising multiemployer and single-employer clients on all aspects related to the legal compliance and tax qualification of ERISA-covered pension and welfare plans, including the treatment of such plans in corporate financings and transactions.

In his multiemployer practice, he represents a number of funds, counseling Boards of Trustees on issues such as healthcare compliance, cybersecurity, government investigations, benefit suspensions, special financial assistance, and withdrawal liability.

In addition, Jesse advises private, public, and not-for-profit employers on all aspects of their non-qualified executive compensation arrangements.  Jesse regularly provides technical and practical advice on the establishment, administration, and continued legal compliance of deferred compensation and supplemental employee retirement plans.  As part of his practice, Jesse routinely negotiates and drafts equity plans and awards, employment agreements, severance agreements, and other compensation arrangements.

Jesse earned his J.D. degree from the University of Southern California, where he was a Senior Editor of the Southern California Law Review.  Jesse also frequently contributes to Proskauer’s Employee Benefits & Executive Compensation Blog.