PBGC Issues Proposed Regulation on Facilitated Mergers

Fall 2016Articles For Your Benefit

The Pension Benefit Guaranty Corporation (PBGC) recently issued a proposed rule clarifying the agency’s authority to facilitate mergers of multiemployer pension plans. The proposed rule implements some of the statutory changes made by Section 121 of the Multiemployer Pension Reform Act of 2014 (MPRA) by granting the PBGC authority to facilitate mergers by providing training, technical assistance, mediation, communication with stakeholders and support with related requests to other government agencies or, if necessary, to help a plan in critical and declining status to avoid insolvency, financial assistance.

Because its ability to provide financial assistance is limited, the PBGC must determine three factors before providing financial assistance: (1) that the merger is necessary for at least one of the plans involved to avoid insolvency; (2) that the assistance will limit the PBGC’s expected long-term loss; and (3) assistance will not affect the PBGC’s ability meet existing obligations. Accordingly, the proposed regulation includes changes to the actuarial valuation rules and solvency test requirements for plan mergers.

Updated Solvency Test

Instead of the current requirement that assets of the merged plan equal or exceed five times the benefit payments for the last plan year ending before the proposed merger or transfer, the assets of the merged plan would now need to equal or exceed 10 times such payments. Likewise, the test projecting that assets, expected contributions and investment earnings will exceed expected expenses and benefit payments is also expanded to a 10-year test.

For plans that are “significantly affected,” the requirement that expected contributions meet five years of future minimum funding is also extended to 10 years, as is the requirement that assets after the merger or transfer equal or exceed expected benefit payments. The proposed rule retains the requirement of contributions for the first post-transaction year to exceed expected benefit payments.

Finally, the current funding level requirement is modified from covering a minimum of normal cost and 25-year amortization of liabilities to normal cost and 15-year amortization of liabilities. The proposed regulation would modify the definition of “significantly affected plan” by adding plans that are either in endangered status or critical status and engage in a transfer. The definition of a significantly affected plan would continue to include transfers of 15 percent or more of assets and certain transfers or mergers after a mass withdrawal.

Facilitated Mergers Without Financial Assistance

To qualify for a facilitated merger, a plan sponsor must provide the following information to the PBGC not less than 270 days prior to the proposed effective date of the merger, in addition to meeting the criteria for a merger or transfer provided under ERISA Section 4231: (1) a notice of the merger or transfer; (2) a copy of the merger or transfer agreement; (3) a request for a compliance determination; and (4) a detailed narrative description with supporting documentation demonstrating that the proposed merger is in the interests of participants and beneficiaries of at least one of the plans and is not reasonably expected to be adverse to the overall interests of the participants and beneficiaries of any of the plans. The plan sponsor must also notify the PBGC if any of the information provided changes before the completion of the merger.

Facilitated Merger With Financial Assistance

If the plan sponsor is also requesting financial assistance, it must submit additional documentation, including detailed actuarial and financial data such as rehabilitation or funding improvement plans, the most recent Form 5500 filing, plan census data and a list of all withdrawal liability payments recovered over the previous five years. Additionally, it must submit further information regarding the proposed structure of the merger, including the total amount of financial assistance requested for each year and a narrative description of the significant risks and assumptions relating to the proposed financial assistance merger and the projections provided and a demonstration that financial assistance is necessary to ensure that the merged plan stays solvent.

The PBGC notes that while it expects that in most cases the financial assistance it provides in a facilitated merger will be in the form of periodic payments, the structure of financial assistance will be decided on a case-by-case basis.


While it is expected that the proposed rule will help stabilize both multiemployer plans and the PBGC by increasing the base of contributing employers, reducing administrative costs and improving investment results, the requirements for a facilitated merger are extensive. Accordingly, the PBGC is encouraging plan sponsors to engage in informal consultations to better understand the complexities of the new rule prior to submitting a formal application.