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CCH® PENSION — 07/29/10

PBGC provides multiemployer DB plans with simplified method to disregard benefit reductions in calculating withdrawal liability

The PBGC has provided guidance in PBGC Technical Update 10-3 on a simplified method for applying the requirement under the Pension Protection Act of 2006 (PPA; P.L. 109-280) that a multiemployer defined benefit plan in critical status disregard certain benefit reductions in determining the plan's unfunded vested benefits in order to calculate an employer's withdrawal liability.

Under Code Sec. 432(e)(1), a multiemployer plan that is certified to be in critical status for a plan year must adopt a rehabilitation plan that consists of actions that will enable the plan to cease to be in critical status by the end of the rehabilitation period or, under certain circumstances, that consists of reasonable measures to emerge from critical status at a later time or to forestall possible insolvency. The plan sponsor must provide the bargaining parties with one or more schedules reflecting reductions in future benefit accruals and adjustable benefits, and increases in contributions that the sponsor determines are reasonably necessary to emerge from critical status in accordance with the rehabilitation plan. Under Code Sec. 432(e)(9)(A), benefit reductions under a rehabilitation plan are disregarded in determining a plan's unfunded vested benefits for purposes of calculating an employer's withdrawal liability. The PBGC is required under Code Sec. 432(e)(9)(C) to prescribe a simplified method to disregard the benefit reductions in calculating withdrawal liability.

Simplified method

Under the simplified method, the amount of unfunded vested benefits allocable to an employer that withdraws after the last day of the plan year in which the benefit reduction occurred is equal to the sum of (1) the amount determined in accordance with ERISA §4211 under the method in use by the plan and (2) the employer's proportional share, determined as of the end of the plan year prior to withdrawal, of the unamortized balance of the value of the reduced nonforfeitable benefits (i.e., affected benefits). The guidance describes how to determine the value of the affected benefits and the unamortized balance of the affected benefits. In addition, the PBGC explains that a plan that uses an allocation method that requires that unfunded vested benefits be reduced to reflect outstanding claims for withdrawal liability will disregard the amount of the claim attributable to reduced benefits. The PBGC notes that it may supersede this guidance with regulations in the future.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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