Seyfarth Synopsis: The Pension Benefit Guaranty Corporation (PBGC) recently issued a final rule intended to simplify the calculation of withdrawal liability for multiemployer plans that have adopted benefit reductions, benefit suspensions, surcharges, and contribution increases.

Under ERISA, multiemployer pension plans assess withdrawal liability on employers that withdraw from the plans. Withdrawal liability represents a withdrawing employer’s proportionate share of a plan’s unfunded vested benefits. The calculations of withdrawal liability can be highly complex.

Congress approved changes under the Pension Protection Act in 2006 and the Multiemployer Pension Reform Act in 2014 that permitted financially troubled plans to reduce certain benefits, impose benefit suspensions, assess surcharges, and impose contribution increases as part of a “funding improvement plan” or “rehabilitation plan.” Under the law, these changes are generally disregarded for purposes of calculating withdrawal liability. The PBGC’s final rule provides simplified methods that plans may use in excluding those changes from the withdrawal liability determination.

The final rule will apply to employer withdrawals from multiemployer pension plans that take place in plan years beginning on or after February 8, 2021. The PBGC expects the final rule will benefit multiemployer pension plans that adopt the simplified methodology by reducing the cost associated with the withdrawal liability calculation. Notably, however, it does not appear that the final rule will result in any significant changes to the amounts of withdrawal liability assessed on employers that withdraw from multiemployer pension plans. The rule only simplifies the way that those amounts are calculated.

Even though the PBGC issued this rule to “simplify” the calculation of withdrawal liability for certain plans, this area of law itself remains very complex. Employers that are considering withdrawal from a multiemployer pension plan, are engaging in reorganizations or transactions that might trigger a withdrawal, or that have been assessed withdrawal liability, should be sure to consult with counsel.

Additionally, the PBGC’s rule may be just the beginning of a busy year of legal developments affecting multiemployer pension plans. With the number of severely underfunded plans continuing to increase and a new administration about to begin, Congress is likely to soon consider new legislation to address the risk of insolvencies in multiemployer pension plans. Stay tuned for further developments.