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June 2 — A proposed rule designed to pave the way for mergers of financially troubled multiemployer defined benefit plans with healthier ones was issued by the PBGC.
The rule, issued June 2, also governs the transfer of plan assets and liabilities.
Initial reaction from practitioners to the new rule, which amends many provisions of the existing regulation, was positive.
The Pension Benefit Guaranty Corporation has authority under the Multiemployer Pension Reform Act of 2014, also known as the Kline-Miller Act, to aid plan mergers once the agency determines a merger will benefit the participants of a plan without harming the participants and beneficiaries of the healthier plans involved.
The agency may also provide financial assistance to promote a merger if the merger is necessary to help a plan that is in critical and declining status under the MPRA avoid or postpone insolvency.
The proposed rule gives guidance to plans in requesting PBGC action relating to a merger. To pave the way for a merger, the agency can provide financial assistance, training, technical assistance, mediation and communication to those affected.
By combining resources with other plans to reduce administrative costs, mergers can make a plan more financially secure. Smaller plans in critical and declining status are expected to be the most likely to benefit from a merger.
Under the proposed rule, multiemployer plan sponsors considering a merger can have informal discussions with the PBGC before filing a formal request with the agency.
In addition, the proposed rule would neither require nor preclude plan sponsors from applying for both benefit suspensions under the MPRA and a facilitated merger under the statute.
The PBGC said in the rule that it recognized that “some plans may need both benefit suspensions and a financial assistance merger to become or remain solvent.”
Practitioners contacted by Bloomberg BNA said they were just wading into the new rule. However, their initial reaction was positive.
For example, Michael P. Kreps, a principal with Groom Law Group Chartered in Washington, told Bloomberg BNA in a June 2 e-mail that in “some cases, a merger might be just what the doctor ordered.” In enacting the MPRA, Congress wanted to give multiemployer plans and the PBGC more tools to address funding issues, he said. The proposed rule appears to be part of the PBGC's “good faith effort” to do that, he said.
Kreps, previously senior pensions and employment counsel for the Senate Health, Education, Labor and Pensions Committee, said it's “clear that the PBGC wants to make the rules workable.” If any pitfalls are discovered in reviewing the rule, he said he hopes that such “kinks can be worked out through the notice and comment process.”
The proposed rule is slated to appear in the Federal Register on June 6. The deadline for submitting comments is Aug. 5.
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The proposed rule is at http://src.bna.com/fwK.
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