Mergers and Transfers Between Multiemployer Plans

PENSION BENEFIT GUARANTY CORPORATION

29 CFR Part 4231

RIN 1212-AA69

Mergers and Transfers Between Multiemployer Plans

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Final rule.

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SUMMARY: The Pension Benefit Guaranty Corporation is amending its

regulation on Mergers and Transfers Between Multiemployer Plans to

clarify how the rules are to be applied to plans terminated by mass

withdrawal and to make other minor changes and clarifications in the

regulation.

EFFECTIVE DATE: June 3, 1998.

FOR FURTHER INFORMATION CONTACT: Deborah C. Murphy, Attorney, Office of

the General Counsel, suite 340, Pension Benefit Guaranty Corporation,

1200 K Street, NW., Washington, DC 20005-4026; 202-326-4024 (202-326-

4179 for TTY and TDD).

SUPPLEMENTARY INFORMATION:

Background

Under section 4231 (a) and (b) of ERISA, a merger, or a transfer of

assets and liabilities, between multiemployer plans must satisfy four

requirements unless otherwise provided in regulations prescribed by the

PBGC:

(1) The PBGC must receive 120 days' advance notice of the

transaction;

(2) Accrued benefits must not be reduced;

(3) There must be no reasonable likelihood that benefits will be

suspended as a result of plan insolvency; and

(4) An actuarial valuation of each affected plan must have been

performed as prescribed in section 4231(b)(4).

The PBGC's regulation on Mergers and Transfers Between

Multiemployer Plans (29 CFR part 4231) prescribes procedures for

requesting a determination that a merger or transfer satisfies

applicable requirements, allows the PBGC to waive the 120-day notice

requirement, and sets higher-level and lower-level requirements for

``safe harbor'' plan solvency tests and for valuation standards.

Whether the higher-level or lower-level requirements apply depends on

whether a ``significant transfer'' is involved.

On May 1, 1997, the PBGC published for public comment (at 62 FR

23700) a proposed rule to amend part 4231. One commenter submitted

comments. The final rule reflects changes made in response to the

comments.

Terminated Plan Transactions

The proposed amendment provided that transactions involving plans

terminated by mass withdrawal under ERISA section 4041A(a)(2) would

(except for ``de minimis'' transactions) be governed by the higher-

level valuation standard and ``safe harbor'' solvency test. The

proposed amendment also extended to ``de minimis'' terminated plan

transactions the requirement that actuarial valuation reports be

submitted to the PBGC.

The commenter expressed concern that the proposed amendment would

``have the adverse effect of making it more expensive for a large,

well-funded plan to rescue a small terminated plan by absorbing it into

a large, stable asset pool.'' The final regulation adopts the

commenter's suggestion that a plan not be subjected to the higher-level

valuation provisions simply because it was involved in a terminated

plan transaction if it were not otherwise ``significantly affected''

(see Secs. 4231.5 and 4231.9(b)(1)(iii)).

Other Changes

The commenter pointed out that for consistency with other

provisions, redesignated Sec. 4231.6(a)(2) should refer to ``the first

five years beginning on or after the proposed effective date'' (rather

than just ``after'' that date). The PBGC agrees and has made the

suggested change.

Paperwork Reduction Act

The collection of information requirements in Part 4231 as amended

have been approved by the Office of Management and Budget under control

number 1212-0022 (expires June 30, 2000). An agency may not conduct or

sponsor, and a person is not required to respond to, a collection of

information unless it displays a currently valid OMB control number.

Compliance With Rulemaking Guidelines

The PBGC has determined that this action is not a ``significant

regulatory action'' under the criteria set forth in Executive Order

12866.

The PBGC certifies that the amendment in this rule will not have a

significant economic impact on a substantial number of small entities.

This certification is based on the fact that the primary substantive

effect of the amendment is to liberalize certain existing requirements

and to clarify the application of existing requirements to a very rare

category of transactions, viz., multiemployer mergers and transfers

involving plans that have terminated by mass withdrawal. (The PBGC is

aware of only two such transactions since section 4231 of ERISA was

enacted.) Accordingly, as provided in section 605(b) of the Regulatory

Flexibility Act, compliance with sections 603 and 604 of the Regulatory

Flexibility Act is not required.

List of Subjects in 29 CFR Part 4231

Pensions, Reporting and recordkeeping requirements.

For the reasons given above, 29 CFR part 4231 is revised to read as

follows.

PART 4231--MERGERS AND TRANSFERS BETWEEN MULTIEMPLOYER PLANS

Sec.

4231.1 Purpose and scope.

4231.2 Definitions.

4231.3 Requirements for mergers and transfers.

4231.4 Preservation of accrued benefits.

4231.5 Valuation requirement.

4231.6 Plan solvency tests.

4231.7 De minimis mergers and transfers.

4231.8 Notice of merger or transfer.

4231.9 Request for compliance determination.

4231.10 Actuarial calculations and assumptions.

Authority: 29 U.S.C. 1302(b)(3), 1411.

Sec. 4231.1 Purpose and scope.

(a) Purpose. The purpose of this part is to prescribe notice

requirements under section 4231 of ERISA for mergers and transfers of

assets or liabilities among multiemployer pension plans. This part also

interprets the other requirements of section 4231 and prescribes

special rules for de minimis mergers and transfers. The collections of

information in this part have been approved by the Office of Management

and Budget under OMB control number 1212-0022.

(b) Scope. This part applies to mergers and transfers among

multiemployer plans where all of the plans immediately before and

immediately after the transaction are multiemployer plans covered by

title IV of ERISA.

Sec. 4231.2 Definitions.

The following terms are defined in Sec. 4001.2 of this chapter:

Code, EIN, ERISA, fair market value, IRS, multiemployer plan, PBGC,

plan, plan year, and PN.

[[Page 24422]]

In addition, for purposes of this part:

Actuarial valuation means a valuation of assets and liabilities

performed by an enrolled actuary using the actuarial assumptions used

for purposes of determining the charges and credits to the funding

standard account under section 302 of ERISA and section 412 of the

Code.

Certified change of collective bargaining representative means a

change of collective bargaining representative certified under the

Labor-Management Relations Act of 1947, as amended, or the Railway

Labor Act, as amended.

Fair market value of assets has the same meaning as the term has

for minimum funding purposes under section 302 of ERISA and section 412

of the Code.

Merger means the combining of two or more plans into a single plan.

For example, a consolidation of two plans into a new plan is a merger.

Significantly affected plan means a plan that--

(1) Transfers assets that equal or exceed 15 percent of its assets

before the transfer,

(2) Receives a transfer of unfunded accrued benefits that equal or

exceed 15 percent of its assets before the transfer,

(3) Is created by a spinoff from another plan, or

(4) Engages in a merger or transfer (other than a de minimis merger

or transfer) either--

(i) After such plan has terminated by mass withdrawal under section

4041A(a)(2) of ERISA, or

(ii) With another plan that has so terminated.

Transfer and transfer of assets or liabilities mean a diminution of

assets or liabilities with respect to one plan and the acquisition of

these assets or the assumption of these liabilities by another plan or

plans (including a plan that did not exist prior to the transfer).

However, the shifting of assets or liabilities pursuant to a written

reciprocity agreement between two multiemployer plans in which one plan

assumes liabilities of another plan is not a transfer of assets or

liabilities. In addition, the shifting of assets between several

funding media used for a single plan (such as between trusts, between

annuity contracts, or between trusts and annuity contracts) is not a

transfer of assets or liabilities.

Unfunded accrued benefits means the excess of the present value of

a plan's accrued benefits over the fair market value of its assets,

determined on the basis of the actuarial valuation required under

Sec. 4231.5(b).

Sec. 4231.3 Requirements for mergers and transfers.

(a) General requirements. A plan sponsor may not cause a

multiemployer plan to merge with one or more multiemployer plans or

transfer assets or liabilities to or from another multiemployer plan

unless the merger or transfer satisfies all of the following

requirements:

(1) No participant's or beneficiary's accrued benefit is lower

immediately after the effective date of the merger or transfer than the

benefit immediately before that date.

(2) Actuarial valuations of the plans that existed before the

merger or transfer have been performed in accordance with Sec. 4231.5.

(3) For each plan that exists after the transaction, an enrolled

actuary--

(i) Determines that the plan meets the applicable plan solvency

requirement set forth in Sec. 4231.6; or

(ii) Otherwise demonstrates that benefits under the plan are not

reasonably expected to be subject to suspension under section 4245 of

ERISA.

(4) The plan sponsor notifies the PBGC of the merger or transfer in

accordance with Sec. 4231.8.

(b) Compliance determination. If a plan sponsor requests a

determination that a merger or transfer that may otherwise be

prohibited by section 406(a) or (b)(2) of ERISA satisfies the

requirements of section 4231 of ERISA, the plan sponsor must submit the

information described in Sec. 4231.9 in addition to the information

required by Sec. 4231.8. PBGC may request additional information if

necessary to determine whether a merger or transfer complies with the

requirements of section 4231 and this part. Plan sponsors are not

required to request a compliance determination. Under section 4231(c)

of ERISA, if the PBGC determines that the merger or transfer complies

with section 4231 of ERISA and this part, the merger or transfer will

not constitute a violation of the prohibited transaction provisions of

section 406(a) and (b)(2) of ERISA.

(c) Certified change in bargaining representative. Transfers of

assets and liabilities pursuant to a certified change in bargaining

representative are governed by section 4235 of ERISA. Plan sponsors

involved in such transfers are not required to comply with this part.

However, under section 4235(f)(1) of ERISA, the plan sponsors of the

plans involved in the transfer may agree to a transfer that complies

with sections 4231 and 4234 of ERISA. Plan sponsors that elect to

comply with sections 4231 and 4234 must comply with the rules in this

part.

Sec. 4231.4 Preservation of accrued benefits.

Section 4231(b)(2) of ERISA and Sec. 4231.3(a)(1) require that no

participant's or beneficiary's accrued benefit may be lower immediately

after the effective date of the merger or transfer than the benefit

immediately before the merger or transfer. A plan that assumes an

obligation to pay benefits for a group of participants satisfies this

requirement only if the plan contains a provision preserving all

accrued benefits. The determination of what is an accrued benefit must

be made in accordance with section 411 of the Code and the regulations

thereunder.

Sec. 4231.5 Valuation requirement.

(a) In general. For a plan that is not a significantly affected

plan, or that is a significantly affected plan only because the merger

or transfer involves a plan that has terminated by mass withdrawal

under section 4041A(a)(2) of ERISA, the actuarial valuation requirement

under section 4231(b)(4) of ERISA and Sec. 4231.3(a)(2) is satisfied if

an actuarial valuation has been performed for the plan based on the

plan's assets and liabilities as of a date not more than three years

before the date on which the notice of the merger or transfer is filed.

(b) Significantly affected plans. For a significantly affected

plan, other than a plan that is a significantly affected plan only

because the merger or transfer involves a plan that has terminated by

mass withdrawal under section 4041A(a)(2) of ERISA, the actuarial

valuation requirement under section 4231(b)(4) of ERISA and

Sec. 4231.3(a)(2) is satisfied only if an actuarial valuation has been

performed for the plan based on the plan's assets and liabilities as of

a date not earlier than the first day of the last plan year ending

before the proposed effective date of the transaction. The valuation

must separately identify assets, contributions, and liabilities being

transferred and must be based on the actuarial assumptions and methods

that are expected to be used for the plan for the first plan year

beginning after the transfer.

Sec. 4231.6 Plan solvency tests.

(a) In general. For a plan that is not a significantly affected

plan, the plan solvency requirement of section 4231(b)(3) of ERISA and

Sec. 4231.3(a)(3)(i) is satisfied if--

(1) The expected fair market value of plan assets immediately after

the merger or transfer equals or exceeds five times the benefit

payments for the last plan year ending before the proposed

[[Page 24423]]

effective date of the merger or transfer; or

(2) In each of the first five plan years beginning on or after the

proposed effective date of the merger or transfer, expected plan assets

plus expected contributions and investment earnings equal or exceed

expected expenses and benefit payments for the plan year.

(b) Significantly affected plans. The plan solvency requirement of

section 4231(b)(3) of ERISA and Sec. 4231.3(a)(3)(i) is satisfied for a

significantly affected plan if all of the following requirements are

met:

(1) Expected contributions equal or exceed the estimated amount

necessary to satisfy the minimum funding requirement of section 412(a)

of the Code (including reorganization funding, if applicable) for the

five plan years beginning on or after the proposed effective date of

the transaction.

(2) The expected fair market value of plan assets immediately after

the transaction equal or exceed the total amount of expected benefit

payments for the first five plan years beginning on or after the

proposed effective date of the transaction.

(3) Expected contributions for the first plan year beginning on or

after the proposed effective date of the transaction equal or exceed

expected benefit payments for that plan year.

(4) Expected contributions for the amortization period equal or

exceed unfunded accrued benefits plus expected normal costs. The

actuary may select as the amortization period either--

(i) The first 25 plan years beginning on or after the proposed

effective date of the transaction, or

(ii) The amortization period for the resulting base when the

combined charge base and the combined credit base are offset under

section 412(b)(4) of the Code.

(c) Rules for determinations. In determining whether a transaction

satisfies the plan solvency requirements set forth in this section, the

following rules apply:

(1) Expected contributions after a merger or transfer must be

determined by assuming that contributions for each plan year will equal

contributions for the last full plan year ending before the date on

which the notice of merger or transfer is filed with the PBGC.

Contributions must be adjusted, however, to reflect--

(i) The merger or transfer,

(ii) Any change in the rate of employer contributions that has been

negotiated (whether or not in effect), and

(iii) Any trend of changing contribution base units over the

preceding five plan years or other period of time that can be

demonstrated to be more appropriate.

(2) Expected normal costs must be determined under the funding

method and assumptions expected to be used by the plan actuary for

purposes of determining the minimum funding requirement under section

412 of the Code (which requires that such assumptions be reasonable in

the aggregate). If the plan uses an aggregate funding method, normal

costs must be determined under the entry age normal method.

(3) Expected benefit payments must be determined by assuming that

current benefits remain in effect and that all scheduled increases in

benefits occur.

(4) The expected fair market value of plan assets immediately after

the merger or transfer must be based on the most recent data available

immediately before the date on which the notice is filed.

(5) Expected investment earnings must be determined using the same

interest assumption to be used for determining the minimum funding

requirement under section 412 of the Code.

(6) Expected expenses must be determined using expenses in the last

plan year ending before the notice is filed, adjusted to reflect any

anticipated changes.

(7) Expected plan assets for a plan year must be determined by

adjusting the most current data on fair market value of plan assets to

reflect expected contributions, investment earnings, benefit payments

and expenses for each plan year between the date of the most current

data and the beginning of the plan year for which expected assets are

being determined.

Sec. 4231.7 De minimis mergers and transfers.

(a) Special plan solvency rule. The determination of whether a de

minimis merger or transfer satisfies the plan solvency requirement in

Sec. 4231.6(a) may be made without regard to any other de minimis

mergers or transfers that have occurred since the last actuarial

valuation.

(b) De minimis merger defined. A merger is de minimis if the

present value of accrued benefits (whether or not vested) of one plan

is less than 3 percent of the fair market value of the other plan's

assets.

(c) De minimis transfer defined. A transfer of assets or

liabilities is de minimis if --

(1) The fair market value of the assets transferred, if any, is

less than 3 percent of the fair market value of all the assets of the

transferor plan;

(2) The present value of the accrued benefits transferred (whether

or not vested) is less than 3 percent of the fair market value of all

the assets of the transferee plan; and

(3) The transferee plan is not a plan that has terminated under

section 4041A(a)(2) of ERISA.

(d) Value of assets and benefits. For purposes of paragraphs (b)

and (c) of this section, the value of plan assets and accrued benefits

may be determined as of any date prior to the proposed effective date

of the transaction, but not earlier than the date of the most recent

actuarial valuation.

(e) Aggregation required. In determining whether a merger or

transfer is de minimis, the assets and accrued benefits transferred in

previous de minimis mergers and transfers within the same plan year

must be aggregated as described in paragraphs (e)(1) and (e)(2) of this

section. For the purposes of those paragraphs, the value of plan assets

may be determined as of the date during the plan year on which the

total value of the plan's assets is the highest.

(1) A merger is not de minimis if the total present value of

accrued benefits merged into a plan, when aggregated with all prior de

minimis mergers of and transfers to that plan effective within the same

plan year, equals or exceeds 3 percent of the value of the plan's

assets.

(2) A transfer is not de minimis if, when aggregated with all

previous de minimis mergers and transfers effective within the same

plan year--

(i) The value of all assets transferred from a plan equals or

exceeds 3 percent of the value of the plan's assets; or

(ii) The present value of all accrued benefits transferred to a

plan equals or exceeds 3 percent of the plan's assets.

Sec. 4231.8 Notice of merger or transfer.

(a) When to file. Except as provided in paragraph (f) of this

section, a notice of a proposed merger or transfer must be filed not

less than 120 days before the effective date of the transaction. For

purposes of this part, the effective date of a merger or transfer is

the earlier of--

(1) The date on which one plan assumes liability for benefits

accrued under another plan involved in the transaction; or

(2) The date on which one plan transfers assets to another plan

involved in the transaction.

(b) Who must file. The plan sponsors of all plans involved in a

merger or transfer, or the duly authorized representative(s) acting on

behalf of the plan sponsors, must jointly file the notice required by

this section.

[[Page 24424]]

(c) Where to file. The notice must be delivered to Reports

Processing, Insurance Operations Department, Pension Benefit Guaranty

Corporation, 1200 K Street NW., Washington, DC 20005-4026.

(d) Filing date. For purposes of paragraph (a) of this section, the

notice is not considered filed until all of the information required by

paragraph (e) of this section has been submitted. Information filed

under this part is considered filed--

(1) On the date of the United States postmark stamped on the cover

in which the information is mailed, if--

(i) The postmark was made by the United States Postal Service; and

(ii) The information was mailed postage prepaid, properly addressed

to the PBGC; or

(2) On the date it is received by the PBGC, if the conditions

stated in paragraph (d)(1) of this section are not met. Information

received on a weekend or Federal holiday or after 5:00 p.m. on a

weekday is considered filed on the next regular business day.

(e) Information required. Each notice must contain the following

information:

(1) For each plan involved in the merger or transfer--

(i) The name of the plan;

(ii) The name, address and telephone number of the plan sponsor and

of the plan sponsor's duly authorized representative, if any; and

(iii) The plan sponsor's EIN and the plan's PN and, if different,

the EIN or PN last filed with the PBGC. If no EIN or PN has been

assigned, the notice must so indicate.

(2) Whether the transaction being reported is a merger or transfer,

whether it involves any plan that has terminated under section

4041A(a)(2) of ERISA, whether any significantly affected plan is

involved in the transaction (and, if so, identifying each such plan),

and whether it is a de minimis transaction as defined in Sec. 4231.7

(and, if so, including an enrolled actuary's certification to that

effect).

(3) The proposed effective date of the transaction.

(4) A copy of each plan provision stating that no participant's or

beneficiary's accrued benefit will be lower immediately after the

effective date of the merger or transfer than the benefit immediately

before that date.

(5) For each plan that exists after the transaction, one of the

following statements, certified by an enrolled actuary:

(i) A statement that the plan satisfies the applicable plan

solvency test set forth in Sec. 4231.6, indicating which is the

applicable test.

(ii) A statement of the basis on which the actuary has determined

that benefits under the plan are not reasonably expected to be subject

to suspension under section 4245 of ERISA, including the supporting

data or calculations, assumptions and methods.

(6) For each plan that exists before a transaction (unless the

transaction is de minimis and does not involve any plan that has

terminated under section 4041A(a)(2) of ERISA), a copy of the most

recent actuarial valuation report that satisfies the requirements of

Sec. 4231.5.

(7) For each significantly affected plan that exists after the

transaction, the following information used in making the plan solvency

determination under Sec. 4231.6(b):

(i) The present value of the accrued benefits and fair market value

of plan assets under the valuation required by Sec. 4231.5(b),

allocable to the plan after the transaction.

(ii) The fair market value of assets in the plan after the

transaction (determined in accordance with Sec. 4231.6(c)(4)).

(iii) The expected benefit payments for the plan in the first plan

year beginning on or after the proposed effective date of the

transaction (determined in accordance with Sec. 4231.6(c)(3)).

(iv) The contribution rates in effect for the plan for the first

plan year beginning on or after the proposed effective date of the

transaction.

(v) The expected contributions for the plan in the first plan year

beginning on or after the proposed effective date of the transaction

(determined in accordance with Sec. 4231.6(c)(1)).

(f) Waiver of notice. The PBGC may waive the notice requirements of

this section and section 4231(b)(1) of ERISA if--

(1) A plan sponsor demonstrates to the satisfaction of the PBGC

that failure to complete the merger or transfer in less than 120 days

after filing the notice will cause harm to participants or

beneficiaries of the plans involved in the transaction;

(2) The PBGC determines that the transaction complies with the

requirements of section 4231 of ERISA; or

(3) The PBGC completes its review of the transaction.

Sec. 4231.9 Request for compliance determination.

(a) General. The plan sponsor(s) of one or more plans involved in a

merger or transfer, or the duly authorized representative(s) acting on

behalf of the plan sponsor(s), may file a request for a determination

that the transaction complies with the requirements of section 4231 of

ERISA. The request must contain the information described in paragraph

(b) or (c) of this section, as applicable.

(1) The place of filing. The request must be delivered to the

address set forth in Sec. 4231.8(c).

(2) Single request permitted for all de minimis transactions.

Because the plan solvency test for de minimis mergers and transfers is

based on the most recent valuation (without adjustment for intervening

de minimis transactions), a plan sponsor may submit a single request

for a compliance determination covering all de minimis mergers or

transfers that occur between one plan valuation and the next. However,

the plan sponsor must still notify PBGC of each de minimis merger or

transfer separately, in accordance with Sec. 4231.8. The single request

for a compliance determination may be filed concurrently with any one

of the notices of a de minimis merger or transfer.

(b) Contents of request. (1) General. A request for a compliance

determination concerning a merger or transfer that is not de minimis

must contain--

(i) A copy of the merger or transfer agreement;

(ii) A summary of the required calculations, including a complete

description of assumptions and methods, on which the enrolled actuary

based each certification that a plan involved in the merger or transfer

satisfied a plan solvency test described in Sec. 4231.6; and

(iii) For each significantly affected plan, other than a plan that

is a significantly affected plan only because the merger or transfer

involves a plan that has terminated by mass withdrawal under section

4041A(a)(2) of ERISA, copies of all actuarial valuations performed

within the 5 years preceding the date of filing the notice required

under Sec. 4231.8.

(2) De minimis merger or transfer. A request for a compliance

determination concerning a de minimis merger or transfer must contain

one of the following statements for each plan that exists after the

transaction, certified by an enrolled actuary:

(i) A statement that the plan satisfies one of the plan solvency

tests set forth in Sec. 4231.6(a), indicating which test is satisfied.

(ii) A statement of the basis on which the actuary has determined

that benefits under the plan are not reasonably expected to be subject

to suspension under section 4245 of ERISA, including supporting data or

calculations, assumptions and methods.

[[Page 24425]]

Sec. 4231.10 Actuarial calculations and assumptions.

(a) Most recent valuation. All calculations required by this part

must be based on the most recent actuarial valuation as of the date of

filing the notice, updated to show any material changes.

(b) Assumptions. All calculations required by this part must be

based on methods and assumptions that are reasonable in the aggregate,

based on generally accepted actuarial principles.

(c) Updated calculations. If the actual effective date of the

merger or transfer is more than one year after the date the notice is

filed with the PBGC, PBGC may require the plans involved to provide

updated calculations and representations based on the actual effective

date of the transaction.

Issued in Washington, D.C., this 28th day of April 1998.

Alexis M. Herman,

Chairman, Board of Directors, Pension Benefit Guaranty Corporation.

Issued on the date set forth above pursuant to a resolution of

the Board of Directors authorizing its Chairman to issue this final

rule.

James J. Keightley,

Secretary, Board of Directors, Pension Benefit Guaranty Corporation.

[FR Doc. 98-11784 Filed 5-1-98; 8:45 am]

BILLING CODE 7708-01-P