In an acknowledgment of uncommon market conditions and their corresponding effect on defined benefit pension plan funding, the Pension Benefit Guaranty Corporation (the PBGC) provided a welcome one-time waiver for some underfunded pension plans under Section 4010 of the Employee Retirement Income Security Act (ERISA). However, to qualify for the waiver, pension plan sponsors still need to timely notify the PBGC.
New guidance streamlines the methods for calculating withdrawal liability for multiemployer union pension plans that have adopted benefit reductions, benefit suspensions, surcharges or contribution increases—a common occurrence with underfunded multiemployer pension plans.
Earlier this year, the US Pension Benefit Guaranty Corporation (PBGC) issued a final rule, modifying PBGC regulations that apply to defined benefit pension plans. Among those changes were revisions to: (i) the reportable event notification requirements; (ii) annual financial and actuarial information (Form 4010) reporting; (iii) single-employer plan termination rules; and (iv) the premium rate calculation rules. The rule was generally effective on March 5, 2020, but some provisions have different applicability dates.
A significant issue facing many business owners is the impact of underfunded multiemployer pension plans. This is most common, but not exclusive to, unionized businesses. McDermott Partner and Global Head of the Firm’s Employee Benefits and Executive Compensation Practice Group Todd Solomon joins Domenic Rinaldi, owner and managing partner of Sun Acquisitions, for a recent episode of the M&A Unplugged Podcast to talk about multiemployer pension plans and discuss proactive steps owners can take to get ahead of future issues regarding pension participants.
The Pension Benefit Guaranty Corporation (PBGC) recently issued a press release announcing that the Multiemployer Insurance Program remains in a dire financial condition, nearing insolvency. The agency’s insurance program for multiemployer pensions, covering more than 10 million people, will likely run out of money by the end of fiscal year 2025, according to the FY 2018 Projections Report. On the other hand, the PBGC’s projection for the Single-Employer Program shows continued improvement. However, these positive projections are subject to a range of potential outcomes due to the Program’s sensitivity to economic conditions.
In a presentation at McDermott’s Employment and Employee Benefits Forum, Jeffrey Holdvogt discussed qualified plans, including student loan repayment benefits and the rise of DOL/IRS/PBGC plan activity. He also commented on the scrutiny on plan governance and fiduciary process materials. He addressed the legal challenges and mandates, such as state laws protecting against balance billing by out-of-network providers.
In certain cases of a facility sale, restructuring or cessation, recently released information by the Pension Benefit Guaranty Corporation (PBGC) leaves many unanswered questions about plan sponsor liability for single-employer defined benefit plans. Given the lack of clarity, these plan sponsors should continue to consult their lawyer in any type of transaction, restructuring or cessation that approaches a 15 percent demographic change in a plan sponsor’s controlled group over a three-year period.
The PBGC’s missing participants program, which previously applied only to single-employer defined benefit pension plans, has been expanded to defined contribution plans, multiemployer defined benefit plans and small professional service defined benefit plans that end on or after January 1, 2018. The revised program provides a helpful alternative for plan administrators of terminating defined contribution plans, and also includes welcome clarifications that enhance the program available to defined benefit pension plans.
In a major victory for church-affiliated hospitals, the US Supreme Court overturned three appellate court rulings and decided unanimously that church-affiliated hospitals can maintain their pension plans as “church plans” exempt from the Employee Retirement Income Security Act of 1974, as amended (ERISA), regardless of whether a church actually established the plan. Impacted health systems, and especially their management, should evaluate how best to document and demonstrate their common religious bonds and convictions with the church.
President-elect Trump proposes to reduce the maximum corporate income tax rate from 35 percent to 15 percent. While the effective date of any rate reduction is uncertain, it likely will not occur before 2018. Deductions claimed when tax rates are 35 percent are worth 20 percent more to the taxpayer than if the same deduction is claimed when rates are 15 percent. Thus, a deduction for a $10 million pension contribution is worth an additional $2 million if claimed in 2017 when the tax rate is 35 percent than if claimed in 2018 when the tax rate is 15 percent.
This article, Accelerating Deductions for Compensation and Benefits if Corporate Tax Rates Are Reduced, discusses how bonus accruals, welfare benefits and pension contributions that might be deducted in 2017 rather than 2018 without much, if any, in the way of additional costs or administrative burdens for the employer and no adverse tax consequences for the employees/participants. Accelerating the deductions for these amounts will result in considerable savings if rates are reduced.
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