You can also watch/listen to this webinar on our Berwyn University page.
On August 15, 2024, Mariah Becker, NCCMP, Jim Donofrio, PBGC, and Randy McGeorge, Morgan Lewis, joined Berwyn’s Lindsey Tate-McDonald to discuss current and proposed pension related guidelines around several important topics: missing participants, SFA, DMF, audits and more.
Lindsey:
So let’s go ahead and get started today with what’s happening on the hill. We have an amazing set of panelists which will allow them to introduce themselves now. Randy, why don’t you go ahead 1st and then Mariah and Jim, you can introduce after.
Randy:
I’m Randy McGeorge. I’m a partner with law firm of Morgan Lewis and the executive compensation Employee Benefits Group and a large portion of my practice focuses on multi-employer plan issues.
Mariah:
My name is Mariah Becker. I am the director of Research and Education for the National Coordinating Committee for Multi-employer Plans or the NCCMP. For those of you who aren’t familiar with what NCCMP does, we are the folks who work on behalf of all of the multi-employer pension and health plans in the country to try to provide advice and education so that when Congress and the agencies write laws and regulations, they do it in ways that support the really good benefits that multi-employer plans provide.
Jim:
Hi, I’m Jim Donofrio. I’m the director of negotiations and restructuring actuarial department at the Pension Benefit Guarantee Corporation, which means that my department supports the cases that come into the agency both on both under our single employer.
Most of the work I’ve been doing has been in connection with the special financial assistance for financially distressed multi-employer plans. It’s an outgrowth of the American Rescue Plan Act of 2021 and supports in the aggregate $80 billion in support of multi-employer pension. So it’s a pretty big deal. I’m really happy to be here today to talk to you.
Lindsey:
Great. Thanks. And then as a quick introduction to myself, my name is Lindsay Tate MacDonald. I will be your host over the next hour. I’m the director of our project-based services here at the Berwyn Group. The Berwyn Group helps pension funds, insurance carriers and 401K plans locate missing participants, identified decedents and also helps identify beneficiaries.
So on to our first topic, which is, as Jim mentioned, special financial assistance. So Jim, let’s start with you. We are assuming special financial assistance is taking most of your time these days. If you wouldn’t mind, please give us an update about the program and some of the key learnings.
Jim:
Thanks, Lindsey. So and as I mentioned the program was authorized under the Big Coronavirus relief package that was enacted in 2021 and it called for the pension Benefit Guarantee Corporation to administer a program in which taxpayer funds would be extended to qualifying multi-employer plans in an amount which will allow them to pay full plan benefits through 2051. The program was activated because there were quite a few, we project about 200 multi-employer plans who will meet the qualification standards.
Many of them were either already insolvent or on the brink of insolvency. The biggest one, and perhaps the one that is most visible is the Central States Teamsters Fund, which applied for and received special financial assistance in the amount of $36 billion. That was the, you know, far and away the biggest recipient. In aggregate, the 200 plans altogether will receive about $80 billion and we paused our review of special financial assistance applications in late 2023 and early 2024 due to some Inspector General’s Office findings about the need to ensure that the participant census data underlying the calculation is that determine the amount of SFA that the plan would get has been scrubbed of all deceased participants and you know that was a pretty major change in our procedure and like I said we paused for several months.
But we are back in business. We issued several application approvals recently. We opened up our application portal, to 15 new plans over the last six weeks or so and we are proceeding on our review of those applications. Because we only have 120 days to render an opinion on an application, we’ve had to meter the acceptance of applications and that necessitated the initiation of a waiting list. Originally, there were almost 120 plans on that waiting list.
We have accepted, I think it’s 40, almost fifty of them. So we’re down to 68 plans on the waiting list and we are going to work through that as quickly as we possibly and responsibly can in order to review all applications during the life of the program, which will conclude at the end of 2026.
Lindsey:
And Jim’s application is process is still open. So what changes do you see coming to the program, if any?
Jim:
So the applications are being accepted as our capacity to review them permits. We take them, like I said, off of a waiting list. And you know, you can look on our website, PBGC.gov if you needed to details but eligible plans can put their name on the waiting list by just submitting a simple e-mail. The plans at the top of the waiting list will be given a week or two of notice that we’re about to open the application portal when we open the portal. It’s open for a week’s time. Our pattern has been to take five applications at a time. When those five have come in and we will temporarily close the portal again.
But like I said, we have every expectation of being able to work through all plans on the waiting list and all eligible plans by the time the program concludes at the end of 2026. The only real change in procedure that is recent is the change referenced earlier about the need to conduct what we’re calling an independent death audit so applicants are encouraged to contact us ahead of time and submit their participant census data, which we then match against the Social Security full death master file and provide back to the plan a listing of all the Social Security numbers that appear in that database.
We asked the plan at that point to propose how those matching records should be treated in their SFA projections. We then work with the plan to finalize how those records should be treated and then the plan is in a position to complete its application and submit it in full compliance with the requirement for an independent death audit. Other than that, our procedures really have not changed since the issuance of our final regulation in mid-2022.
Lindsey:
What would likely have happened if the Butch Lewis Act had not been passed? Do you have any thoughts on that?
Jim:
There were quite a few plans that appeared to be on the brink of insolvency and the states Teamsters plan for example was projecting that they would become insolvent, and I believe it was 2025 and our research department reliably projected that at the Central States Teachers Fund went insolvent and we started paying for the partial guarantee that applies to multi-employer plans that our guarantee fund would also become insolvent at that point. The only resources that we would have the ongoing payment of premiums and the participants in those insolvent plans would be receiving literally pennies on the dollar. It would have been a very disruptive circumstance.
Mariah:
Yeah, for sure. And I mean, just if you wouldn’t mind if I could add a couple of thoughts there, right. So I mean we’ve, Jim is very rightly focusing on the impact on the participants in the plans that we’re facing insolvency that there would have been consequences even beyond those plans that were projected to become insolvent and the participants in those plans, right?
If you think about multi-employer plans in a employer who participates in the multi-employer plan often doesn’t participate in only one multi-employer plan right. So as those plans are approaching insolvency and facing insolvency that will have consequences for the employers that participate in those plans which weakens their positions. And some of the rest of the plans in the system.
So it really could have had far reaching consequences even beyond the, you know, 200ish plans that Jim says that PBGC has identified it really could have had kind of ripple consequences throughout the rest of the multi-employer system. So this was an incredibly important piece of legislation for the plans who are receiving assistance, but it’s important for every other plan in the multi-employer system as well because some of those downstream consequences could have been and would have been had this, you know legislation not been in place and those plans actually become insolvent.
Randy:
And on the contributing employer side, it could have had ripple effects even there too, because a lot of contributing employers had contractually committed to their employees to make whole any benefits that were lost as a result of insolvency and limitations to the PBGC payments.
Lindsey:
OK, Maria, you spend a lot of time on the hill. Are there any other bills being considered that you would apply to these funds?
Mariah:
So I will say one that you know, got a lot of attention towards the beginning part of this year was the Ghost Act. That was something that was intended to address a very specific set of issues that were coming up at the time. And as Jim mentioned that there were, you know prior to November of last year there were the plans that we’re making applications needed to run their census file against the so-called master death file just to make sure that all of the participants for whom they were expecting to pay benefits were actually due benefits and hadn’t passed away at that point in time. That was intended to address a very specific set of circumstances that PBGC is addressing, I know Jim had already identified.
If you take a look at PBCC’s website where they’re tracking all of the status of all of the applications, it shows that you know some of those early plans that may have had participants in their census file who had since passed away. They are have already made any repayment that was due to the PBGC and that process has started all of the rest of the plans continue to work through that process and are in the process of, you know, figuring out any amounts of overpayment that might have occurred and making that repayment back to the PBGC. So there was a lot of attention about that at the beginning part of the year.
But the situation that it was intended to address is being resolved and it’s being resolved without the need for legislation. So you know at this point, you know, there’s not a whole lot going on directly on the hill that is focused on the Special Financial Assistance Program right now.
Lindsey:
Randy, anything else that you would like to add from a regulation perspective?
Randy:
Yeah, there’s some recent litigation, legal developments that may potentially have an impact on the PBGC’s SFA regulations relating to withdrawal calculations that I thought might be worthy of discussion. And just by way of background, in a June decision in a case called Loper Bright, the Supreme Court overturned a long-standing doctrine of judicial deference that they gave in the case called Chevron versus EPA. And that’s commonly referred to as the Chevron deference. Essentially, that doctrine required Courts to defer to reasonable agency interpretations.
Of the law, whenever Congress didn’t clearly address an issue by statute. So now, although the courts may still give consideration to well-reasoned agency interpretations, they aren’t required to give them absolute deference as a matter of law. And in this regard, the debtors and stakeholders in the bankruptcy matter have issued a legal challenge to the PBGC.
Regulation that requires multi-employer plans that receive SFA to basically phase in the assets when the when you’re calculating withdrawal liability and in terms of the scope of the issue that is at play here and the IRC matter it’s I’ve seen different estimates of the number, but it’s estimated that YRC owes something in the neighborhood of 6 to 80 billion dollars in withdrawal liability assessments to multi-employer plans. So if the PBGC regulations are upheld, the ramification of that would be that the creditors, the other creditors would get less and the stakeholders would likely get something and if whereas if the PBGC regulation were set aside under this new law per bright test, the SFA monies that plan received would be counted as plan assets immediately and the plans resulting with withdrawal liability claims would be significantly smaller, such that in this YRC Matter, the other creditors, but could potentially get paid in full and the equity holders might, might actually get a significant recovery.
Lindsey:
And Jim, is there anything else you would recommend to those who are considering applying or for those that have already applied?
Jim:
No, not really. The folks that have already applied either have already got their money or we’re, you know, still reviewing their application and we’re typically in fairly close touch during the review period and you know the only word of advice I have for those yet to apply. Make sure you’re on the waiting list and please complete your independent death audit procedure before application. While it may not be absolutely required, it is very much in your interest to do so because there are a limited number of bites to the apple, so to speak.
If you apply and you have to withdraw your application because you know there’s a there was a glitch in the calculation or an assumption that’s not quite reasonable. You can only do that three times before going to the back of the line. And you certainly don’t want to use up one of those tries.
Just getting the depth audit completed. So if you have any questions at all, please direct them to the agency by e-mail using the address multi-employer program at PBGC dot. Gov. And your inquiry will get to the right person and you’ll get a response very quickly.
Randy:
Jim, in terms of the applications that you’re getting, what items are most closely scrutinized and right for basically the plan being kicked out or additional inquiries being made, is it how they’re assessing litigation risk and costs or some other actuarial considerations or something else that I haven’t even thought through there?
Jim:
Yeah, at at the risk of sounding too self-serving, Randy, we look at everything, OK? We look at everything and they’re very complicated applications, very fact intensive and there are a lot of projection assumptions that go into the calculations and we look at, we look at the facts and we look at the assumptions now a less lived response to your question is that the so-called business assumptions often are the most scrutinized element, and those business assumptions include the projection of work levels, which typically is an element of the projection of contributions.
OK, the projection of withdraw liability payments, which is, you know, which is very complicated because it depends on the, you know, the capacity of the withdrawing to continue to make payments and you know and in many cases, a projection must be made of withdrawals that occur in the future, and so that’s extremely complicated. And then the last business assumption is the administrative expenses associated with the with running the plan.
And because these plans are financially troubled, they typically are declining in terms of their scale. The number of participants is going down, and so it’s a tricky, it’s a complicated calculation to try to tell what administrative expenses will be in the future when the number of participants the plan covers might be a fraction of what it is right now, so those the business assumptions really get a lot of attention, but we really do look at everything I’m not. I’m not joking. It’s very complicated.
Mariah:
And just to give just to give Jim an application and opportunity to say to say the e-mail address again you know I really would strongly encourage plans to work with the PBGC. You know PBGC is very open about this process. They’re very willing to talk with you about your plan about your situation, about the things that they do offer to have you know preconference or pre application meetings with folks. If there are particular assumptions or data issues or things that you’re just not really sure what you want to do or how you should do it or you know what the best approach is, they’re not going to tell you know. Yes this is OK. And no, this is not OK.
They can’t do that until they have the application in hand, but they’re very willing and very open to having those kinds of discussions and In advance, so please do use that, use that opportunity to reach out to the address that Jim gave and you know, get one of those meetings, set up. Have those conversations with people. You know, this can be a back and forth you know, with like an actual, real conversation as you’re putting that application.
I mean, I’m drawing a contrast to some previous processes that were not nearly so open. This not with PBGC, of course, but this this process is very transparent. And that’s an amazing thing.
Jim:
So let me pick up on that and thank you so much for raising the subject, Mariah. So we call that process informal pre application consultation and it’s informal because we are not going to give you anything frankly.
To rely on because we can only make a definitive ruling on any particular issue when it’s presented to us in the context of a completed application, we’re not trying to be difficult. It’s just that, you know you, the context matters. But what we can do is talk to you about how we would approach the review of a particular matter.
That you may be asking about and I think that would in many cases help you to decide how you should approach it. And we, you know, we’re as open as we can be in these circumstances. A little bit of context for anybody that hasn’t been close to this, this process. Last time I looked, only about half of the applications are approved the very first time that they’re submitted and that’s no reflection on either the honesty or the competence of the people submitting application.
They’re very complicated and, you know, and the vast majority of the with withdrawn applications are over issues of honest misunderstandings, but it is in our agencies interest as well as in the applicant’s interest to get this done without a withdrawal.
You know it, it really is. So we encourage these informal pre application consultations to try and smooth the way through and you know give each applicant their best shot at getting an approval on the 1st application and the weighted way to set this up again is to use the e-mail and I will take Mariah up and repeat it. It’s multi-employer program at pvcc.gov. We’d love to hear from you.
Mariah:
And the and the other you know, the other thing I would add there just again to give Jim an opportunity to plug the program. So you know Jim mentioned earlier that you know as you’re coming up to the top of the wait list, you will get an opportunity to have PBGC take a look at your census file.
And run it against the Death master file in advance of the application. And I again, I would encourage folks to take advantage of that. This is a process, right? So it’s not like it’s going to be a you know, we send you the data file here. The people who have passed away and we’re done right. There will be some reconciliation that’s needed at that point. You’ll have to, you know, is this the right Joe?
Smith that I have in my database you know, is this Michael Smith the same as my Mike Smith? There’s there will be some reconciliation that needs to be.
One and you’ll need to go through each of the folks at the PBGC identifies and decide how you’re going to treat them as part of your application process. So just as a, it would be much better. It is much better. It will make things go much faster and more smoothly if you are able to do some of that work.
Before your name comes to the top of the list and you know you’re all, everybody’s in a scramble to get the application in so you know, as Jim said, you know, you will get the opportunity to do that in advance of the application. And it’s really a good idea.
Lindsey:
- Yeah. And just an additional note to that, alright, so there are recommendations like you said about using a third-party resource out there to help identify decedents such as the Berwyn Group. Jim, from your perspective, is there any thoughts or recommendations when considering some of these third-party resources to use?
Jim:
My only my only thought on that Lindsey is that our regulation continues to require that applicants submit a report from a third-party death audit vendor. The fact that we require the independent death audit and the match against the Death Master File has not altered that at all. So if you are, you know, if you anticipate preparing an SFA application, you really need to attend to arranging for such an audit.
Lindsey:
Great. That’s a great segue to our next topic, which is the death master file. So Mariah, we hear whispers of the full DMF being made available to pensions again. Can you speak to that and provide?
Mariah:
Yeah. So that would be wonderful, right? So just some background for folks. As you know, if you’ve been doing this for a while, you know plans used to have access to the full Social Security master death file as a way to confirm that the census files that you’re using to do your annual evaluations and calculate your liabilities are correct, right?
And they include the right people and you know, they’re just the right information on which you should be basing your liabilities, plans lost access to that data file back in 2013 because of some changes that Congress made very, you know, coming from the right place, right? I mean, they were very concerned about issues of privacy and making sure you know who has access and protecting the privacy of people and who has passed away.
It’s coming from the right place, but sort of the downstream consequences of that mean that plans really lost access to one of the best sources of information out there of who has, who has passed away and who’s owed a benefit going forward.
So this whole conversation and that’s coming up as part of the special Financial Assistance program, has absolutely reopened that conversation for all plans outside of the special financial assistance. Shouldn’t all plans have access to the best information of who they should be paying or who should they should be expecting to pay in the future? And that’s definitely part of the conversation at this point. It’s really important to remember that when Congress restricted that access, one of the things that they did is the federal agencies like PBGC and others are really only allowed. They do have access to that file, but they’re really only allowed to use it in the fulfillment of their statutory duties.
Mariah:
Right, so they can use it as they are looking at the special financial assistance plans, as they’re reviewing those applications, that sort of thing, but they can’t just throw the doors wide open and say, Yep, we’ll take a look at any data file that you wanna send us for any plan who wants to send it to us. That’s not something that’s permitted right now. So, in order for plans to have access to something like that, that would take some legislative action.
It would take a piece of legislation to allow plans to have access to that file again. And that’s definitely something that folks are pushing for on the hill. You know what the likelihood of that is moving forward, you know it remains to be seen at this point. It’s certainly part of the conversations. But as of yet, I haven’t seen a piece of legislation that enacts this like a push to get it on a year end, bill or anything like that, that I’m sure you have noticed with everything going on in the World Congress is, you know, moving a little slowly on some things, the last little bit. So whether this is something that could make it onto a package or something like that I don’t really know.
But I will say that it is definitely part of the conversation and we and others are very much, you know, pushing that conversation with folks on the hill to help them understand how plans are limited by not having access to that file and how much plans would benefit and people and the participants in those plans would benefit from correct liabilities and the government would benefit, and the agency would benefit and everything there. So it’s definitely part of the conversation where we see it going, I think is a little iffy at this point, but it’s certainly part of the conversation going forward.
Lindsey:
Great. Now we’re moving on to missing participants. So very hot topic over the years, especially after the guidelines came out in 2021. Randy, starting with you, a few recent changes such as Secure 2.0 Act for example, impacts locating people and missing participants. Can you speak to those?
Randy:
Sure. Essentially there are two different provisions of Secure 2.0 that impact missing participants that I think are worthy of discussion today. The 1st and the most significant is that secure 2.0 by its terms requires the Department of Labor to establish a so-called retirement savings lost and found.
Online database by December 29th of this current year. Statutorily requires plan sponsors to provide information to the Department of Labor. Beginning in 2025, in order to populate the database in terms of how large structured and who can use the database and for what purpose. The lost and found database is designed to be something that plan participants can access and find their retirement savings accounts by allowing them to go on and search the database and then contact plan administrators of the doll to help them. The deal also will have the ability to search for missing participants.
In the database and contact plan administrators, if missing participants are located but notably plan sponsors are not going to be permitted to use the database to find missing participants on their end, which is pretty significant and like what we just talked about on the master death file in April of this year.
The Department of Labor proposed an information collection request to help it populate its forthcoming lost and found that base and essentially, the proposal asks plan administrators to voluntarily provide certain listed information, and indicates that it can attach that information to its forthcoming 2023 annual report on IRS Form 5500, the DOL indicated that they had intended to populate the database with information that was provided by plant sponsors to the IRS using data that it collects from plans regarding terminated investing parties defense.
However, the IRS unfortunately indicated that it had confidentiality concerns under applicable law and releasing that information to Department of Labor to use in this regard, the Department of Labor sought comments on the collection request and according to published reports I’ve seen they’ve received about 13 comment letters from various plans, service providers, industry groups and even some participants. The criticisms of the Department of Labor’s proposal are pretty significant and include things like it calls for a whole lot of excessive amounts of participant and plan information that’s not specifically called for by the Secure 2.0 statutory provisions. They also indicated that it that the policy fails to detail the specific cyber security measures that are going to be put in place by the Department of Labor to protect the data and privacy of plan participants.
So thereby from a plan sponsors perspective, it raises some fiduciary issues for the plan trustees in that regard. How do they know that that is going to be protected if they don’t know what the cyber security measures are at this point? Other comments were that they didn’t coordinate with the IRS mainly because the that wasn’t willing to populate the information as to Secure 2.0 requires to integrate any existing databases that they have already in place and building out these databases and one law.
A comment or criticism that was made by multiple commentors was that the rules contain and not so veiled threats or warnings that the information requested should already be in plan sponsors possession. And they noted that the DOL has the right to audit plan sponsor with respect to plan data so that raises concerns from plan sponsors perspective as to whether or not the DOL is going to use the information it gets to basically see who needs to be audited because their information is not up to par to DOL standards.
Even though the Secure 2.0 requirements apply by statute beginning with the 2024 year, the information request actually asks plans to go back to the first moment that they became subject to ERISA, or if they can’t do that as far back as possible. So that seems to many of the commentators to be an overreach and some commentators actually suggest that as an alternative to these plan disclosures or in addition to these plan disclosures by the plan sponsors, that reestablishment of former governmental programs to locate the missing participants might be a good way to go.
Like the old IRS and SSA. Letter forwarding programs that were taken away a few years back as well as the death master file. So on this one, in terms of action items for plan sponsors, #1 would be to decide whether or not to voluntarily disclose information. And I haven’t heard of a big wave of plan sponsors that are willing and ready to do that at this point, but maybe more significantly and closer in time, lookout for the final or change guidance and any changes that come about as a result of those comments.
The second provision of Secure 2.0 that impacts missing participants are the so-called new auto portability rules, and here specifically, plan sponsors can automatically transfer retirement account balances between one and $7000. Now under Secure 2.0, which is up from $5000 under prior law to an IRA with a default IRA provider, and then such amounts can be automatically transferred from there to the retirement plan of the employees new employer without the participants affirmative consent.
Accounts with less than $1000 can simply be distributed out to the to the participants, and the purpose of this new law as it relates to missing participants is basically to give plans the opportunity to shed small account balances before that, contact information for former employees becomes stale and to give the IRA providers that, that, that same opportunity by giving them to the new employers where they have active information and records regarding the those individuals.
So there are some disclosure requirements that apply when making those automated automatic transfers. You have to provide participants with information about the benefits or potential benefits of this auto portability and how they can opt out if they affirmatively choose to opt out and you have to give them some advance notice and use Secure 2.0 processes for transferring those account balance that adequately protects the participants privacy and information.
Lindsey:
Great, Mariah, Jim, anything else you want to add there?
Mariah:
The only thing I’d like to do is to really reinforce some of the comments that Randy was making particularly around that retirement loss, and found that the Department of Labor is working on, you know, on its face. Again, this is something that would be incredibly beneficial to participants and to well, everybody working in the United States, right? So this is a thing that would be very, very helpful.
But you know, particularly with regard to the RFI, that DOL came out with on the voluntary lost and found the idea that plans would voluntarily submit their data for to populate this kind of database. You know, I think plans have very similar concerns, particularly to the ones that the IRS released. Right, which you know it is a fiduciary concern for the trustees of these plans where their obligation, their only obligation is to the participants of the plan to make sure that they are protecting their data, protecting their privacy, protecting their information.
You know, plans have a great deal of very sensitive personal information for all of their participants. And you know, it’s one thing if plans are required to send information on the form 5500 on something else, right, if it is a requirement where the Department of Labor or some other agency says you must send me this information, that’s one thing. But where it’s a decision that the trustees are making to voluntarily send that data where they too, just like the IRS don’t know what the cyber protections are. They don’t know what the security of the systems are. They don’t. There’s a lot of information that they don’t know about, how that data is going to be, you know, cared for and maintained and used.
You know, going forward, so you know from a from a trustee perspective as they’re thinking about how, how and whether to send this information over to the DOL to populate this kind of database there. I’m hearing strong concerns particularly from multi-employer plans about you know how they can make sure that data is protected and preserved and made secure over at the Department of Labor.
So I think it’s, you know, may not be the response that the department had been hoping for in response to that RFI. You know as Randy’s correct, the way that the RFI was set up it makes a lot of statements about how plants should already have this information.
And it’s not so much a concern about whether plans have the information it really is thinking through, how they want to approach that decision of whether they can and whether they should share it with somebody outside of the plan.
So you know, just to reinforce some of the some of the concerns that Randy was identifying, you know there were a number of comments filed NCCMP filed comments of course identifying many of these concerns. But yeah it really is a tough situation right, where plans may support the idea of having folks be able to find their benefits like this, but there are real implementation concerns at the moment that there’s not a clear path through yet and of course, as Randy said, if we’re going to populate this database, it would be really nice if the plans had access again.
Simply to make sure that you have the correct people in your plan and you are holding liabilities, holding assets, holding benefits for the people to whom they are owed.
Lindsey:
One more topic that we want to cover today about regulations and legislation. So are there any other changes coming in legislation that we haven’t spoken about?
Mariah:
So the only other thing that I would put on folks radar is just some stuff that we’re watching towards the end of this year. Randy identified a couple of changes that already came about as part of Secure 3.0, There’s a very broad bill that touches many, many, many, many things.
But you know, with any kind of piece of legislation like that, there is pretty much always a technical corrections piece that goes along with it, where Congress and staff make any tweaks, you know, as people are living with and working with the legislation, once it’s become law.
It’s not uncommon to identify, you know, things that may need to change. You know, as you’re just putting it into place and there are a couple of things to watch for in there that relate particularly to multi-employer 401K plans.
So there’s a couple of provisions that came about as part of Secure 2.0 that are particularly challenging for multi-employer 401K plans because of the way that our fund offices work and because of the way that data exists between the employers that you know participate in the plan and the plan itself and the participants and some of those have to do with two pieces.
One is the auto enroll auto escalate pieces that are part of that where a plan would need to automatically enroll of participants and an employer would need to automatically enroll a participant when they hired a new person. And each year on their anniversary their contributions would need to escalate as they go forward.
I think kind of right off the bat you can see some of the challenges that would create for multi-employer plans where you know a participant may work for a number of different employers over the course of a year over the course of a month, even from week to week, right. So how do you identify who’s a new employee? How do you identify what contribution level they should be at?
And besides which, a lot of this is already covered as part of your collective bargaining agreement. So there’s a lot of things where it’s unclear how all of these pieces would interact. And that’s a thing that just really is not working correctly, will not work correctly for multi-employer 401K plans so to watch in the technical corrections, there’s some hope that disconnect will be addressed in ways that, you know, make that work for multi-employer plans.
And the other piece of it is again particularly challenging for multis, which we may not be looking at the technicals that may need to be a regulatory change. But I know folks are looking at it has to do with the requirements that catch up contributions are made for high earners are made on an after tax basis that dealing with that breakpoint between pretax and post-tax contribution is incredibly challenging for multi-employer plans and it’s really unclear how that provision would apply to multi-employer plans because the definition of who is a high earner is based on who has paid more than $140,000 from the employer sponsoring the plan in the year prior.
Although I think as everybody knows on this call, the employers aren’t the sponsors of multi-employer plans, right? The sponsor of a multi-employer plan is with the Board of trustees. So it’s really not clear how that limit would apply, whether it would apply on a whole plan basis, whether it would apply on an employer by employer base.
This or whether it really shouldn’t apply to multi-employer plans at all, right? So this is something that we are watching both towards the end of this year as well as Treasury comes out with the remainder of the guidance that’s out there to implement Secure 2.0 that’s one of the things that we’re watching.
The eyes on the regulatory agenda is in Jim’s ballpark, although not his department. So we are very anxiously awaiting the final regulations dealing with how assumptions are determined for calculating withdrawal liability.
So as everybody knows, for the last 40 years, there have been basically 2 paths in the law for figuring out what those assumptions are either the actuaries best estimate of anticipated experience under the plan or whatever PGC says. OK. So we are very anxiously awaiting the guidance that will fill in what PBGC says is OK, as assumptions for withdrawal liability going forward. So that’s on their Reg agenda for October there. We are all very anxiously awaiting any updates on that.
And I will, you know, kindly not poke him about that because I know it is not his department. But this is a thing that we are very anxiously awaiting.
Lindsey:
Randy, any additional comments?
Randy:
Yeah, I’m just going to bring up the withdrawal liability interest regulations just because of the wave of recent case law that’s come out specifically, several court cases have come out in recent years indicating that the use of significantly lower interest rates for withdrawal liability purposes than are used for minimum funding purposes and reporting purposes are is not permissible when the rate used is not the actually best estimate of future performance and the proposed regulations that the PBC put out said it, you know from their purposes going forward that wouldn’t matter and anymore they can use the PBC rates or any rates in between the PBGC rates and the current funding rates, so very interested to see what the final regulations will say on that score.
Lindsey:
All right, so we do have several questions that have come in throughout the hour. So we’ll move on to the question part of the webinar. “After our plan receives the SFA funds, what are the obligations with maintaining the population? Did the PBGC provide guidance on that?” Anyone in particular want to take that question?
Jim:
I can start off. There are a number of conditions on special financial assistance that the plan has to attend to. There are restrictions on how SFA money is invested. There is the obligation to submit an annual statement of compliance. There are conditions around transactions such as plan mergers and transfers.
There’s withdraw like the one that Randy talked about earlier that’s at issue in the Yellow Freight bankruptcy. There’s a condition on how withdrawal liability is calculated. So you know there’s a great deal of ongoing attention that plans need to pay after they receive special financial assistance.
So the premise of your question said maintaining, maintaining the plan population, that’s really not something that we that we have a direct interest in. But I can tell you that the regulations around special financial assistance and the conditions were intended to help the plans that receive assistance to prosper and to make it not just to 2051, but you know to maintain their financial stability for years thereafter.
Lindsey:
Second question, this sounds like there’s a lot of changes coming. What do you think will be the most impactful for plans and what should planes be doing to prepare Mariah, your thoughts on that one?
Mariah:
It’s really hard to put these things in rank order. So, at this point I think I would call folks attention to those withdrawal liability regs when those come out I think that depending on how the final rigs are structured and depending on what changes are made from the way that the proposed rule was set up, it could really does have the potential to change pretty drastically the way that plans need to look at and think about how withdrawal liability is calculated and how the assumptions are determined that are used to calculate withdrawal liability.
So I kind of flagged before that you know there are two ways in the law as it stands where how assumptions could be set. Either it’s the actuaries best estimates or it’s whatever PBGC has said we’ve had 40 years more than that, 50 years of experience with trustees getting really, really used to the idea that the assumptions that are used to calculate withdrawal liability.
So the actuary will tell you what the assumptions are that you’re going to use for withdrawal liability that may or may not be the case under the final rule here, you know the proposed rule did have some ambiguity in it in terms of who set the assumptions that are used to calculate withdrawal liability.
So I don’t know that there’s much to do to prepare at least in my mind. Randy, you may have other thoughts about that, but I do think that’s something to keep an eye on because depending on how those final rules are structured, it really may need it may change quite substantially, how plans need to think about how their withdrawal liability is calculated. I don’t know. Randy, do you have any different thoughts about what’s most important folks should watch for going forward?
Randy:
Yeah. I mean, I think the one the other one we talked about was the lost and found rules because you know, I mean optically there are they’re due in the next couple of months, right? I mean you would if you were going to submit them, you’d have to do it in connection with your 5500 that’s filed for this year.
Mariah:
Yeah. This is true.
Randy:
Year which are going to be filed between now and probably mid-October, yeah, so but my guess is so well, yeah, while it’s theoretical theoretically, so they’re voluntary and I can’t see many plans agreeing to submit in a vacuum at this point in time. Any minute, right? Exactly. And especially with volunteering it kind of opens you up to.
Randy:
But they might come out with revised or final rule that imposes upon, you know, the same requirements or different requirements on a mandatory basis with a very short window of timing. So I think that’s one to watch for.
Mariah:
Yeah, that’s an excellent point as well, especially if it were to become mandatory and folks weren’t thinking about it.
Lindsey:
We’re getting pretty close to the end of the time. So we’re going to go ahead and wrap that up for today’s webinar. Really want to give a big thanks to our panelists, Mariah Becker, Randy McGeorge and Jim Donofrio, On behalf of the Berwyn University also, thank you so much for those that have attended today.
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