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Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Rules and Regulations
IV. Regulatory Changes To Reflect Surcharges and Contribution Increases A. Requirement To Disregard Surcharges and Certain Contribution Increases in Determining the Allocation of Unfunded Vested Benefits to an Employer 4211.4 and the Annual Withdrawal Liability Payment Amount 4219.3
Changes in contributions can affect the calculation of an employers withdrawal liability and annual withdrawal liability payment amount.
For example, such changes can increase or decrease the allocation fraction discussed above in section I that is used to calculate an employers withdrawal liability. They can also increase or decrease an employers highest contribution rate used to calculate the employers annual withdrawal liability payment amount also discussed above in section I.
Required surcharges and certain contribution increases would typically result in an increase in an employers withdrawal liability even though unfunded vested benefits are being reduced by the increased contributions.
Sections 305g2 and 3 of ERISA
mitigate the effect on withdrawal liability by providing that these surcharges and contribution increases that are required or made to enable the plan to meet the requirements of the funding improvement plan or rehabilitation plan are disregarded in determining contribution amounts used for the allocation of unfunded vested
benefits and the annual payment amount. These sections do not apply for purposes of determining the unfunded vested benefits attributable to an employer by a plan using the direct attribution method under section 4211c4 of ERISA or a comparable method.
Except as described below the final regulation, like the proposed, amends 4211.4 of PBGCs unfunded vested benefits allocation regulation and 4219.3 of PBGCs notice, collection, and redetermination of withdrawal liability regulation to incorporate the requirements to disregard these surcharges and contribution increases.
The final regulation also provides simplified methods for disregarding certain contribution increases in the allocation fraction in 4211.14 of PBGCs unfunded vested benefits allocation regulation discussed below in section IV.B.. The final rule incorporates the disregard rules and simplified methods for contribution increases in the allocation methods for merged multiemployer plans provided in subpart D of part 4211. PBGC is not providing a simplified method for disregarding surcharges in the final rule because we believe that plans have been able to apply the statutory requirements without the need for a simplified method.
The provision regarding contribution increases applies to increases in the contribution rate or other required contribution increases that go into effect
during plan years beginning after December 31, 2014.9 A special rule under section 305g3B of ERISA
provides that a contribution increase is deemed to be required or made to enable the plan to meet the requirement of the funding improvement plan or rehabilitation plan, such that the contribution increase is disregarded.
However, the statute provides that this deeming rule does not apply to increases in contribution requirements due to increases in levels of work, employment, or periods for which compensation is provided, or additional contributions used to provide an increase in benefits, including an increase in future benefit accruals, permitted by section 305d1B or 305f1B. Accordingly, the final regulation, with changes from the proposed rule as discussed below, provides that these increases are included as contribution increases for purposes of determining the allocation fraction and the highest contribution rate. In addition, under section 305g4
of ERISA, contribution increases are not treated as necessary to satisfy the requirement of the funding improvement plan or rehabilitation plan after the plan has emerged from critical or endangered status. This exception applies only to the determination of the allocation fraction. The table below summarizes the statutory exceptions to the rule to disregard a contribution increase under section 305g3 and 4
of ERISA.

EXCEPTIONS TO DISREGARDING A CONTRIBUTION INCREASE
Allocation fraction and highest contribution rate exceptions simplified methods for these exceptions are explained in III.B. of the preamble.

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Allocation fraction exception simplified methods for this exception are explained in III.C. of the preamble.

1 Increases in contribution requirements associated with increased levels of work, employment, or periods for which compensation is provided.
2 Additional contributions used to provide an increase in benefits, including an increase in future benefit accruals, permitted by section 305d1B or f1B of ERISA.
3 The withdrawal occurs on or after the expiration date of the employers collective bargaining agreement in effect in the plan year the plan is no longer in endangered or critical status, or, if earlier, the date as of which the employer renegotiates a contribution rate effective after the plan year the plan is no longer in endangered or critical status.

Sections 4211.4b2ii and 4219.3a2ii of the proposed rule reflected an interpretation of the exception under section 305g3 of ERISA for additional contributions used to provide an increase in benefits. Those sections provided, The contribution increase provides an increase in benefits, including an increase in future benefit accruals, permitted by sections
305d1B or 305f1B of ERISA or sections 432d1B or section 432f1B of the Code, and an increase in benefit accruals as an integral part of the benefit formula. The proposed rule required the portion of such contribution increase that is attributable to an increase in benefit accruals to be determined actuarially and for those contribution increases to be included in
the calculation of a withdrawn employers withdrawal liability and annual withdrawal liability payment amount.
Three commenters disagreed with the interpretation provided in the proposed rule. They said that the only narrow exception to include contribution increases that are used to provide an increase in benefits in the calculation of
9 The requirement to disregard surcharges for purposes of determining an employers annual
withdrawal liability payment is effective for
surcharges the obligation for which accrues on or after December 31, 2014.

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