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Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Rules and Regulations withdrawal liability is for increases specifically referred to in sections 305d1B or 305f1B of ERISA.
These commenters noted that plans have excluded all contribution increases under a funding improvement plan or rehabilitation plan that became effective in plan years beginning after December 31, 2014 from the calculation of withdrawal liability. In contrast, two commenters noted that some plans have included all contribution increases. One commenter explained that some plans use a benefit formula that makes it nearly impossible to allocate between what is and is not benefit bearing.
Commenters objected to the requirement for the portion of the contribution increase that is benefit bearing to be determined actuarially. They stated that this would cause an increase in administrative costs and that plans have used other methods to differentiate between benefit bearing and non-benefit bearing portions of contribution increases. For example, some plan sponsors classify contribution increases as either benefit-bearing i.e., included in a benefit formula that bases accruals on contributions or supplemental i.e., excluded from the benefit accrual formula. Finally, one commenter asked whether certifications under sections 305d1B or 305f1B of ERISA are required in the case of a plan with a percentage of contribution formula and a contribution increase required by a funding improvement plan or rehabilitation plan.
The final rule modifies proposed 4211.4b2ii and 4219.3a2ii to provide the exception to the disregard rules for a contribution increase that provides an increase in benefits by simply referring to section 305g3 of ERISA. Specifically, 4211.4b2ii and 4219.3a2ii in the final rule describe the exception as applying to contribution increases used to provide an increase in benefits, including an increase in future benefit accruals, permitted by section d1B or f1B
of ERISA. A plan sponsor is required to include such contribution increases in the calculation of a withdrawn employers withdrawal liability and annual withdrawal liability payment amount. The final rule does not provide further interpretation. Commenters raised interpretive issues about sections 305g3, 305d1B, and 305f1B
of ERISA that are under the jurisdiction of the Department of the Treasury as well as plan benefit design issues that require further study. PBGC is continuing to examine these issues with the Department of the Treasury and, if
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appropriate, will issue additional guidance.
B. Simplified Methods for Disregarding Certain Contribution Increases in the Allocation Fraction 4211.14
The allocation fraction that is used in the presumptive, modified presumptive, and rolling-5 methods to determine an employers proportional share of unfunded vested benefits is discussed above in section I. The final regulation adds a new 4211.14 to the unfunded vested benefits allocation regulation to provide a choice of one simplified method for the numerator and two simplified methods for the denominator of the allocation fraction. A plan sponsor may adopt the simplified methods in 4211.14 to satisfy the requirements of section 305g3 of ERISA and 4211.4b2 to disregard contribution increases in determining the allocation of unfunded vested benefits, or may choose an alternative approach that satisfies the requirements of the statutory provisions and regulations. A plan amended to use one or more of the simplified methods in this section must also apply the rules to disregard surcharges under new 4211.4.
One commenter asked that the final regulation allow plans using the direct attribution method to use the simplified methods for contribution increases if use of such methods is otherwise reasonable. The disregard rules for contribution increases under section 305g3A of ERISA 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. PBGCs authority to provide simplified methods under section 305g5 of ERISA is limited to methods for applying the disregard rules in determining withdrawal liability and payment amounts. PBGC therefore did not incorporate the commenters requested change in the final rule.
1. Determining the Numerator Using the Employers Plan Year 2014 Contribution Rate Under the simplified method for determining the numerator of the allocation fraction, a plan sponsor bases the calculation on an employers contribution rate as of the last day of each plan year rather than applying a separate calculation for contribution increases that occur in the middle of a plan year. The plan sponsor starts with the employers contribution rate as of the employer freeze date. The employer freeze date is the date that is
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the later of the last day of the first plan year that ends on or after December 31, 2014 December 31, 2014 for a calendar year plan and the last day of the plan year the employer first contributes to the plan. If, after the employer freeze date, the plan has a contribution rate increase that provides an increase in benefits so that the contribution increase is included, that rate increase is added to the contribution rate for each target year for which the rate increase is effective. Under the method, the product of the employer freeze date contribution rate increased in accordance with the prior sentence, if applicable and the withdrawn employers contribution base units in each plan year target year are used for the numerator and the comparable amount determined for each employer is included in the denominator described in B.2 below, unless the plan sponsor uses the proxy group method for determining the denominator described in B.3 below. If there is more than one contribution rate or basis for calculating contribution base units, the calculations can be performed separately for each contribution rate or contribution base sub-group and then summed. An example illustrating the simplified method for disregarding certain contributions in determining the numerator using the employers plan year 2014 contribution rate is provided in the appendix to part 4211.
2. Determining the Denominator Using Each Employers Plan Year 2014
Contribution Rate Under the first simplified method for determining the denominator of the allocation fraction, a plan sponsor applies the same principles as for the simplified method above for determining the numerator of the allocation fraction. The plan sponsor holds steady each employers contribution rate as of the employer freeze date, except for contribution increases that provide benefit increases as described above. For each employer, the plan sponsor multiplies this rate by each employers contribution base units in each target year.
3. Determining the Denominator Using the Proxy Group Method Plans frequently offer multiple contribution schedules under a funding improvement plan or rehabilitation plan, which may have varying contribution rate increases. Under these and other circumstances, it could be administratively burdensome for plans to determine the exact amount of an employers contributionsexcluding contributions required to be disregarded
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