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Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Rules and Regulations 4211.36 Modifications to the determination of initial liabilities, the amortization of initial liabilities, and the allocation fraction.

25. Amend 4211.33 by adding paragraph c2iii to read as follows:

4211.33 Modified presumptive method for withdrawals after the initial plan year.

c
2
iii In determining the numerator and the denominator in this paragraph c, the rules under 4211.4 and permissible simplified methods under 4211.14 and 4211.15 apply.
26. In 4211.36, amend paragraph a by adding a sentence at the end of the paragraph to read as follows:

a In determining the numerators and the denominators in paragraph d of this section, the rules under 4211.4 and permissible simplified methods under 4211.14
and 4211.15 apply.

27. Add appendix to part 4211 to read as follows:
APPENDIX TO PART 4211
EXAMPLES
The examples in this appendix illustrate simplified methods for disregarding certain contribution increases in the allocation fraction provided in 4211.14 of this part.
Example 1. Determining the Numerator of the Allocation Fraction Using the Employers
2014 PY

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Employer As Contribution Rate
Contribution Base Units
Contributions

$5.51
800,000
$4.41M

The plan sponsor makes a determination pursuant to section 305g3 of ERISA that the annual 5 percent contribution rate increases applicable to Employer A and other employers in Plan X after the 2014 plan year were required to enable the plan to meet the requirement of its rehabilitation plan and should be disregarded; benefits were not increased after plan year 2014.
Applying the simplified method, contribution rate increases that went into effect during plan years beginning after December 31, 2014 would be disregarded:
The $5.51 contribution rate in effect at the end of plan year 2014 would be held steady in computing Employer As required contributions for the plan years included in the numerator of the allocation fraction.
Based on 4.3 million contribution base units, this results in total required contributions of $23.7 million over 5 years. Absent section 305g3 of ERISA, the sum of the contributions required to be made by Employer A would have been determined by multiplying Employer As contribution rate in effect for each plan year by the contribution base units in that plan year, producing total required contributions of $28.96 million over 5 years.
Example 2. Determining the Denominator of the Allocation Fraction Using the Proxy Group Method 4211.14d.
Assume a plan covers ten employers. For 2017, three small employers were in rate history group X, representing less than 5
percent of active plan participants;
employers A and B and two other employers were in rate history group Y; and employer
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2016 PY
n/a 800,000
$4.86M

2017 PY

2018 PY

n/a 800,000
$5.10M

n/a 900,000
$6.03M

C and two other employers were in rate history group Z. For 2018, there were changes in contribution rates for some of Bs employees, and as a result, employer B is being treated as two employers, B1 and B2.
B1 remained in rate history group Y because, while B1 has a significantly lower contribution rate than A, the contributions of both are subject to the same percentage increase each year. B2 was added to rate history group X. X continues to represent less than 5 percent of active plan participants, and the plan continues to ignore it in forming the proxy group. The plan forms a 2018
proxy group of three employersA and B1
from rate history group Y and C from rate history group Zthat together represent more than 10 percent of active plan participants.
Contributions for 2018 are $1,000,000:
$20,000 for rate history group X, $740,000 for rate history group Y, and $240,000 for rate history group Z, with A and B1 accounting for $150,000 and C accounting for $45,000 of the total contribution amounts.
Contribution rates for 2018 for A, B1, and C excluding rate increases required to be disregarded for withdrawal liability purposes and contribution base units for the three employers are: For A, 87 cents and 100,000 CBUs; for B1, 43 cents and 50,000
CBUs; and for C, 70 cents and 60,000 CBUs, as shown in rows 1 and 2 of the table below. Thus, the three employers adjusted contributions are $87,000, $21,500, and $42,000 respectively, as shown in row 3.
Moving from the employer level to the rate history group level, the adjusted
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Plan Year 2014 Contribution Rate 4211.14b.
Assume Plan X is a calendar year multiemployer plan in critical status which did not have a benefit increase after plan year 2014. In accordance with section 305g3B
of ERISA, the annual 5 percent contribution rate increases applicable to Employer A and other employers in Plan X after the 2014 plan year were deemed to be required to enable the plan to meet the requirement of its rehabilitation plan and must be disregarded.
Employer A, a contributing employer, withdraws from Plan X in 2021. Using the rolling-5 method, Plan X has unfunded vested benefits of $200 million as of the end of the 2020 plan year. To determine Employer As allocable share of these unfunded vested benefits, Employer As hourly required contribution rate and contribution base units for the 2014 plan year and each of the 5 plan years between 2016
and 2020 are identified as shown in the following table:
2019 PY
n/a 900,000
$6.33M

2020 PY
n/a 900,000
$6.64M

5-year total
4,300,000
$28.96M

contributions for employers in the proxy group that are in the same rate history group are added together row 4. Those totals are then divided by total actual contributions for the proxy group employers in each rate history group row 6 to derive an adjustment factor for each rate history group row 7 that is applied to the actual contributions of all employers in the rate history group row 8 to get the adjusted contributions for each rate history group represented in the proxy group row 9.
Moving from the rate history group level to the plan level, the same process is repeated.
Adjusted employer contributions for the rate history group are summed row 10 and divided by the total contributions for all rate history groups represented in the proxy group row 11 to get an adjustment factor for the plan row 12. Contributions for rate history group X are excluded from row 11
because no employer in rate history group X
is in the proxy group. The adjustment factor for the plan is then applied to total plan contributions row 13 to get adjusted plan contributions row 14. Contributions for rate history group X are included in row 13
becausealthough X was ignored in determining the adjustment factor for the plan the adjustment factor applies to all plan contributions other than those by employers excluded from the plans allocation fraction denominator. The plan will use the adjusted plan contributions in row 14 as the total contributions for 2018
in determining the denominator of any allocation fraction that includes contributions for 2018.

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