Benefit levels in a multiemployer plan are typically set by trustees representing contributing employers and unions. Withdrawal liability generally represents an employer’s share of the plan’s unfunded vested benefits (UVBs) that the plan may have at the end of the plan year immediately preceding the plan year in which the employer withdraws.  Withdrawal liability is the portion of the UVBs allocable to the withdrawing employer and represents a plan’s only opportunity to require a withdrawing employer to pay its allocated share of the unfunded liabilities.  When a plan does not collect an adequate amount of withdrawal liability from a withdrawing employer or collects an amount that is less than a withdrawing employer’s allocated share of the plan’s UVBs, that burden is shifted to the remaining contributing employers in the plan.  There is a higher likelihood that the plan will not be able to pay full accrued benefits, and ultimately, there is an increased likelihood that it would not have resources to pay basic (PBGC-guaranteed) benefits.  In that case, a plan may have to cut benefits to the PBGC guarantee level and apply to PBGC for financial assistance, which shifts costs to plan participants and to others in the multiemployer insurance system who fund PBGC via annual premiums.

This rulemaking is needed to clarify that a plan actuary’s use of 4044 rates represents a valid approach to selecting an interest rate assumption to determine withdrawal liability in all circumstances.  The rulemaking would thereby reduce or eliminate the cost-shifting effects of impediments to actuaries’ use of 4044 rates.