On October 14, 2022, the Pension Benefit Guaranty Corporation (PBGC), the federal agency that insures and regulates private-sector defined benefit pension plans under Title IV of the Employee Retirement Income Security Act of 1974 (ERISA), published a proposed rule governing employer withdrawal liability. The proposal authorizes a range of interest rate assumptions that a plan actuary may choose from when calculating an employer's withdrawal liability. According to the PBGC, the proposed rule will increase withdrawal liability obligations of employers by between $804 million and $2.98 billion over the next 20 years.
Background on Withdrawal Liability and Interest Rates
ERISA mandates that, under most circumstances, an employer withdrawing from a multiemployer pension plan is responsible for paying withdrawal liability-generally calculated as the employer's "share" of any unfunded vested benefits (UVBs) the plan has at the end of the plan year preceding the employer's withdrawal.1 UVBs are the amount by which the present value of nonforfeitable benefits owed by a plan (as of the valuation date) exceeds the value of plan assets (as of that date).2 In other words, the UVBs are intended to represent the shortfall a fund anticipates between the pension benefits the fund must pay out in the future and the amount of money the fund expects to have.
The present value of a plan's nonforfeitable benefits must be determined by the plan's actuary using actuarial assumptions and methods.3 A plan's actuarial assumptions include the interest rate-often called the...
