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Statement of National Coordinating Committee for
Multiemployer Plans
The
National Coordinating Committee for Multiemployer Plans ("NCCMP") is
writing on behalf of the Multiemployer Pension Plan Coalition ("Coalition") in
response to your request for public comment on H.R. 3361, as introduced on
August 3, 2007, which includes technical corrections to the Pension Protection
Act of 2006 (the "Act"). The Coalition has previously submitted technical
corrections that are needed regarding the multiemployer pension plan provisions
in the Act, some of which were included in the introduced bill. We
appreciate the work of you and your staff on the multiemployer pension plan
issues and the inclusion of these issues in the bill.
Below
we describe some of the other issues from our original submissions that were
not addressed in the introduced bill. Although we continue to believe that the
issues highlighted in our earlier submissions that were not included in the
introduced bill should be addressed, we want to bring the issues described
below to your attention as you work on passing technical corrections
legislation before the new multiemployer plan funding and disclosure rules take
effect next year.
We
appreciate the opportunity to provide these comments and look forward to
working with you and your staff on these issues.
1.One
Required Schedule in the Yellow Zone. ERISA section
305(c)(1)(B)(i)/IRC section 432(c)(1)(B)(i) (PPA
sections 202/212). Delete subparagraph (II), to clarify that only one
schedule (the default schedule) is required for endangered status plans, as
reflected in the lead-in language in (i) requiring the sponsor to provide the
parties with only "1 or more" schedules. This clarification would
conform the endangered status rules with the critical status rules and confirm
that plans (typically smaller plans) that for administrative reasons only offer
one benefit and contribution schedule are not required by the Act to offer an
additional schedule.
2.Yellow
Zone Seriously Endangered Benchmarks. ERISA
section 305(c)(4), (5)/IRC section 432(c)(4), (5) (PPA sections 202/212). Remove
the possible shift back and forth between benchmarks and funding improvement
periods -- i.e., a plan that is or becomes seriously endangered should remain
subject to the 15-year/20% benchmarks and not shift back to the 10-year/33%
benchmarks in the middle of the funding improvement period when it is too late
to meet them. A plan that is or becomes seriously
endangered should be subject to the 15-year/20% benchmark regardless of its
funded ratio and should remain in that status regardless of future funding
fluctuations or actuarial projections. Otherwise, a plan with a funding
improvement plan designed to improve funding over the 15-year/20% benchmarks
could find itself subject to stricter funding benchmarks and a shorter (and
possibly impossible) timeframe to meet the stricter benchmarks many years into
the plan's funding improvement period. If these changes are made, a new
requirement could be added under which a seriously endangered plan could not
leave endangered status until it is projected not to have a funding deficiency
for the next 10 years -- the same emergence rule that applies to critical
status plans. All of the other requirements (e.g., funding improvement plan,
schedules, updates), benefit and other restrictions, and penalties, would
continue to apply as long as the plan is in endangered status.
3.Red Zone Surcharges.
ERISA section 305(e)(7)/IRC section 432(e)(7) (PPA sections 202/212). To
encourage early corrective action, provide that employer surcharges end, and
that those surcharges already paid may be credited against the employer's
contribution requirements under a rehabilitation plan, if the trustees determine that an applicable collective
bargaining agreement that provides for a contribution increase that became
effective no earlier than 24 months before the plan year in which the plan went
into critical status conforms to the contributions required by a schedule under
the rehabilitation plan. Without this
clarification, employers whose collective bargaining agreement expires before
the rehabilitation plan is adopted and/or rehabilitation period has begun may
have no incentive to agree to contribution increases in the next agreement
because any such contribution increase could simply increase the surcharge and
will not count toward the rehabilitation plan/schedules until a subsequent
agreement is negotiated during the rehabilitation period. This clarification will
also reduce the need for formalistic, non-substantive steps such as re-opening
and then immediately re-adopting an existing collective bargaining agreement
that already complies with the rehabilitation plan and schedules.
4.Notice
of Critical Status Adjustable Benefit Reductions. ERISA section
305(e)(8)(C)/IRC section 432(e)(8)(C) (PPA sections 202/212). Provide that the
notice of critical status reductions in adjustable benefits does not have to be
provided to participants and beneficiaries who are in pay status and do not
have adjustable benefits that could be cut. Without this change, a plan would
be required to notify retirees in pay status of impending cuts in their
adjustable benefits even where those retirees are protected from such reductions
by statute.
5.Excise
Tax on Contribution Failures. IRC section
4971(g)(2) (PPA section 212(b)). Clarify that the excise tax on any
employer that fails to make a contribution required under the funding
improvement plan or rehabilitation plan applies solely to contributions
required by a default schedule that is imposed on the bargaining parties under
a funding improvement plan or rehabilitation plan in the absence of a compliant
collective bargaining agreement. As currently
written, the provision is ambiguous but could be read to impose an excise tax
in the case of -- and interfere with routine plan efforts to collect --
contributions required under the applicable collective bargaining agreement.
Many multiemployer plans have audit programs in place to ensure that
owed contributions are being made, a right that has been upheld by the U.S.
Supreme Court. Moreover, plan fiduciaries already have the duty to collect all
amounts due the plan, standards for which have been set out by DOL.
6.Excise
Tax Waivers. IRC section 4971(g)(5) (PPA section 212(b)). In the waiver
of excise tax provision, change "may" to "shall" waive
excise tax and change "unanticipated and material market
fluctuations" to "unanticipated market fluctuations."
Otherwise, the tax could be applied even where the plan trustees and parties
adopted an improvement/rehabilitation plan and took all required actions, but
an unanticipated decline in the financial markets occurred. The reference to
"material" fluctuations -- especially when interpreted in light of
the Joint Committee on Taxation staff's explanation of the Act -- could mean
that only financial market drops of 10% or more would be considered for this
purpose, even though even a small market decline means that the plan's earnings
are much smaller than the assumed (typically 7-7.5%) rate of return.
7.Excise Tax for Nondeductible Contributions. IRC section 4972(c)(7) (PPA section 114(e)(5)). Delete
"except, in the case of a multiemployer plan, to the extent that
such contributions exceed the full-funding limitation (as defined in section
431(c)(6))". In keeping with its goal of promoting benefit security by
encouraging generous contributions, the Act amended Code section 4972(c)(7) to
eliminate excise taxes for employers whose pension contributions are not
deductible because they are more than the full-funding limitation. However,
probably because this change was made in connection with the restructuring of
the single-employer plan funding rules, it was drafted to apply only to
employers that contribute to single-employer plans. Given the policy in the
Act to promote secure pension funding, and the fact that contributions to
multiemployer plans are mandated by collective bargaining agreements, there is
no policy reason for continuing to expose multiemployer-plan contributors to a
potential excise tax.8.Individually
Identifiable Information. ERISA section 101(k) and technical correction in
H.R. 3361, section 6(b). Fix the provision and technical correction related to
identification of investment managers, advisers and other fiduciaries preparing
financial reports and the exception to the general protection from disclosure
of individually identifiable information. ERISA Section 101(k) requires
multiemployer plans to provide participants and employers copies of certain
financial reports prepared by an investment manager, advisor or other
fiduciary, upon request. Section 101(k)(2)(C)(i) prohibits disclosure, in this
connection, of "any individually identifiable information regarding any
plan participant, beneficiary, employee, fiduciary, or contributing employer
…". Read literally, that would prohibit the plan from disclosing the
identities of the institutional investment managers and advisors whose
performance is being reported on or evaluated. Subparagraph (C)(i) was
included to protect the privacy of individuals and employers associated with
multiemployer plans. Service providers' institutional interests are protected
by subparagraph (C)(ii), which prohibits the disclosure of proprietary
information.
The technical
correction in H.R. 3361 generally addressed this, but went too far by arguably
removing the protection from identification from any person who prepared a
financial report. Depending on how this is interpreted, it could result in the
required disclosure of individually identifiable information with respect to
any plan employee who worked on such a report, without limiting that disclosure
to information regarding that person's investment or financial activities on
behalf of the plan.
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