American Benefits Council
Benefits Byte


May 6, 2014

The Benefits Byte is the American Benefits Council’s regular e-mail and online newsletter for members only, providing timely reports on legislative, regulatory and judicial developments, along with updates on the Council’s activities in support of employer-sponsored benefit plans.

The Benefits Byte is published by the American Benefits Council, based on staff reports and edited by Jason Hammersla, Council director of communications. Contact information for Council staff related to specific topics can be found at the end of each story.

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PBGC Finalizes Rule on Unpredictable Contingent Events

On March 10, the Pension Benefit Guaranty Corporation (PBGC) issued final regulations interpreting the section of the Pension Protection Act of 2006 (PPA) that changed the phase-in period for the guarantee of benefits contingent upon the occurrence of an “unpredictable contingent event (UCE)” (such as a plant shutdown). Previously, the five-year phase-in (20 percent per year) began when the amendment providing UCE benefits (UCEBs) was adopted or effective (whichever is later), but PPA added a third factor that the phase-in period starts no earlier than the date of the shutdown or other unpredictable event. The statutory change applies to benefits that become payable as a result of a UCE that occurs after July 26, 2005.

The final rule generally follows the proposed regulations issued in March 2011, which stated:

  • PPA did not alter the rule that UCEBs are not guaranteed at all unless the triggering event occurred prior to the plan termination date;
  • The reference to “plant shutdown” in the statutory definition of UCEB includes a full or partial shutdown;
  • When the UCEB is payable only upon the occurrence of more than one UCE, the guarantee is phased in from the latest date when all such UCEs have occurred;
  • Based on plan provisions and other facts and circumstances, the PBGC would solely determine (a) which plan benefits are subject to the UCEB phase in and (b) the date(s) for which each such UCEB would be subject to the phase in;
  • The proposed regulations includes eight examples that show how the UCEB phase-in rules would apply in the following situations:
    • Shutdown that occurs later than the announced shutdown date;
    • Sequential permanent layoffs;
    • Skeleton shutdown crews;
    • Permanent layoff benefits for which the participant qualifies shortly before the sponsor enters bankruptcy;
    • Employer declaration during a layoff that return to work is unlikely;
    • Shutdown benefit with age requirement that can be met after the shutdown;
    • Retroactive UCEB; and
    • Removal of Internal Revenue Code (Code) Section 436 restrictions (see discussion below).
  • If a UCE occurs after a bankruptcy filing date, UCEBs arising from the UCE are not guaranteed at all because the benefits are not nonforfeitable as of the bankruptcy filing date; and
  • If a UCE occurs before the bankruptcy filing date, the five-year phase-in period is measured from the date of the UCE to the bankruptcy filing date, rather than the plan termination date.

PPA also added a rule that prohibits UCEB payments with respect to a UCE if the plan is less than 60 percent funded for the plan year in which the UCE occurs (or would be less than 60 percent funded taking the UCEB into account). This Code Section 436 restriction is permanent unless additional contributions are made to the plan, or an actual certification meeting certain requirements is made, during the same plan year as the UCE. If a UCEB becomes payable because the funding restriction has been removed, the effective date of the UCEB for phase-in purposes is determined without regard to the restriction.

In response to a comment received from a collection of organized labor groups, PBGC made a single change to the proposed regulations. Noting that “determinations made by a plan, arbitrator, or court regarding the date when participants became entitled to the UCEB may be relevant,” the final rule “specifically includes determinations and statements by such parties as factors that will be considered, to the extent relevant, in establishing the UCE date. PBGC will not, however, treat any such determinations or statements as controlling.”

For more information on this issue, please contact Jan Jacobson, senior counsel, retirement policy, at 202-289-6700.

Supreme Court to Hear Retiree Health Benefits Case

The U.S. Supreme Court has announced that it will consider M&G Polymers USA, LLC v. Tackett, a case involving retiree health benefits. The decision is expected to resolve a split among federal appeals courts regarding how to interpret collectively bargained agreements with respect to the duration of retiree health benefits.

In 2013, the U.S. Sixth Circuit Court of Appeals upheld a permanent injunction ordering that retirees be reinstated M&G Polymers health plan. The Sixth Circuit affirmed that the “retirees had [the] vested right to no-cost health care” under the prevailing collective bargaining agreement (CBA) and “certain side agreements between union and various employers that purported to limit retiree health care coverage did not apply to [the] plant that employed retirees.” In this and similar cases, the Sixth Circuit has applied a presumption, known as the “Yard-man inference,” that union retiree benefits are intended to be vested in the absence of specific plan or bargaining agreement language to the contrary. Other appeals courts, including the Second, Third and Seventh Circuits, have ruled that retiree health benefits are not vested without specific durational language.

M&G Polymers petitioned the Supreme Court for review of the appellate court decision. The court granted review with respect to “Whether, when construing collective bargain agreements in Labor Management Relations Act cases, courts should presume that silence concerning the duration of retiree health benefits means the parties intended those benefits to vest (and therefore continue indefinitely), as the Sixth Circuit holds, or should require a clear statement that health care benefits are intended to survive the termination of the [CBA], as the Third Circuit holds, or should require at least some language in the agreement that can reasonably support an interpretation that health care benefits should continue indefinitely, as Second and Seventh Circuits hold.”

The Council submitted an amicus (friend of the court) brief (with the U.S. Chamber of Commerce and the National Association of Manufacturers) in support of an employer in a similar Sixth Circuit case, El Paso Tennessee Pipeline Co, v. Gladys Yolton, et al., the Council asked the Supreme Court to resolve a conflict in federal appeals court decisions regarding the proper legal standard for determining the duration of retiree health benefits (see the October 12, 2006, Benefits Byte).

For more information, contact Kathryn Wilber, senior counsel, health policy, at (202) 289-6700.

The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.

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