PRA Policy Statement 1/22: Insurance business transfers
We review the key amendments to the PRA’s Policy Statement 1/22 on insurance business transfers and consider the potential implications.
On December 23, 2008, President Bush signed the “Worker, Retiree, and Employer Recovery Act of 2008” (H.R.7327) (WRERA). Significant, coordinated lobbying efforts by labor organizations, employers, employer associations, and benefits practitioners led to the successful outcome. The WRERA provides temporary funding relief to multiemployer defined benefit pension plans in light of the current economic crisis.
This Multiemployer Alert focuses on WRERA provisions that demand immediate or near-term decisions by multiemployer plan trustees.
The WRERA allows plan trustees “to freeze” (i.e., retain) their plan’s 2008 zone status for the 2009 plan year. For example, if a plan was certified as “green” (not endangered, seriously endangered, or critical) for the plan year beginning January 1, 2008, and would otherwise be endangered, seriously endangered, or critical for the 2009 zone certification, the trustees may elect to retain the “green” status for 2009.
Some non-calendar year plans are allowed to look back to their 2007 funding levels. Plans with a 2008 plan year commencing after October 1, 2008, may not yet have had an initial zone certification completed, while plans with an October 1, 2008, plan year were required to file their 2008 certifications on or before December 29, 2008. In these cases, the WRERA allows the actuary to complete a zone certification for the 2007 plan year (as if one had been required), and allows the trustees to freeze their plan’s 2008 zone status on that basis.
In addition, a multiemployer plan that was certified as endangered (yellow), seriously endangered (orange), or critical (red) for its 2008 plan year would not be required to update its funding improvement plan, rehabilitation plan, or contribution schedules in 2009, if the trustees elect the freeze option.
The freeze in zone status as well as the ability to delay updating funding improvement plans or rehabilitation plans are available only for one year.
If the trustees decide to elect the one-year freeze, the following applies:
If a multiemployer plan is certified to be in endangered or critical status for a plan year beginning in 2008 or 2009, the trustees may elect to extend the plan’s funding improvement or rehabilitation period from 10 to 13 years. If the plan is severely endangered, the trustees may elect to extend the funding improvement period from 15 to 18 years. [NOTE: Practitioners are divided on the question of whether trustees are entitled to extend the timeline for the plan’s funding improvement or funding rehabilitation plan (as described above) if they elect to freeze their 2008 zone status for the 2009 plan year.]
The decision whether or not to elect the one-year freeze may in some cases be difficult. A number of factors will enter into this decision, including
For additional information about the WRERA, please contact your Milliman consultant.
Multiemployer Alert: Update on Issues Affecting Taft-Hartley Plans is intended to provide information and analysis of a general nature. Application to specific circumstances should rely on separate professional guidance.