Our periodic Washington D.C. newsletter highlights the expertise of our Wagner Law Group attorneys analyzing legislative, regulatory and other cutting-edge benefits issues arising from activity in Washington or other important jurisdictions. Our office members are well suited for this, given many of them have decades of experience working in key governmental agencies such as the Department of Labor and Pension Benefit Guaranty Corporation.
This edition of our Benefits Bulletin has articles analyzing:
- how PBGC reportable events may be triggered in various non-intuitive circumstances
- when engaging an independent fiduciary is required or may be warranted; and
- recent appellate court decisions involving the calculation of multiemployer pension plan withdrawal liability.
Table of Contents
Watch Out for PBGC Reportable Events!
By Harold Ashner
A PBGC reportable event is an event that may be indicative of a need to terminate a PBGC-covered single-employer pension plan. Some reportable events are plan events (e.g., an inability to pay benefits when due), and others are corporate events (e.g., a change in the plan’s controlled group or a loan default involving a controlled group member). PBGC uses reportable event filings as a key trigger for its “Early Warning Program,” under which PBGC may threaten to seek involuntary termination of a plan or seek security or other protection as the “price” for its forbearance.
Failure to comply with the reportable events rules can lead to exposure to PBGC penalties, up to a maximum of $2,739 per day for each day of delinquency. Fortunately, PBGC is not required to (and does not often) assess penalties, and has “guideline” penalties—$25 per day for the first 90 days and $50 per day thereafter, with special relief rules for smaller plans—that are far below the maximum level. But it’s still of course best to avoid having a reporting delinquency.
Avoiding reporting delinquencies can be challenging, as reporting is required sporadically rather than on a predictable, periodic basis; the events that may trigger reporting can relate only to some foreign or otherwise distant member of the plan’s controlled group; and the rules contain requirements that do not always track what one might intuitively expect.
For example, consider the rules relating to a change in the plan’s controlled group (29 C.F.R. § 4043.29). Post-event reporting is required (generally within 30 days) “when there is a transaction that results, or will result, in one or more persons’ . . . ceasing to be a member of the plan’s controlled group (other than by merger involving members of the same controlled group)” (emphasis added). And the term “transaction” for this purpose “includes, but is not limited to, a legally binding agreement,” with “legally binding” determined “without regard to any conditions in the agreement” (emphasis added). Thus, reporting may be required even if the change is months or years away, and even if it never occurs, perhaps because of the failure to meet the “conditions” that are to be disregarded for reporting purposes.
Another example involves the rules relating to “loan default” reportable events (29 C.F.R. § 4043.34), which can occur “with respect to a loan with an outstanding balance of $10 million or more to a member of the plan’s controlled group.” The rules treat any default under the loan agreement as reportable, with no exception for minor or technical defaults. And they also capture, as reportable loan defaults, situations in which there is no default because the lender “waives or agrees to an amendment of any covenant in the loan agreement the effect of which is to cure or avoid a breach that would trigger a default” (emphasis added).
For a more detailed discussion of the reporting rules and some related “traps for the unwary,” with a focus on post-event reporting (as advance reporting applies only to a relatively small group of privately-held controlled groups with significantly underfunded plans), see “Surprise—You Just Missed a PBGC Reportable Events Deadline!”
Spotlight on the Role of the Independent Fiduciary
By Camille Castro and Stephen Wilkes
There are a variety of situations under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) warranting the appointment of an independent fiduciary. While commonly associated with prohibited transaction exemptions, the use of an independent fiduciary provides multiple benefits, including a significant risk-shifting opportunity from the plan fiduciary to the independent fiduciary. (For an in-depth discussion, see “A Current Look At Independent Fiduciaries Under ERISA”, by Stephen Wilkes, Fall 2025, Journal of Pension Planning & Compliance”.
Independent fiduciaries play a crucial role in satisfying the conditions of certain statutory, class, and individual prohibited transaction exemptions. Many class and individual exemptions require the services of independent fiduciaries as a condition of compliance, and several statutory exemptions under ERISA specifically require that the plan’s decisionmaker be independent, such as ERISA Section 408(b)(8) with respect to common or collective trust funds. Additionally, other statutory exemptions expressly require the appointment of an independent fiduciary, including transactions executed through an electronic communication network.
While “independent fiduciary” is not defined in ERISA, the prohibited transaction exemption procedures, which were most recently updated by the Department of Labor (“DOL”) in 2024, provide a definition and set out the requirements for a “qualified independent fiduciary.” Under the regulations, the independent fiduciary must have appropriate training and experience to act on behalf of the plan regarding the exemption transaction. As such, the independent fiduciary must possess a deep knowledge of its duties and responsibilities under ERISA, as well as the relevant experience and knowledge regarding the transaction. The independent fiduciary must also be free of relationships that could improperly affect its judgment. When determining whether a fiduciary is independent, the DOL considers all relevant facts and circumstances, including revenues received from the transaction (including fees) relative to the fiduciary’s revenues from all sources, making it clear that the fiduciary must not have a financial relationship with the transaction or parties that would impair its independence.
In addition to its value in the context of prohibited transaction exemption matters, the use of an independent fiduciary can also mitigate potential conflict of interest situations. Examples of such situations where the services of an independent fiduciary may be required include certain employee stock ownership plan (“ESOP”) transactions, the selection and management of pharmacy benefit manager (“PBM”) programs, class action litigation settlements, annuity purchases, and alternative investments, such as determinations as to whether a plan should invest in alternative assets that may produce a higher return (where the alternative might be to increase contributions).
The Wagner Law Group’s Independent Fiduciary Services practice has extensive independent fiduciary and ERISA experience, ranging from supporting individual and class prohibited transaction exemption applications, to serving as an independent fiduciary for health plans to address complex PBM matters. The decision to retain a competent independent fiduciary focused solely on acting in the interest of plan participants and beneficiaries can help reduce risk, mitigate or prevent conflicts of interest, and add a level of independent review and protection for plan participants and beneficiaries.
Multiemployer Plans and Employers Continue to Test the Limits of ERISA’s Withdrawal Liability Provisions
By Israel Goldowitz
We have often written on withdrawal liability issues under ERISA involving collectively bargained multiemployer pension plans. Multiemployer plan participants can incur benefit reductions, and ongoing employers can incur increased funding costs when other employers withdraw and do not pay their withdrawal liability. The price tag for withdrawal liability, however, can be unexpectedly high. Given the stakes, it is not surprising that-45 years after Congress enacted withdrawal liability-plans and withdrawn employers continue to test the limits of ERISA’s withdrawal liability provisions.
Two recent examples are Perfection Bakeries v. Retail Wholesale and Department Store Pension Fund in the Eleventh Circuit and SuperValu v. United Food and Commercial Workers Pension Fund in the Seventh Circuit. Perfection dealt with the order of calculations when there has been a partial withdrawal. SuperValu dealt with calculation of the annual payment when operations were previously sold under a safe harbor provision.
An employer withdraws from a multiemployer plan when it permanently ceases covered operations or permanently ceases to have an obligation to contribute to the plan. Typically, this would occur if the employer does not renew its obligation after its collective bargaining agreement expires, it shuts down, or it sells its assets. For instance, a company may go nonunion or substitute a 401(k) plan for the multiemployer plan, a small business owner may retire and close the business, or a large or mid-sized business may be acquired by a strategic or financial buyer. Employers can also have liability for a partial withdrawal, for a sustained reduction in covered hours (70 percent for three years), or for taking an operation nonunion (at its original location or elsewhere).
Withdrawal liability represents the employer’s share of the plan’s underfunding. That share is defined as the value of vested benefits minus the value of plan assets the (unfunded vested benefits or UVB) times a fraction that represents the employer’s historical share of required contributions to the plan. The plan may use a single snapshot of UVB and the employer’s five-year contribution ratio as of the end of the plan year before withdrawal, or it may use a method that compares two or more snapshots and five-year fractions and reduces year-to-year volatility.
The resulting amount is payable in annual installments equal to the product of the employer’s highest contribution rate and its high-three average annual covered hours within the previous 10 years. But payments are limited to 20 years’ worth unless the plan terminates by a mass withdrawal.
For example, if the present value of vested benefits is $2 billion, the value of assets is $1.5 billion, and the employer has been a five-percent contributor, the UVB would be $500 million, and the employer’s share would be $25 million. If its installment payments are only $1 million per year, they would not pay off the $25 million in 20 years, and the assessment would be limited to $20 million in total payments. Their present value would be considerably less.
The calculations are highly sensitive to interest rates. If the plan values benefits using the same rate as it uses to calculate minimum funding contributions, say 7%, the present value would be less than if the plan values benefits using a 6% rate. (Present value and interest rate are inversely related.) Depending on the age of the plan’s participants, a change from 7% to 6% could increase the value of vested benefits by ten percent or more. If assets are $1.5 billion, employers could have a share of $700 million ($2.2 billion minus $1.5 billion), instead of $500 million, to give an example.
The majority of plans use a blend of PBGC rates—derived from insurance company annuity prices and the funding rate, which can result in an effective interest rate less than 6%, at least in a “normal” interest rate environment, and therefore a more dramatic increase in UVB. Three courts of appeal have held that a plan must use its funding rate, however, as the actuary must use his “best estimate” for each purpose, and he can’t have two different ”best” estimates. Some experts disagree, as the withdrawn employer will not share in future gains or losses, so taking “closeout” rates into account is appropriate.
More recently, in M&K Employee Solutions v Trustee of the IAM National Pension Fund, the Supreme Court agreed to resolve a split in circuits over when the interest rate must be selected, by the end of the plan year before withdrawal or by a reasonable time in the year of withdrawal. ERISA provides that the valuation must be “as of” the end of the year, which means a permissible after-the-fact valuation in actuarial practice and according to the D.C Circuit, but which may lead to abuse according to the Second Circuit.
Employers and funds have litigated other issues recently. For instance,
- If the employer incurs a partial withdrawal followed by a complete withdrawal, how is the first assessment credited against the second to prevent overcharging? In Perfection, the Eleventh Circuit held that a portion of the partial withdrawal liability assessment is deducted from the employer’s share of UVB in the second assessment rather than at a later step, which resulted in a $6 million rather than a $4 million assessment.
- If an employer sells some but not all operations and avoids liability under an exception that provides for the buyer to assume the seller’s share of UVB for the last five years’ contributions, how does that affect the installment payment amount if the employer later withdraws? In SuperValu. the Seventh Circuit held that the employer’s annual payment should be based on hours worked at a sold operation in the sixth through tenth years before withdrawal, though they did not count toward its share of UVB. The court did not say how much this issue was worth, but the assessment was for $23 million.
As this summary illustrates, there are several issues in withdrawal liability cases that can have a dramatic financial impact. A withdrawal liability estimate is important to business planning and in mergers and acquisitions, and an estimate can be developed in consultation with actuarial and legal experts or obtained from the fund. Through the fund’s estimate will lag by a year or more, experts can help in evaluating the uncertainty and identifying ways to mitigate it. If a withdrawal has occurred, it is important to understand the settlement value of the assessment, given legal risk and costs and present value considerations. And if there is enough at stake, it may be worth arbitrating the issues and then seeking review by a federal district court.
The Wagner Law Group advises employers, buyers and sellers of companies, and pension funds on withdrawal liability issues. We would be happy to answer any questions you have about these issues.
