Defined Benefit Issues
(PPA, Funding, Rehabilitation)
NECA LABOR RELATIONS CONFERENCE
SAN ANTONIO, TX
OCTOBER 12-14, 2009
Presented by:
Paul Heylman
Saul Ewing LLP
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Overview of Pension
Protection Act of 2006
• The Pension Protection Act of 2006 created a temporary set of
rules, effective for plan years beginning in 2008 and ending in
2014, addressing the funding of multiemployer plans that are in
“endangered” or “critical” status.
• Endangered plans are required to adopt and implement a
funding improvement plan, plans in critical status must adopt a
rehabilitation plan.
• Determination by the enrolled actuary for a multiemployer plan
as to whether the plan is in endangered or critical status for a
plan year
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Different Zones- ERISA 305
• Green Zone: A plan that has a funded ratio of
80 percent or more and no projected funding
deficiency in the next six plan years.
• Yellow Zone: A plan that is “endangered” or
“seriously endangered.” A plan is endangered
if it is less than 80 percent funded, or has, or
is projected to have an accumulated funding
deficiency within the next six plan years.
• Orange Zone: A plan is seriously endangered
if it has both these conditions.
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Different Zones- Cont’d
• Red Zone: A plan that is in critical status. A
plan enters critical status if, at the beginning
of the plan year:
– the plan is less than 65 percent underfunded, and
the market value of assets plus the present value
of reasonably anticipated employer contributions
for the current and next six plan years is less than
the present value of non-forfeitable benefits
payable over that time period (plus administrative
expenses); or
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Different Zones- Cont’d
– an accumulated funding deficiency exists for the
current plan year or is projected for any of the next
three years (four plan years if the funded
percentage of the plan is 65 percent or less), not
taking into account extension of amortization
periods; or
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Different Zones- Cont’d
– (1) the normal cost for the current plan year plus interest
on unfunded liabilities exceeds the present value of
reasonably anticipated employer and employee
contributions for the current plan year, (2) the present
value of nonforfeitable benefits of inactive participants is
greater than the present value of nonforfeitable benefits
of active participants, and (3) the plan has an
accumulated funding deficiency for the current plan year,
or is projected to have one for any of the next four years,
not taking into account amortization periods; or
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Different Zones- Cont’d
– the fair market value of assets plus the present value of
reasonably anticipated employer contributions for the
current plan year and each of the next four years is less
than the present value of benefits projected to be payable
during the current plan year and each of the succeeding
four years (including administrative expenses).
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Consequences of
Being in the Yellow Zone
If Plan is in the Yellow Zone:
– Endangered plans are required by the
PPA to adopt and implement a funding
improvement plan designed to increase
its funding percentage over ten years
(over 15 years for seriously endangered
plans).
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Consequences of
Being in the Red Zone
If Plan is in the Red Zone:
– Must adopt within 240 days of actuarial
certification of the plan a rehabilitation
plan that will enable the plan to emerge
from critical status after ten years.
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More Red Zone
Each year during the funding improvement or
rehabilitation period, the plan's actuary must
certify whether the plan's funding is
progressing according to schedule, and
penalties, such as excise taxes, may be
imposed for actions that impede the
attainment of the funding goals.
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Worker, Retiree, and Employer
Recovery Act of 2008 (WRERA)
 One year breather: For determining
endangered or critical status, a multiemployer
plan sponsor may elect to treat the plan's
funding status the same as that of the
preceding year for the first plan year
beginning during the period beginning on Oct.
1, 2008, and ending on Sept. 30, 2009.
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Worker, Retiree, and Employer
Recovery Act of 2008 (WRERA)
• Under §205 of WRERA, a plan can elect to
extend its funding improvement period or
rehabilitation period if in endangered or
critical status for a plan year beginning in
2008 or 2009.
– 10-year funding improvement period or
rehabilitation periods are extended to 13 years.
– 15-year funding improvement periods are
extended to 18 years.
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CONTACT INFORMATION
Paul Heylman, Esquire
2600 Virginia Avenue, N.W.
Suite 1000 – The Watergate
Washington, DC 20037-1922
Phone: 202.342.3422
Fax: 202.295.6773
Email: [email protected]
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Saul Ewing’s Office Locations
Baltimore, Maryland
Lockwood Place
500 East Pratt Street, Suite 900
Baltimore, MD 21202
410.332.8600
fax: 410.332.8862
Chesterbrook, Pennsylvania
1200 Liberty Ridge Drive, Suite 200
Wayne, PA 19087-5569
610.251.5050
fax: 610.651.5930
Harrisburg, Pennsylvania
Penn National Insurance Tower
Two North Second Street, 7th Floor
Harrisburg, PA 17101-1604
717.257.7500
fax: 717.238.4622
Newark, New Jersey
One Riverfront Plaza
Newark, NJ 07102
973.286.6700
fax: 973.286.6800
New York, New York
245 Park Avenue, 24th Floor
New York, NY 10167
212.672.1995
Fax: 212.372.8798
Philadelphia, Pennsylvania
Centre Square West
1500 Market Street, 38th Floor
Philadelphia, PA 19102-2186
215.972.7777
fax: 215.972.7725
Princeton, New Jersey
750 College Road East
Princeton, NJ 08540
609.452.3100
fax: 609.452.3122
Wilmington, Delaware
222 Delaware Avenue, Suite 1200
Wilmington, DE 19801-1611
302.421.6800
fax: 302.421.6813
Washington, D.C.
2600 Virginia Avenue, N.W.
Suite 1000 | The Watergate
Washington, D.C. 20037
202.333.8800
fax: 202.337.6065
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