3740 / Are there any limitations on a pension plan’s ability to reduce participant benefit levels under the Multiemployer Pension Reform Act of 2014?

Benefit levels cannot be reduced to below 110 percent of the monthly benefit that the PBGC guarantees at the time of the reduction. Further, if the participant or beneficiary has reached age 75 at the time of the reduction, the amount of the benefit reduction is phased out until the individual reaches age 80. Benefits that are payable to participants or beneficiaries that have reached age 80 at the time of reduction, as well as benefits that are payable based upon disability, may not be reduced.¹ All benefit reductions must be distributed equitably among plan participants and beneficiaries.

The MPRA also contains limitations on how a suspension of benefits must be applied in the case of a plan where benefits are attributable to a participant’s service for an employer that has withdrawn from the plan, paid the full amount of its withdrawal liability and, pursuant to a collective bargaining agreement, assumed liability for providing benefits under a separate single-employer plan.

The IRS has released proposed and temporary regulations that provide that the reduction must first be applied to reduce benefits attributable to participant’s service with an employer that has withdrawn from the plan, but failed to pay the full amount of its withdrawal liability. A reduction must then be applied to reduce any other benefits before any reduction is applied to reduce benefits attributable to a participant’s service with an employer that has withdrawn, paid the full amount of its withdrawal liability and, pursuant to a collective bargaining agreement, assumed liability for paying benefits under a separate single-employer plan in an amount equal to any amount of benefits for such participants and beneficiaries reduced as a result of the financial status of the multiemployer plan.² Guidance on application procedures for approval of benefit suspensions under IRC Section 432(e)(9) is provided in Revenue Procedure 2016-27.³ See also Q 3739 for more information.