The examples in this appendix illustrate simplified methods for
disregarding certain contribution increases in the allocation
fraction provided in § 4211.14 of this part.
Example 1. Determining the Numerator of the Allocation Fraction
Using the Employer's Plan Year 2014 Contribution Rate (§
4211.14(b)).
Assume Plan X is a calendar year multiemployer plan in critical
status which did not have a benefit increase after plan year 2014.
In accordance with section 305(g)(3)(B) of ERISA, the annual 5
percent contribution rate increases applicable to Employer A and
other employers in Plan X after the 2014 plan year were deemed to
be required to enable the plan to meet the requirement of its
rehabilitation plan and must be disregarded. Employer A, a
contributing employer, withdraws from Plan X in 2021. Using the
rolling-5 method, Plan X has unfunded vested benefits of $200
million as of the end of the 2020 plan year. To determine Employer
A's allocable share of these unfunded vested benefits, Employer A's
hourly required contribution rate and contribution base units for
the 2014 plan year and each of the 5 plan years between 2016 and
2020 are identified as shown in the following table:
2014 PY
2016 PY
2017 PY
2018 PY
2019 PY
2020 PY
5-year total
Employer A's
Contribution Rate
$5.51
n/a
n/a
n/a
n/a
n/a
Contribution Base
Units
800,000
800,000
800,000
900,000
900,000
900,000
4,300,000
Contributions
$4.41M
$4.86M
$5.10M
$6.03M
$6.33M
$6.64M
$28.96M
The plan sponsor makes a determination pursuant to section
305(g)(3) of ERISA that the annual 5 percent contribution rate
increases applicable to Employer A and other employers in Plan X
after the 2014 plan year were required to enable the plan to meet
the requirement of its rehabilitation plan and should be
disregarded; benefits were not increased after plan year 2014.
Applying the simplified method, contribution rate increases that
went into effect during plan years beginning after December 31,
2014 would be disregarded: The $5.51 contribution rate in effect at
the end of plan year 2014 would be held steady in computing
Employer A's required contributions for the plan years included in
the numerator of the allocation fraction. Based on 4.3 million
contribution base units, this results in total required
contributions of $23.7 million over 5 years. Absent section
305(g)(3) of ERISA, the sum of the contributions required to be
made by Employer A would have been determined by multiplying
Employer A's contribution rate in effect for each plan year by the
contribution base units in that plan year, producing total required
contributions of $28.96 million over 5 years.
Example 2. Determining the Denominator of the Allocation
Fraction Using the Proxy Group Method (§ 4211.14(d)).
Assume a plan covers ten employers. For 2017, three small
employers were in rate history group X, representing less than 5
percent of active plan participants; employers A and B and two
other employers were in rate history group Y; and employer C and
two other employers were in rate history group Z. For 2018, there
were changes in contribution rates for some of B's employees, and
as a result, employer B is being treated as two employers, B1 and
B2. B1 remained in rate history group Y because, while B1 has a
significantly lower contribution rate than A, the contributions of
both are subject to the same percentage increase each year. B2 was
added to rate history group X. X continues to represent less than 5
percent of active plan participants, and the plan continues to
ignore it in forming the proxy group. The plan forms a 2018 proxy
group of three employers - A and B1 from rate history group Y and C
from rate history group Z - that together represent more than 10
percent of active plan participants.
Contributions for 2018 are $1,000,000: $20,000 for rate history
group X, $740,000 for rate history group Y, and $240,000 for rate
history group Z, with A and B1 accounting for $150,000 and C
accounting for $45,000 of the total contribution amounts.
Contribution rates for 2018 for A, B1, and C (excluding rate
increases required to be disregarded for withdrawal liability
purposes) and contribution base units for the three employers are:
For A, 87 cents and 100,000 CBUs; for B1, 43 cents and 50,000 CBUs;
and for C, 70 cents and 60,000 CBUs, as shown in rows (1) and (2)
of the table below. Thus, the three employers' adjusted
contributions are $87,000, $21,500, and $42,000 respectively, as
shown in row (3).
Moving from the employer level to the rate history group level,
the adjusted contributions for employers in the proxy group that
are in the same rate history group are added together (row (4)).
Those totals are then divided by total actual contributions for the
proxy group employers in each rate history group (row (6)) to
derive an adjustment factor for each rate history group (row (7))
that is applied to the actual contributions of all employers in the
rate history group (row (8)) to get the adjusted contributions for
each rate history group represented in the proxy group (row
(9)).
Moving from the rate history group level to the plan level, the
same process is repeated. Adjusted employer contributions for the
rate history group are summed (row (10)) and divided by the total
contributions for all rate history groups represented in the proxy
group (row (11)) to get an adjustment factor for the plan (row
(12)). Contributions for rate history group X are excluded from row
(11) because no employer in rate history group X is in the proxy
group. The adjustment factor for the plan is then applied to total
plan contributions (row (13)) to get adjusted plan contributions
(row (14)). Contributions for rate history group X are included in
row (13) because - although X was ignored in determining the
adjustment factor for the plan - the adjustment factor applies to
all plan contributions (other than those by employers excluded from
the plan's allocation fraction denominator). The plan will use the
adjusted plan contributions in row (14) as the total contributions
for 2018 in determining the denominator of any allocation fraction
that includes contributions for 2018.