Pension Benefit Guaranty Corporation.
Proposed rule.
The Pension Benefit Guaranty Corporation (PBGC) is making miscellaneous technical corrections, clarifications, and improvements to its regulations on Reportable Events and Certain Other Notification Requirements, Annual Financial and Actuarial Information Reporting,
Comments must be submitted on or before August 26, 2019 to be assured of consideration.
Comments may be submitted by any of the following methods:
•
•
•
All submissions must include the agency's name (Pension Benefit Guaranty Corporation, or PBGC) and the Regulation Identifier Number (RIN) for this rulemaking (RIN 1212–AB34). Comments received will be posted without change to PBGC's website,
Stephanie Cibinic (
The purpose of this regulatory action is to make miscellaneous technical corrections, clarifications, and improvements to several Pension Benefit Guaranty Corporation (PBGC) regulations. These changes are based on PBGC's ongoing retrospective review of the effectiveness and clarity of its rules, which includes input from stakeholders on PBGC's programs.
Legal authority for this action comes from section 4002(b)(3) of the Employee Retirement Income Security Act of 1974 (ERISA), which authorizes PBGC to issue regulations to carry out the purposes of title IV of ERISA. It also comes from section 4006 of ERISA, which give PBGC the authority to prescribe schedules of premium rates and bases for the application of those rates; section 4010 of ERISA, which gives PBGC authority to prescribe information to be provided and the timing of reports; section 4041 of ERISA (Termination of Single-Employer Plans); and section 4043 of ERISA, which gives PBGC authority to define reportable events and waive reporting.
The major provisions of this proposed rulemaking would amend PBGC's regulations on:
• Reportable Events and Certain Other Notification Requirements, by eliminating possible duplicative reporting of active participant reductions, clarifying when a liquidation event occurs and providing additional examples for active participant reduction, liquidation, and change in controlled group events.
• Annual Financial and Actuarial Information Reporting, by eliminating a requirement to submit individual financial information for each controlled group member, adding a new reporting waiver and clarifying others, and providing guidance on assumptions for valuing benefit liabilities for cash balance plans.
• Termination of Single-Employer Plans, by providing more time to submit a complete PBGC Form 501 in the standard termination process.
• Premium Rates, by expressly stating that a plan does not qualify for the variable rate premium exemption for the year in which it completes a standard termination if it engages in a spinoff in the same year, clarifying the participant count date special rule for transactions (
The Pension Benefit Guaranty Corporation (PBGC) administers two insurance programs for private-sector defined benefit pension plans under title IV of the Employee Retirement Income Security Act of 1974 (ERISA)—one for single-employer pension plans, and one for multiemployer pension plans. The amendments proposed in this rulemaking apply primarily to the single-employer program.
This proposed rulemaking comes out of PBGC's ongoing retrospective review program to identify and ameliorate inconsistencies, inaccuracies, and requirements made irrelevant over time. It also responds to suggestions and questions from stakeholders that PBGC receives on an ongoing basis and through public outreach, such as PBGC's July 2017 “Regulatory Planning and Review of Existing Regulations” Request for Information.
The proposed technical and clarifying amendments and improvements to PBGC's regulations are discussed below. PBGC invites comment on these proposals.
The proposed rule would amend the general “Definitions” section (29 CFR 4001.2) for terms used in regulations under title IV of ERISA to include the terms “Ultimate parent” and “U.S. entity.” Those terms are currently defined in PBGC's “Reportable Events and Certain Other Notification Requirements” regulation (29 CFR part 4043), “reportable events regulation,” at §§ 4043.2 and 4043.81(c) respectively. Because proposed amendments to PBGC's Annual Financial and Actuarial Information Reporting regulation (29 CFR part 4010), “4010 reporting regulation,” would use those same two terms, it is appropriate to move them to the common definitions section in § 4001.2.
Section 4043 of ERISA requires that PBGC be notified of the occurrence of certain “reportable events” that may signal financial issues with the plan or a contributing employer. The statute provides for both post-event and advance reporting. PBGC's reportable events regulation implements section 4043 of ERISA.
Reportable events include such plan events as missed contributions, insufficient funds, large pay-outs, and such sponsor events as loan defaults and controlled group changes—events that may present a risk to a sponsor's ability to continue a plan. When PBGC has timely information about a reportable event, it can take steps to encourage plan continuation. Without timely information about a reportable
On September 11, 2015, PBGC issued a final rule,
Since publication of the 2015 Final Rule, PBGC has further identified some opportunities to improve the reportable events and notification requirements by filling in gaps where guidance is needed, simplifying or removing language, codifying policies, and providing examples.
Section 4043.9(e) of the reportable events regulation describes the commercial measures waiver that is available for certain events.
The preamble to the 2015 Final Rule made clear that the commercial measures criterion was to be met by looking to third party information and not, for example, information that a company itself generates but that might be considered “widely available” because the information is posted on the company's website.
Under § 4043.23 of the reportable events regulation, an active participant reduction reportable event generally occurs when, as a result of a single-cause event or through normal attrition of employees (described below), the number of active participants in a plan is reduced below 80 percent of the number at the beginning of the year (one-year lookback) or below 75 percent of the number at the beginning of the prior year (two-year lookback). The regulation distinguishes between reductions caused by single cause events and normal attrition events. If active participants cease to be members of a plan's controlled group due to a single cause event, such as a reorganization or layoff, the plan administrator and contributing sponsor must file a notice with PBGC within 30 days after the threshold is breached, unless a waiver applies. Conversely, if the active participant reduction is caused by the normal comings and goings of employees or other smaller scale reductions (
Since publication of the 2015 Final Rule, PBGC has received questions from practitioners, including in a comment to its 2017 RFI on Regulatory Planning and Review of Existing Regulations (see the “Background” section of this preamble), about whether a plan administrator or contributing sponsor that files a single-cause event notice must also file an attrition event notice at a later date due to the same active participant reduction. Upon review, PBGC recognizes that § 4043.23 could be interpreted in this manner, though this was not PBGC's intent.
To address this issue, PBGC proposes to amend § 4043.23(a)(2) by altering the current method of counting active participants after the end of the plan year in determining whether an attrition event has occurred by taking into account the number of active participants that had already been the subject of a single-cause event report in the same plan year. Thus, to determine whether an attrition event has occurred, the number of active participants who ceased to be active and were covered by a single-cause event reported in the same year would be included in the year-end count. This proposed new method of counting would prevent duplicative reporting by disregarding the earlier single-cause event if already reported to PBGC.
The proposed rule also would make clear that multiple single-cause events during the plan year must be reported separately. Thus, each time a new single-cause event results in an active participant reduction greater than 20 percent over the number of active participants at the beginning of the plan year, a new Form 10 would be required to be filed. PBGC is making this clarification because PBGC believes that dramatic reductions due to different events in the same year could signal that the plan sponsor's ability to maintain the plan is rapidly deteriorating.
For further explanation, the proposed rule includes examples in the regulatory text of the interplay between single-cause and attrition events, as well as a single-cause event that occurs over a period of time.
The proposed rule would make non-substantive changes to the formula for counting a single-cause event in § 4043.23(a)(1) that PBGC believes is clearer, more aligned to the proposed language in § 4043.23(a)(2) described above, and easier to use.
To further reduce burden, the proposed rule would eliminate the two-year lookback requirement. With a few years' experience under the 2015 Final Rule, PBGC has concluded that the one-year/80 percent test provides sufficient information and undertaking the additional burden of conducting the two-year/75 percent lookback is not necessary. Thus, the language regarding the two-year lookback in § 4043.23(a)(1) and (2) would be removed under the proposed rule. To address the statutory requirement, the proposed rule would waive notice of the two-year lookback provided under section 4043(c)(3) of ERISA.
Other proposed changes to § 4043.23 include amending the current definition of “active participant.” The current definition provides that an active participant means, among other things, a participant who “is receiving compensation for work performed,” but does not address whether a participant becomes inactive if the participant leaves a controlled group member for employment by another member of the same controlled group. The proposed rule would clarify that a participant is
Finally, PBGC proposes to clarify that reporting an active participant reduction under § 4043.23 would be disregarded if the reduction was already reported under section 4062(e) and/or 4063(a) of ERISA. The current regulation provides that a reduction in the number of active participants may be disregarded if the reduction is timely reported to PBGC under section 4063(a) of ERISA but does not specify when the report must be made in relation to a Form 10 Report under § 4043.23 for the disregard provision to be available. PBGC's intent in providing the waiver was to prevent duplicative reporting for the same event where notice had previously been filed. To codify PBGC's intent, the proposed rule would clarify that reporting a reduction in the number of active participants under § 4043.23 may be disregarded if the reduction is reported under section 4062(e) and/or 4063(a) of ERISA before the filing of a notice is due under § 4043.23.
In general, a reportable event occurs under § 4043.26 of the reportable events regulation when a plan fails to make a benefit payment timely or when a plan's liquid assets fall below the level needed for paying benefits for six months. The 2015 Final Rule modified § 4043.26(a)(1)(iii) so that a plan is not treated as having a “current inability” to pay benefits when due if, among other things, the failure to pay is caused solely by “any other administrative delay, including the need to verify a person's eligibility for benefits, to the extent that the delay is for less than the shorter of two months or two full benefit payment periods.” In modifying the regulation, the 2015 Final Rule inadvertently imposed a time limit for verification of a person's eligibility for benefits. PBGC recognizes that employers may need more than the specified time limit to verify a person's eligibility for benefits and that such a circumstance is not indicative of a possible need for plan termination.
To resolve this issue, PBGC proposes to amend § 4043.26 to clarify that an inability to pay benefits when due caused by the need to verify eligibility is not subject to the time limit imposed for other administrative delays.
Under § 4043.29 of the reportable events regulation, a reportable event occurs for a plan when there is a transaction that results, or will result, in one or more persons' ceasing to be members of the plan's controlled group. PBGC has continued to receive inquiries about when a reportable event is triggered under § 4043.29. For instance, although the heading of § 4043.29 includes “a change in contributing sponsor,” the regulatory text does not. A 1996 rulemaking added a new reportable event for transactions that result in any person ceasing to be a member of the plan's controlled group, amending the then existing regulation that required reporting only if there was a change in the contributing sponsor.
Thus, PBGC proposes to modify the event definition to make clear that reporting would be required when a transaction results in one or more persons ceasing to be either a contributing sponsor of a plan, or a member of the plan's controlled group (other than by merger involving members of the same controlled group). The current exception to the reporting requirement for transactions that will solely result in a reorganization involving a mere change in identity, form, or place or organization (however effected), would apply under the proposed rule to only “change in controlled group” transactions. A reorganization such as this that involves a controlled group member that is not a contributing sponsor does not pose a significant risk to the pension insurance system. However, PBGC does need to know about any change to a contributing sponsor, since it is a contributing sponsor that primarily supports the pension plan.
The proposed rule also would revise the first example in the existing regulation to provide greater clarity on the timing of, and responsibility for, filing a report. In addition, the proposed rule would add two new examples—one regarding dissolution of a controlled group member and one describing a merger of controlled group members. These examples illustrate some common situations implicated by the requirements in § 4043.29.
Section 4043.30(a)(1) of the reportable events regulation states that a reportable event occurs for a plan when a member of the plan's controlled group “is involved in any transaction to implement its complete liquidation (including liquidation into another controlled group member).” In discussing this provision with practitioners over the years, it has become clear that this event description could benefit from greater clarity and precision, particularly with respect to what “involved in any transaction to implement” a liquidation means and when the event was triggered.
One liquidation scenario that commonly causes confusion involves a company that ceases operations and sells substantially all of its assets over a period of time. The company continues to sponsor a plan but with no business income, benefits stop accruing and no further plan contributions from the company are made. The result is a “wasting trust” where assets are depleted over time to make pension payments but no new contributions are made for future payment obligations. PBGC observes that because the plan has not been terminated, the company does not realize a reportable event has occurred. Although a cessation of business operations is not in and of itself a liquidation, because the cessation is tied to a sale of substantially all of the business' assets, with the intent to settle remaining obligations, PBGC views a cessation in this context as part of the liquidation process.
When a company fails to notify PBGC that the company ceased business operations and began a liquidation, PBGC encounters greater difficulties in effectively intervening to protect plan assets and participant benefits, thereby increasing the potential for decreased employer funding for the plan and greater potential strain on the pension insurance system. In some cases, PBGC did not become aware of the process of liquidation until years later, when the
To alleviate confusion and improve precision, PBGC proposes to clarify the definition of liquidation to state that a liquidation event occurs when a member of the plan's controlled group “resolves to cease all revenue-generating business operations, sell substantially all its assets, or otherwise effect or implement its complete liquidation (including liquidation into another controlled group member) by decision of the member's board of directors (or equivalent body such as the managing partners or owners) or other actor with the power to authorize such cessation of operations or a liquidation.” Hence, a cessation of operations, such as the example above, would trigger a reportable event under § 4043.30. The proposed rule includes the word “revenue-generating” to qualify a cessation of business operations in acknowledgement of the fact that various administrative activities may continue during the winding down of a business. The use of the word “revenue-generating” is therefore designed to capture the fact that a company is not earning revenue to enable it to support the pension plan.
The decision to liquidate can have serious implications for participants and the pension insurance system. Given that PBGC's success in such cases is often directly correlated with reporting an event when there is still time to preserve plan assets, PBGC believes triggering a reporting obligation to the time a decision by the person(s) or body (such as a board of directors) that has the authority to determine that a company will liquidate will be most protective of participants and the pension insurance system. Since a liquidation may or may not involve a formal plan, a written agreement to sell assets to a single buyer, or a series of sales over time to maximize proceeds, the language in the proposed rule represents as close as possible to a uniform trigger for reporting of liquidation events. PBGC believes that in the vast majority of cases, the decision to liquidate must go through a formal approval or authorization process. Even in cases where the plan sponsor is a company owned by a single person and board formalities do not exist, a moment occurs when that owner has made the decision to move forward with a liquidation. This decision is the common point of departure for liquidations to move forward. For reference and further clarity, PBGC has included in the proposed rule three additional examples, regarding a liquidation within a controlled group, occurring by cessation of operations, and through an asset sale.
Companies that liquidate as a result of insolvency are required to report both events to PBGC under § 4043.30 and § 4043.35 of the reportable events regulation. However, given the similarities between the two events, PBGC believes that reporting to PBGC under either section (instead of both) would be sufficient notification. Thus, PBGC is proposing an additional waiver that would provide relief from the possibility of duplicative reporting under a § 4043.30 liquidation or a § 4043.35 insolvency. The proposed rule would provide parallel waivers in both § 4043.30 and § 4043.35 to clarify that notice would be waived if notice has already been provided to PBGC for the same event under the former section.
PBGC does not intend to compel public company sponsors to disclose liquidations on a Form 10 before notifying the public. Thus, the proposed rule includes an extension under § 4043.30(c) to file the post-event reportable events notice until the earlier of the timely filing of an SEC Form 8–K disclosing the event or the issuance of a press release discussing it.
PBGC specifically requests comment on whether PBGC should make this extension available for foreign private issuers and if so, how. For example, should the regulation allow an extension to file a reportable events notice involving a foreign private issuer that is a plan sponsor until the earlier of the timely filing of a Form 6–K disclosing the event or the issuance of a press release discussing it, even if the country of incorporation for the foreign private issuer would not require reporting as timely as is required on a Form 8–K for the same event had the issuer been a U.S. filer?
Five reportable events
The proposed rule does not make any changes to the public company waiver. However, in response to questions from practitioners since publication of the 2015 Final Rule, PBGC requests comment on whether the waiver should be expanded to apply in situations where a parent company timely files a Form 8–K but is not a contributing sponsor to the plan. Specifically, would the Form 8–K filing by a parent company that isn't a contributing sponsor provide adequate information to PBGC with respect to each of the five events to which the waiver applies?
Section 4010 of ERISA requires the reporting of actuarial and financial information by controlled groups with single-employer pension plans that have significant funding problems. It also requires PBGC to provide an annual summary report to Congress containing aggregate information filed with PBGC under that section. PBGC's “4010 reporting regulation” (29 CFR part 4010) implements section 4010 of ERISA.
Section 4010.2 of PBGC's 4010 reporting regulation contains the terms used in part 4010 and their definitions. The proposed rule would amend this “Definitions” section to include the term “Foreign entity,” which is used in proposed amendments to § 4010.9 describing the financial information a filer is required to provide to PBGC. The proposed definition is similar to the definition of “Foreign entity” in § 4043.2 of PBGC's reportable events regulation. The only difference is that “information year” replaces “date the reportable event occurs” in part (3) of the definition so that part (3) is satisfied for 4010 purposes if one of three tests are met for the fiscal year that includes the information year.
The proposed rule also would add to the list of common terms referenced in § 4010.2 the two terms it would define in the general definitions section of PBGC's regulations (§ 4001.2). As explained above, under “Terminology—29 CFR part 4001,” those terms would be “Ultimate parent,” and “U.S. entity.”
Section 4010.4 of the 4010 reporting regulation prescribes who is a filer. Paragraph (e) of this section explains how reporting is applicable to plans to which special funding rules apply. This paragraph provides that except in connection with the actuarial valuation report, the special funding rules under sections 104 and 402(b) of PPA (applicable to multiple employer plans of cooperatives and charities, and plans of commercial passenger airlines and airline caterers, respectively) and under the Cooperative and Small Employer Charity Pension Flexibility Act of 2013, are disregarded for all other 4010 purposes. The proposed rule would remove from paragraph (e) the reference to PPA section 104 because it has expired.
Section 4010.7 of the 4010 reporting regulation describes what types of identifying information each filer must provide as part of its reporting. Paragraph (a)(1) of this section specifies what information is required to be included about current members of the filer's controlled group, such as identifying the legal relationships of each controlled group member to the other members. Filers identify the legal relationships by manually entering a description,
The proposed rule would provide a simple method for filers in larger controlled groups to satisfy the requirement in paragraph (a) of this section. Instead of entering “parent,” “subsidiary,” or other relationship, filers with more than 10 controlled group members would submit with their filing an organizational chart or other diagram showing the relationship of the controlled group members to each other. PBGC's understanding is that most filers have such diagrams. Also, filers may already include such diagrams in reportable events filings (29 CFR part 4043) to satisfy the requirement specified in those instructions for a description of the controlled group structure. PBGC believes that requiring a diagram for these larger groups would be less burdensome to provide and would more clearly show the controlled group structure.
Section 4010.8 of the 4010 reporting regulation prescribes the plan actuarial information a filer must provide. Paragraph (d)(2) of this section sets the actuarial assumptions and methods to use for determining a plan's benefit liabilities. PBGC has heard from practitioners that the assumptions in paragraph (d)(2) as they apply to cash balance pension plans are not clear and don't specify how these plans should convert a lump sum payment (which is the assumption used by most cash balance plans) to an annuity form. The proposed rule would provide needed guidance with respect to cash balance plans on these assumptions and make a change in the paragraph's overall structure to improve clarity.
The proposed rule would reorganize § 4010.8(d)(2) and combine the actuarial assumptions under paragraphs (d)(2)(i) through (ii) of this section into a table. The table would include as number (5) the assumptions to use for valuing benefit liabilities for cash balance plans. Cash balance plan filers must convert account balances to annuity forms of payment using the rules under section 411(b)(5)(B)(vi) of the Code and 26 CFR 1.411(b)(5)–1(e)(2) that specify the interest crediting rate and annuity conversion rate upon plan termination. In other words, for purposes of reporting benefit liabilities, a cash balance plan would be treated as if terminated and lump sums converted to annuity payments using the assumptions in the applicable U.S. Department of the Treasury regulation cited to above.
The proposed edits to paragraph (d)(3) of this section focus on improved readability and conformed citations to ERISA and the Code.
Section 4010.9 of the 4010 reporting regulation prescribes the financial information a filer must submit to PBGC for each member of the filer's controlled group. Paragraph (b) of this section permits a filer to submit consolidated financial statements if the financial information of a controlled group member is combined with the information of other members in a consolidated statement. However, if consolidated information is reported, paragraph (b)(2) requires that revenues, operating income, and net assets for each controlled group member also be reported.
In PBGC's 2017 Request for Information (RFI) on Regulatory Planning and Review of Existing Regulations (noted in the “Background” section of this preamble), a commenter stated that some filers have difficulty trying to identify and collect the three types of information under § 4010.9(b)(2) for each controlled group member and recommended that PBGC modify the regulation to request this detailed information only when necessary as part of reviewing the plan and controlled group financial statements. PBGC considered the comment, and after reviewing the information it collects for 4010 purposes, PBGC believes it can adequately assess risks to participants and plans without this detailed information, and by using additional “off-the-shelf” information as noted in the following paragraph. Therefore, the proposed rule would eliminate that requirement in paragraph (b)(2) of § 4010.9.
PBGC proposes to make another change to paragraph (b) of this section to clarify what financial information must be provided for controlled group members that are U.S. entities where the ultimate parent is a foreign entity. In addition to the consolidated statements for the whole controlled group, the filer must submit financial information on only the U.S. entities that are members of the controlled group. This information could be submitted in consolidated statements. Otherwise, the filer must provide the separate audited (or unaudited) financial statements (or tax returns if financial statements are not available) for controlled group members that are U.S. entities.
Lastly, § 4010.9 allows filers to direct PBGC to where PBGC can find required financial information that is publicly available (in lieu of submitting that information to PBGC). Paragraph (d) of this section on “submission of public information” provides that a filer may submit a statement indicating when the financial information was made available to the public and where PBGC may obtain it. In PBGC's experience, these statements have led to general websites, but not specific web pages where the information required to be reported can be found. Therefore, the proposed rule would clarify how to indicate where public financial information is located. The clarification would state that filers provide the web address (URL) and title of the web page. The example in paragraph (d) of a Securities and Exchange Commission filing is clarified accordingly.
Reporting under section 4010 of ERISA is required if any one of three conditions is met. However, PBGC can waive reporting under its 4010 reporting regulation and does so in three situations (with discretion to waive in others) under § 4010.11 of the regulation.
A condition triggering reporting is that the funding target attainment percentage (FTAP) at the end of the preceding plan year, of a plan maintained by the contributing sponsor or any member of its controlled group, is less than 80 percent (the “80-percent FTAP Gateway Test”). Section 303(d)(2) of ERISA and section 430(d)(2) of the Code provide that in determining the FTAP of a plan for a plan year, plan assets are reduced by the amount of the plan's funding balance. Plan sponsors are permitted under section 303(f) of ERISA and section 430(f) of the Code to make certain elections to use, increase, or reduce a funding balance effective at the beginning of the plan year. Because of timing, a funding balance election that is made late may be the sole cause of a plan having a 4010 FTAP of less than 80 percent. Practitioners have asked if PBGC would recognize for purposes of the 80-percent FTAP Gateway Test an untimely funding balance election.
In response, and based on a review of its experience, PBGC proposes to recognize a late funding balance election for this purpose. The proposed waiver would clarify that reporting is not required where a plan makes a late election to reduce a funding balance, and the plan's FTAP for 4010 purposes would have been greater than or equal to 80 percent had the election been timely made.
PBGC also proposes to modify two of the existing three reporting waivers in § 4010.11 of the regulation. PBGC automatically waives reporting where: (a) The aggregate funding shortfall is not in excess of $15 million; (b) the aggregate participant count is less than 500; or (c) the sole reason filing would otherwise be required is because of either a statutory lien resulting from missed contributions over $1 million or outstanding minimum funding waivers exceeding the same amount, provided the missed contributions or applications for minimum funding waivers were previously reported to PBGC.
Practitioners have raised with PBGC that, while it is clear under the 80-percent FTAP Gateway Test that only plans maintained by the controlled group on the last day of the information year are considered in determining whether that test is met, the same is not clear under § 4010.11 in determining whether either of the first two waivers apply. Without specifying “on the last day of the information year,” the language of the aggregate funding shortfall waiver in paragraph (a) and the waiver for smaller plans in paragraph (b) of § 4010.11, could be interpreted to mean that plans maintained at any time during the plan year must be included in the determination of whether the waiver applies. This is not the interpretation that PBGC intended or believes is reasonable in light of the standard in the 80-percent FTAP Gateway Test. PBGC agrees that a clarification would be helpful. Therefore, the proposed rule would modify paragraphs (a) and (b) of § 4010.11 to insert “on the last day of the information year.”
Practitioners have also asked when at-risk assumptions are to be used to calculate the funding target (see section 303(i) of ERISA and section 430(i) of the Code for special rules for at-risk plans) for purposes of the 4010 funding shortfall and waiving reporting where a plan's aggregate funding shortfall is $15 million or less. In response, the proposed rule would revise paragraph (a)(1)(i) of § 4010.11 to provide that a plan is not required to use at-risk retirement and form of payment assumptions to determine the funding target used to calculate the 4010 funding shortfall unless the plan is in “at-risk status” for funding purposes. This follows a similar clarification that had been made to the rules describing assumptions for determining the premium funding target under PBGC's premium rates regulation, § 4006.4(b)(3).
A single-employer plan covered by PBGC's insurance program may be voluntarily terminated only in a standard or distress termination. The rules governing voluntary terminations are in section 4041 of ERISA and PBGC's regulation on Termination of Single-Employer Plans (29 CFR part 4041), “termination of single-employer plans regulation.”
ERISA requires the plan administrator of a plan terminating in a standard termination to certify to PBGC that the plan's assets have been distributed to pay all benefits under the plan. Certification under section 4041(b)(3)(B) of ERISA must be made within 30 days after the final distribution of assets is completed.
Section 4041.29 of the termination of single-employer plans regulation requires plans to submit by the 30-day statutory deadline a “post-distribution certification” (
While PBGC cannot extend a statutory deadline, the proposed rule would amend paragraph (a) of § 4041.29 to provide an alternative filing option for plan administrators who need more time to complete the PBGC Form 501. This proposed alternative would permit a plan administrator to submit a completed PBGC Form 501 within 60 days after the last distribution date for any affected party if the plan administrator certifies to PBGC that all assets have been distributed in accordance with section 4044 of ERISA and 29 CFR part 4044 (in an email or otherwise, as would be described in the instructions to the Form 501) within 30 days after the last distribution date for any affected party.
Paragraph (b) of this section and paragraph (d)(2) of § 4041.30 (requests for deadline extensions) would be revised accordingly to account for the proposed changes to § 4041.29(a).
Under sections 4006 and 4007 of ERISA, plans covered by the termination insurance program under title IV of ERISA must pay premiums to PBGC. Section 4006 of ERISA deals with premium rates, including the computation of premiums, and PBGC's regulation on Premium Rates in 29 CFR part 4006, “premium rates regulation,” implements section 4006 of ERISA.
Section 4006.4 of the premium rates regulation, which provides rules for determining unfunded vested benefits, states in paragraph (f) that plans subject to special funding rules must disregard those rules and determine unfunded vested benefits for premium purposes in the same manner as all other plans. Section 4006.4(f) refers to the special funding rules under sections 104, 105, 106, and 402(b) of the Pension Protection Act of 2006, Public Law 109–280 (PPA), that are applicable to
The proposed rule would remove references to PPA sections 104, 105, and 106 because those provisions have expired. It would add a reference to subsequent law that permanently established special funding rules for multiple employer plans maintained by certain cooperatives and charities (the Cooperative and Small Employer Charity Pension Flexibility Act of 2013, Pub. L. 113–97).
In general, a single-employer plan pays a variable-rate premium (VRP) for the plan year ten-and-a-half months after the plan year begins based on the level of the plan's underfunding at the beginning of the plan year. In 2014, as part of PBGC's regulatory review process, PBGC amended its premium rates regulation to provide for a VRP exemption for the year in which a plan completes a standard termination. PBGC adopted this exemption because it did not seem appropriate to require a terminating plan to pay a VRP based on the underfunding at the beginning of the year when, by the time the premium was due (or shortly thereafter), the sponsor had fully funded the plan and distributed all accrued benefits (
PBGC has received questions from practitioners as to whether a plan qualifies for this “final year” exemption if a large number of participants are spun off to a new plan or transferred to another existing plan during the year in which the termination is completed. It has been suggested that, if the exemption applies, a plan sponsor could significantly reduce its VRP because the transferor plan would not owe any VRP for its final year and the transferee plan would owe, at most, a pro-rata VRP for the plan year in which the transfer occurs.
In light of these questions, PBGC is proposing to amend § 4006.5(a)(3) of the premium rates regulation to expressly state that a plan does not qualify for the VRP exemption for the year in which a plan completes a standard termination if the plan engages in a spinoff during the premium payment year. The proposed rule would make an exception where the spinoff is de minimis pursuant to the regulations under section 414(l) of the Internal Revenue Code (the Code),
To distinguish cases where the termination has not yet been completed, the proposed changes would move the exemption for certain plans in the process of completing a standard termination initiated in a prior year from § 4006.5(a)(3) to § 4006.5(a)(4) of the premium rates regulation.
To determine the flat-rate premium for a plan year, participants are counted on the “participant count date,” generally the day before the plan year begins. Changes in the participant count during the plan year do not affect that year's flat-rate premium. Under the premium rates regulation, a special rule (§ 4006.5(e)) shifts the participant count date to the first day of the plan year in specified situations that take place at the beginning of a plan year so that the change in participant count is recognized immediately (rather than a year later). Situations where the special rule applies include:
• The first plan year a plan exists.
• A plan year in which a plan is the transferor plan in the case of a beginning of year non-de minimis spinoff.
• A plan year in which a plan is the transferee plan in the case of a beginning of year non-de minimis merger.
For example, consider a scenario where Plan A, a calendar year plan, spins off a group of participants (and the corresponding assets and liabilities) into new Plan B at the beginning of Plan A's 2018 plan year (assume the spinoff is not de minimis). Because of the special rule, both plans count participants on the first day of the year which means Plan B owes a 2018 flat-rate premium on behalf of the transferred participants, but Plan A does not.
PBGC has received questions from practitioners as to whether the special rule applies to the transferee plan in a situation where spun off participants are transferred to an existing plan instead of a new plan. These practitioners believed the premium filing instructions could be interpreted to provide that the special rule does not apply to the transferee plan in this plan-to-plan transfer. However, that interpretation would lead to an inconsistent result.
For example, assume that instead of spinning off participants into a new plan, Plan A (in the above example) had transferred those participants to a pre-existing Plan C (also a calendar year plan) at the beginning of Plan C's 2018 plan year. As noted above, the special rule would apply to Plan A, so Plan A would not include the transferred participants in its participant count. But, if the special rule does not apply to Plan C (
PBGC is proposing to amend the special rule in paragraph (e) of § 4006.5 to clarify that, in such plan-to-plan transfers, the participant count date of the transferee plan shifts to the first day of its plan year. As a result, it is clear that the transferee plan would owe flat-rate premiums on behalf of the transferred participants. This provision generally would operate where both plans have the same plan year and the transfer takes place at the beginning of the plan year.
As noted above, the special rule also applies where a plan is the transferee plan in the case of a beginning-of-year non-de minimis merger. For example, if two calendar year plans merge at the beginning of 2018, the surviving plan's participant count date is shifted to January 1, 2018. As a result, the surviving plan owes 2018 flat-rate premiums on behalf of the participants who were previously in the transferor plan.
PBGC exempted de minimis mergers from this special rule because PBGC felt the burden resulting from shifting the participant count date was not justified in the case of a de minimis merger because the number of participants for whom neither plan would owe a flat-rate premium would be relatively small (
PBGC has received questions from practitioners as to whether this de minimis exemption applies where the surviving plan is the smaller plan. It has been suggested that, if the exemption applies, a plan sponsor could avoid paying flat-rate premiums on behalf of the large plan participants simply by merging it into a much smaller plan. In one case, a consultant reported that a plan sponsor was considering a strategy to establish a new plan covering only a few employees so that it could merge a large plan into the new small plan at the beginning of the next year and avoid paying flat-rate premiums on behalf of the large plan participants. These results are inconsistent with the intent of the special rule and de minimis exception.
Because of these questions, PBGC is proposing to clarify that the special rule in paragraph (e) of this section applies in the case of a beginning-of-year merger where a large plan is merged into a smaller plan. This clarification maintains the de minimis exception where a smaller plan merges into a larger plan.
The special rule in § 4006.5(f) of PBGC's premium rates regulation allows plan administrators to pay prorated VRP and flat-rate premiums for a short plan year and lists the four circumstances that would create a short year. One of those circumstances is where the plan's assets are distributed pursuant to the plan's termination. For example, if a plan distributed its assets in a standard termination with a final short plan year covering nine months (
This rule makes sense where all accrued benefits are distributed (
In view of these considerations, PBGC is proposing to change the circumstances under which the premium is prorated for a short plan year resulting from a standard termination. The proposed rule would provide that premiums are not prorated for the year in which the plan completes a final distribution of assets in a standard termination if the plan engages in a spinoff in that same year, unless the spinoff is de minimis pursuant to the regulations under section 414(l) of the Code,
In the same paragraph, the proposed rule replaces the words “excess assets” with “residual assets under section 4044(d) of ERISA” to be consistent with the statutory language.
PBGC has determined that this rule is not a “significant regulatory action” under Executive Order 12866. Accordingly, this proposed rule is exempt from Executive Order 13771, and the Office of Management and Budget has not reviewed it under Executive Order 12866.
Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity).
Although this is not a significant regulatory action under Executive Order 12866, PBGC has examined the economic and policy implications of this proposed rule. Most of the proposed amendments clarify regulations and remove outdated provisions, which are neutral in their impact. A few would minimally affect the time and cost of reporting for plans and sponsors, which is discussed in the Paperwork Reduction Act section below.
Section 6 of Executive Order 13563 requires agencies to rethink existing regulations by periodically reviewing their regulatory program for rules that “may be outmoded, ineffective, insufficient, or excessively burdensome.” These rules should be modified, streamlined, expanded, or repealed as appropriate. PBGC has identified technical corrections, clarifications, and improvements to some of its regulations and have included those amendments in this proposed rulemaking. PBGC expects to propose periodic rulemakings of this nature to revise its regulations as necessary for minor technical corrections and clarifications to rules.
The Regulatory Flexibility Act
For purposes of the Regulatory Flexibility Act requirements with respect to this proposed rule, PBGC considers a small entity to be a plan with fewer than 100 participants. This is substantially the same criterion PBGC uses in other regulations
Thus, PBGC believes that assessing the impact of this final rule on small plans is an appropriate substitute for evaluating the effect on small entities. The definition of small entity considered appropriate for this purpose differs, however, from a definition of small business based on size standards promulgated by the Small Business Administration
Based on its definition of small entity, PBGC certifies under section 605(b) of the Regulatory Flexibility Act that the amendments in this proposed rule would not have a significant economic impact on a substantial number of small entities. As explained above under “Executive Orders 12866, 13563, and 13771,” some of the proposed amendments reduce requirements for plans and sponsors, including for small plans, resulting in administrative savings or have a very minimal cost impact as discussed in the Paperwork Reduction Act section below. Most of the amendments clarify regulations and remove outdated provisions, which are neutral in their impact. Accordingly, as provided in section 605 of the Regulatory Flexibility Act, sections 603 and 604 do not apply.
PBGC is submitting changes to the information requirements under this proposed rule to the Office of Management and Budget (OMB) for review and approval under the Paperwork Reduction Act (PRA). An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. Most of the changes PBGC expects to make are revisions to filing instructions, where necessary or helpful, to incorporate the clarifications in the proposed rule. Therefore, PBGC estimates the proposed rule would have a minimal impact on the hour and cost burden of reporting as described below.
The collection of information in part 4043 is approved under control number 1212–0013 (expires February 28, 2022). The current information collection requirements in part 4043 have an estimated annual hour burden of approximately 1,855 hours and a cost burden of $439,500.
PBGC's instructions for Form 10 and Form 10-Advance would be updated to describe, as necessary or helpful, the clarifications that would be made by the proposed rule. The clarifications incorporated in the instructions would replace or augment existing language but would not create additional filing burden. However, the proposed rule would reduce reporting of active participant reduction events by eliminating the two-year lookback requirement. PBGC estimates that the approximately 180 filings it receives for active participant reduction events per year would be reduced by approximately 38 percent. Therefore, PBGC estimates that the total average annual hour burden under the proposed rule would be approximately 1,641 hours and the cost burden $388,890.
The collection of information in part 4010 is approved under control number 1212–0049 (expires May 31, 2022). The current information collection requirements have an estimated annual hour burden of 532 hours and a cost burden of $12,871,040.
PBGC's 4010 reporting e-filing instructions would be updated, as necessary or helpful, to describe the clarifications that would be made by the proposed rule. The clarifications incorporated in the instructions would replace existing language, and therefore would not create additional filing burden in these instances.
However, PBGC estimates that the proposed rule would reduce filer burden by eliminating the requirement of § 4010.9(b)(2) to provide the revenues, operating income, and net assets for each controlled group member if a filer is submitting consolidated financial information. (See Question 2 on Schedule F, Section II, of the e-4010 module of PBGC's e-filing portal on
The collection of information in part 4041 is approved under control number 1212–0036 (expires March 31, 2021). The current information collection requirements in part 4041 (which includes standard and distress terminations) have an estimated annual hour burden of 29,890 hours and a cost burden of $5,963,400.
The proposed rule would revise § 4041.29 to provide plan administrators of plans terminating in a standard termination the option of more time to complete a PBGC Form 501. PBGC estimates up to 5 minutes of time—for those plan administrators who would choose this option—to review the instructions and send an email to PBGC's standard termination filings email address to certify that distributions have been made timely. There is no change in the information requirements contained in the PBGC Form 501.
PBGC estimates that approximately 25 percent of standard termination filers per year would choose this option. With a projected average increase in standard terminations over the current inventory, the total additional average hourly burden for this information collection would be approximately 31 hours (25 percent of 1,503 plans = 375 plans × 5 minutes per plan (0.083 hours) = 31 hours). While PBGC projects this minimal additional time to review and send an email under the proposed new option, overall compliance for plan administrators would be eased by extending the time to file.
The collection of information with respect to premiums is approved under control number 1212–0009 (expires June 30, 2021). PBGC's Comprehensive Premium Filing Instructions would be updated to reflect the changes made by the proposed rule to the premium provisions. The updates incorporated in the instructions would replace existing language and therefore would not create additional filing burden.
Business and industry, Organization and functions (Government agencies), Pension insurance, Pensions, Small businesses.
Employee benefit plans, Pension insurance.
Pension insurance, Pensions, Reporting and recordkeeping requirements.
Employee benefit plans, Pension insurance, Pensions.
Employee benefit plans, Pension insurance, Reporting and recordkeeping requirements.
For the reasons stated in the preamble, PBGC proposes to amend 29 CFR parts 4001, 4006, 4010, 4041, and 4043 as follows:
29 U.S.C. 1301, 1302(b)(3).
29 U.S.C. 1302(b)(3), 1306, 1307.
(f)
(1) Section 402(b) of the Pension Protection Act of 2006, Public Law 109–280, dealing with certain frozen plans of commercial passenger airlines and airline caterers.
(2) Section 306 of ERISA and section 433 of the Code, dealing with certain defined benefit pension plans maintained by certain cooperatives and charities.
The revisions and addition read as follows:
(a)
(3)
(i) Makes a final distribution of assets in a standard termination during the premium payment year, and
(ii) Did not engage in a spinoff during the premium payment year, unless the spinoff is de minimis pursuant to the regulations under section 414(l) of the Code.
(4)
(i) The plan administrator has issued notices of intent to terminate the plan in a standard termination in accordance with section 4041(a)(2) of ERISA;
(ii) The proposed termination date set forth in the notice of intent to terminate is before the beginning of the premium payment year; and
(iii) The plan ultimately makes a final distribution of plan assets in conjunction with the plan termination.
(e)
(2) With respect to a transaction where some, but not all, of the assets and liabilities of one plan (the “transferor plan”) are transferred into another plan (the “transferee plan”)—
(i) The transferor plan if the spinoff is not de minimis and is effective at the beginning of the transferor plan's premium payment year; and
(ii) The transferee plan if the transferor plan meets the criteria in paragraph (e)(2)(i) of this section and the transfer occurs at the beginning of the transferee plan's premium payment year.
(3) With respect to a merger effective at the beginning of the premium payment year, the transferee plan if—
(i) The merger is not de minimis; or
(ii) The assets of the transferee plan immediately before the merger are less than the total assets transferred to the transferee plan in the merger.
(4) For purposes of this paragraph (e), “de minimis” has the meaning described in regulations under section 414(l) of the Code (for single-employer plans) or in part 4231 of this chapter (for multiemployer plans).
(f) * * *
(3)
29 U.S.C. 1302(b)(3), 1310.
(1) Is not a contributing sponsor of a plan;
(2) Is not organized under the laws of (or, if an individual, is not a domiciliary of) any state (as defined in section 3(10) of ERISA); and
(3) For the fiscal year that includes the information year, meets one of the following tests—
(i) Is not required to file any United States Federal income tax form;
(ii) Has no income reportable on any United States Federal income tax form other than passive income not exceeding $1,000; or
(iii) Does not own substantial assets in the United States (disregarding stock of a member of the plan's controlled group) and is not required to file any quarterly United States income tax returns for employee withholding.
(e)
(1) Section 402(b) of the Pension Protection Act of 2006, Public Law 109–280, dealing with certain frozen plans of commercial passenger airlines and airline caterers.
(2) Section 306 of ERISA and section 433 of the Code, dealing with certain defined benefit pension plans maintained by certain cooperatives and charities.
(a)
(1)
(i) The name, address, and telephone number of the entity;
(ii) The nine-digit Employer Identification Number (EIN) assigned by the IRS to the entity (or if there is no EIN for the entity, an explanation); and
(iii) If the entity became a member of the controlled group during the information year, the date the entity became a member of the controlled group.
(2)
(i) More than ten members, an organization chart or other diagram showing the members of the filer's controlled group as of the end of the filer's information year and the legal relationships of the members to each other.
(ii) Ten or fewer members, the legal relationship of each entity to the plan sponsor (for example, parent, subsidiary).
(3)
(d) * * *
(2)
(i)
(ii)
(iii)
(3)
(b)
(1) The audited consolidated financial statements for the controlled group for the filer's information year or, if the audited consolidated financial statements are not available by the date specified in § 4010.10(a), unaudited consolidated financial statements for the fiscal year ending within the information year; and
(2) If the ultimate parent of the controlled group is a foreign entity, financial information on the U.S. entities (other than an exempt entity) that are members of the controlled group. The information required by this paragraph (b)(2) may be provided in the form of consolidated financial statements if the financial information of each controlled group member that is a U.S. entity is combined with the information of other group members that are U.S. entities. Otherwise, for each U.S. entity that is a controlled group member, provide the financial information required in paragraph (a) of this section.
(d)
(e)
The revisions and addition read as follows:
(a)
(1)
(i) The funding target used to calculate the 4010 funding shortfall is determined without regard to the interest rate stabilization provisions of section 303(h)(2)(C)(iv) of ERISA and section 430(h)(2)(C)(iv) of the Code, and except for a plan that is in at-risk status for minimum funding purposes for the plan year ending within the filer's information year, without regard to the rules in section 303(i)(1) of ERISA and section 430(i)(1) of the Code.
(ii) The value of plan assets used to calculate the 4010 funding shortfall is determined without regard to the reduction under section 303(f)(4)(B) of ERISA and section 430(f)(4)(B) of the Code (dealing with reduction of assets by the amount of prefunding and funding standard carryover balances).
(d)
(1) Would have had a 4010 funding target attainment percentage for that plan year of 80 percent or more if a timely election to reduce a funding balance pursuant to section 303(f)(5) of ERISA and section 430(f)(5) of the Code had been made; and
(2) Such an election was made after the applicable deadline and before the due date of the 4010 filing.
29 U.S.C. 1302(b)(3), 1341, 1344, 1350.
(a)
(1) Within 30 days after the last distribution date for any affected party, file with PBGC a post-distribution certification (PBGC Form 501), completed in accordance with the instructions thereto; or
(2)(i) Within 30 days after the last distribution date for any affected party, certify to PBGC, in the manner prescribed in the instructions to PBGC Form 501, that the plan assets have been distributed as required, and
(ii) Within 60 days after the last distribution date for any affected party, file a post-distribution certification (PBGC Form 501), completed in accordance with the instructions thereto.
(b)
(d) * * *
(2)
29 U.S.C. 1083(k), 1302(b)(3), 1343.
(a)
(1)
(ii) Examples of single-cause events include a reorganization or restructuring, the discontinuance of an operation or business, a natural disaster, a mass layoff, or an early retirement incentive program.
(2)
(b)
(2)
(i) Is receiving compensation from any member of the plan's controlled group for work performed for any member of the plan's controlled group;
(ii) Is on paid or unpaid leave granted for a reason other than a layoff;
(iii) Is laid off from work for a period of time that has lasted less than 30 days; or
(iv) Is absent from work due to a recurring reduction in employment that occurs at least annually.
(3)
(c)
(1) Is attributable to an event described in sections 4062(e) or 4063(a) of ERISA, and
(2) Is timely reported to PBGC under section 4062(e) and/or section 4063(a) of ERISA prior to the timely filing of the notice required by paragraph (a) of this section.
(d)
(2)
(3)
(4)
(5)
(e)
(f)
(2)
(ii) To prevent duplicative reporting (
(3)
(ii) A single-cause event occurs on September 1 because that is the first time the applicable percentage exceeds 20 percent. This event must be reported by October 1. The November 1 layoff does not trigger a subsequent single-cause event because the layoff does not amount to an additional 20 percent decline in active participants. However, they will be considered in the determination of whether an attrition event occurs at year-end as explained in paragraph (f)(3)(iii) of this section.
(iii) As illustrated in paragraph (f)(2) of this section (Example 2), for purposes of determining whether an attrition event has occurred, the year-end count is increased by the number of participants that triggered a single-cause event. In this case, that number is 210. The fact that an additional 40 active participants were laid off as a result of the business unit shut down after the single-cause event occurred does not affect the calculation because it was not already reported to PBGC. For example, if the year-end active participant count is 560, the number that gets compared to the beginning-of-year active participant count is 770 (
(4)
(a) * * *
(1)
(i) A limitation under section 436 of the Code and section 206(g) of ERISA (dealing with funding-based limits on benefits and benefit accruals under single-employer plans),
(ii) The need to verify a person's eligibility for benefits,
(iii) The inability to locate a person, or
(iv) Any other administrative delay, to the extent that the delay is for less than the shorter of two months or two full benefit payment periods.
(a)
(i) Contributing sponsor of the plan, or
(ii) Member of the plan's controlled group (other than by merger involving members of the same controlled group).
(2) For purposes of this section, the term “transaction” includes, but is not limited to, a legally binding agreement, whether or not written, to transfer ownership, an actual transfer of ownership, and an actual change in ownership that occurs as a matter of law or through the exercise or lapse of pre-existing rights. Whether an agreement is legally binding is to be determined without regard to any conditions in the agreement. A transaction that does not involve a change in contributing sponsor described in this paragraph (a) is not reportable if it will result solely in a reorganization involving a mere change in identity, form, or place of organization, however effected.
(c)
(1)
(2)
(3)
(4)
(a)
(1) Resolves to cease all revenue-generating business operations, sell substantially all its assets, or otherwise effect or implement its complete liquidation (including liquidation into another controlled group member) by decision of the member's board of directors (or equivalent body such as the managing partners or owners) or other actor with the power to authorize such cessation of operations, sale, or a liquidation, unless the event would be reported under paragraph (a)(2) or (3) of this section;
(2) Institutes or has instituted against it a proceeding to be dissolved or is dissolved, whichever occurs first; or
(3) Liquidates in a case under the Bankruptcy Code, or under any similar law.
(b)
(2)
(3)
(c)
(i) The date the contributing sponsor timely files a SEC Form 8–K disclosing the event under an item of the Form 8–K other than under Item 2.02 (Results of Operations and Financial Condition) or in financial statements under Item 9.01 (Financial Statements and Exhibits); or
(ii) The date when a press release with respect to the liquidation described under paragraph (a) of this section is issued.
(d)
(2)
(3)
(b) * * *
(3)