Pension & Benefits News PBGC finalizes conforming changes to guaranteed benefits and asset allocation regs concerning owner-participants
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Monday, October 22, 2018

PBGC finalizes conforming changes to guaranteed benefits and asset allocation regs concerning owner-participants

By Pension and Benefits Editorial Staff

The Pension Benefit Guaranty Corporation (PBGC) has issued final rules to conform its guaranteed benefits and asset allocation regulations to changes in the phase-in rules for owner-participants under the Pension Protection Act of 2006 (PPA).

ERISA Secs. 4022 and 4044 cover the PBGC’s guarantee of plan benefits and allocation of plan assets, respectively, under terminated single-employer defined benefit plans. Special provisions within these sections apply to owner-participants, who have certain ownership interests in their plan sponsors. PPA made changes to these provisions, which the PBGC has been operating under since they became effective. With these final regulations, the PBGC expects to increase transparency into its operations and provide guidance for plan administrators on the impact of the statutory changes.

The final regulations amend the PBGC’s benefit payment regulation by replacing the guarantee limitations applicable to substantial owners with a new limitation applicable to majority owners. In addition, the final regulations amend the PBGC’s asset allocation regulation by prioritizing funding of all other benefits in priority category 4 ahead of those benefits that would be guaranteed but for the new, owner-participant limitation. The final regulations also clarify that plan administrators may continue to use the simplified calculation in the existing rule to estimate benefits funded by plan assets and provide new examples to aid plan administrators in implementation.

The final regulations are the same as the proposed regulations with two exceptions. The PBGC is adding clarifying language to Reg. §4022.26 concerning PPA bankruptcy terminations. Specifically, the language clarifies that in a PPA bankruptcy termination, the length of time that the plan was in existence is measured from the later of the effective date or the adoption date of the plan to the bankruptcy filing date. Also, the PBGC is not making its proposed amendment to its regulations on Termination of Single-Employer Plans. Specifically, the final regulations retain the long-standing definition of “majority owner” in Reg. §4041.2.

Amendments unrelated to PPA. The PBGC final regulations make minor, nonsubstantive changes to the examples not involving owner-participants in PBGC Reg. §§4022.62 and 4022.63 of the benefit payment regulation in order to improve readability. The PBGC also is correcting two clerical errors that were made when the PBGC previously amended the regulation—the first duplicated paragraph (f) of PBGC Reg. §4022.62, and the second duplicated the designation of paragraph (c)(1) of PBGC Reg. §4022.63. Finally, the PBGC is replacing the term “estimated title IV benefit” with “estimated asset-funded benefit” at PBGC Reg. §4022.63.

Effective/applicability dates. The PBGC final regulations are effective November 2, 2018 and follow the applicability dates of the provisions of PPA that the regulations incorporate. Thus, the final amendments are applicable to plan terminations under ERISA Sec. 4041(c) with respect to which notices of intent to terminate are provided under ERISA Sec. 4041(a)(2) after December 31, 2005, and under ERISA Sec. 4042 with respect to which notices of determination are provided under that section after December 31, 2005.

Source: 83 FR 49799.

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