Pension & Benefits News PBGC issues FAQs on CARES Act’s effect on plan sponsor obligations and PBGC operations
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Monday, August 10, 2020

PBGC issues FAQs on CARES Act’s effect on plan sponsor obligations and PBGC operations

By Pension and Benefits Editorial Staff

The Pension Benefit Guaranty Corporation (PBGC) has posted frequently asked questions (FAQs) that provide guidance related to plan sponsor obligations and PBGC operations in light of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L.116-136) and the COVID-19 pandemic. The PBGC posted answers about how the CARES Act affects missed contribution reporting requirements and premium filings for single-employer plans. Also, general information is provided about the pandemic’s impact on the PBGC’s Single-Employer Insurance Program operations.

Missed contributions. After noting that required contributions (including quarterly contributions) that would otherwise be due in 2020 are now due January 1, 2021 as a result of the Section 3608(a) of the CARES Act, the PBGC addressed reportable events requirements concerning missed contributions. In answer to a question about how this delay impacts the requirement to report a failure to make a minimum required contribution provided in PBGC Reg. Sec. 4043.25, the PBGC explained that the reportable event cannot be triggered before January 1, 2021. Thus, if required contributions are made by that date, there is no event and no need to notify the PBGC.

However, if the required contributions are not made by January 1, 2021 and the accumulated value of missed contributions exceeds $1 million, a Form 200 is due on January 11, 2021 (i.e., 10 days after January 1st). Otherwise, unless one of the waivers provided in PBGC Reg. Sec. 4043.25(c) of PBGC’s Reportable Events regulations applies, a Form 10 must be submitted. In general, the Form 10 is due 30 days after the missed contribution, but because January 31 is a Sunday, the due date moves to the next business day, February 1, 2021. The PBGC encourages filers to use the e-filing portal to prepare and submit all reportable event filings.

Premiums. Under the PBGC’s premium regulation (PBGC Reg. Sec. 4006.4(c)), the assets used to determine the variable rate premium (VRP) include the discounted value of prior year contributions receivable to the extent received by the plan by the date the premium is filed. Because of the CARES Act, required contributions that would otherwise be due before the premium due date are now due after that date.

The PBGC discussed how the extended due date for required contributions affects the treatment of contributions receivable for VRP purposes. Plans have additional time to make prior-year contributions that will be reflected in the VRP calculation. The PBGC illustrated this using a calendar year plan:

  • The 2020 premium is due October 15, 2020.
  • Without the CARES Act, the last date for making a required contribution for the 2019 plan year would have been September 15, 2020.
  • Because of the CARES Act, the last date for making a required contribution for the 2019 plan year is January 1, 2021.

Assuming the premium filing is submitted on October 15, 2020, the discounted value of contributions for 2019 received after September 15, 2020 and on or before October 15, 2020 are also included in the asset value for VRP purposes.

The PBGC stated that, if a contribution for the prior year is made after the premium is filed, the plan administrator may not amend the filing to increase the originally reported asset value by the discounted value of the prior year contribution made after the premium filing date and then request a refund. Reflecting prior year contributions received after the premium is filed as part of an amended filing would be inconsistent with PBGC Reg. Sec. 4006.4(c).

PBGC single-employer program operations. Concerning distress termination applications, the PBGC noted that it continues to process distress termination applications. All plan sponsors considering filing a distress termination notice are encouraged by the PBGC to schedule a pre-filing consultation with the PBGC. During the consultation, the PBGC can provide information on the criteria and process for a distress termination to aid in determining the appropriateness of a distress termination based on the facts and circumstances of each case. The PBGC recognizes that the impact of COVID-19 on plan sponsors is not fully known and financial projections may change as a result. Specific facts impacting a plan sponsor’s financial projections can be discussed during the pre-filing consultation.

In answer to whether the PBGC will initiate termination of pension plans during the COVID-19 pandemic, the PBGC explained that it has the discretion to initiate termination of a pension plan when the statutory criteria are met and it exercises this discretion based on the facts and circumstances of the specific case. This most often occurs when a plan sponsor goes out of business and protection of the participants’ benefits is necessary (including ensuring participants receiving benefits are paid), according to the PBGC. The PBGC will continue to review cases to determine whether initiating a termination is appropriate.

Answering the question of whether the PBGC will suspend efforts to collect termination liabilities until 2021, the PBGC stated that it will continue to work with plan sponsors to resolve termination liabilities, considering their financial ability to pay based on the facts and circumstances of each case.

Finally, during the COVID-19 pandemic, the PBGC will continue to review transactions or events under the Early Warning Program that may pose an increased risk to plans and the pension insurance system, and where necessary, contact the plan sponsor to get more information.

Source: COVID-19-Related Single-Employer Plan Sponsors and Administrators Questions and Answers, July 20, 2020.

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