Pension & Benefits News PBGC issues proposed regs that correct, clarify, and improve several reporting and premium rate regs
Wednesday, July 24, 2019

PBGC issues proposed regs that correct, clarify, and improve several reporting and premium rate regs

By Pension and Benefits Editorial Staff

The Pension Benefit Guaranty Corporation (PBGC) has released proposed regulations that make technical corrections, clarifications, and improvements to regulations on reportable events notifications, annual financial and actuarial information reporting, standard terminations filing, and premium rates. The PBGC states that the changes being made result from its ongoing review of the effectiveness and clarity of its rules and from input from stakeholders.

Reportable events. The proposed regulations are eliminating possible duplicative reporting of active participant reductions, clarifying when a liquidation occurs, and providing additional examples for active participant reduction, liquidation, and change in controlled group events.

Reg. Sec. 4043.9(e) describes a commercial measures waiver that is available for certain reportable events. This waiver is available where a company that is a contributing sponsor of a plan has adequate capacity to meet its obligations as evidenced by satisfying a combination of certain criteria, among which is the commercial measures criterion. The proposed regulations would amend Reg. Sec. 4043.9 to make clear that a plan must use third-party financial information to satisfy this criterion concerning a company’s financial soundness.

Under Reg. Sec. 4043.23, an active participant reduction reportable event generally occurs when, as a result of a single cause event or through normal attrition of employees, the number of active participants in a plan is reduced below certain percentages. The PBGC has received questions about whether a plan administrator or contributing sponsor that files a single cause event notice (which must be filed within 30 days after the threshold is breached, unless a waiver applies) must also file an attrition event notice at a later date due to the same active participant reduction. An attrition event notice is filed by the premium filing due date for the plan year following the event year. To address this issue, the PBGC proposes to amend Reg. § 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.

The proposed rule also would make it clear that multiple single-cause events during the plan year must be reported separately. The proposed rule would make non-substantive changes to the formula for counting a single-cause event in Reg. §4043.23(a)(1). To further reduce the burden, the proposed rule would eliminate the two-year lookback requirement.

To alleviate confusion and improve precision, the PBGC proposes to clarify the definition of liquidation to state that a liquidation event occurs when a member of a 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.”

Financial and actuarial information reporting. The PBGC is amending its regulations on annual financial and actuarial information reporting by removing 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.

A condition triggering reporting under ERISA Sec. 4010 is when 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”). Plan sponsors are permitted under ERISA Sec. 303(f) and Code Sec. 430(f) to make certain elections to use, increase, or reduce a funding balance effective at the beginning of the plan year. The PBGC proposes to recognize a late funding balance election. 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.

Practitioners have told the PBGC that the regulations do not specify how cash balance plans should convert a lump-sum payment (which is the assumption used by most cash balance plans) to an annuity form for determining a plan’s benefit liabilities. According to the PBGC, the proposed regulations would provide needed guidance for cash balance plans on these assumptions and make a change in the Reg. Sec. 4010.8(d)(2)’s overall structure to improve clarity. Cash balance plan filers would convert account balances to annuity forms of payment using the rules under Code Sec. 411(b)(5)(B)(vi) and IRS Reg. Sec. 1.411(b)(5)-1(e)(2) that specify the interest crediting rate and annuity conversion rate upon plan termination.

Standard terminations of single-employer plans. The proposed regulations provide more time to submit a complete PBGC Form 501 in the standard termination process. ERISA requires the plan administrator of a plan terminating in a standard termination to certify to the PBGC that the plan’s assets have been distributed to pay all benefits under the plan within 30 days after the final distribution of assets is completed. Although the PBGC cannot extend a statutory deadline, the proposed regulations would amend paragraph (a) of PBGC Reg. Sec. 4041.29 to provide an alternative filing option for plan administrators who need more time to complete the PBGC Form 501. This 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 ERISA Sec. 4044 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.

Premium rates. The PBGC is amending its regulations to expressly state 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. However, the PBGC will make an exception when the spinoff is de minimis (i.e., generally less than 3 percent of the assets are spun off).

The PBGC is also clarifying the participant count date special rule for transactions (e.g. mergers and spinoffs) and modifying the circumstances under which the premium is prorated for a short year resulting from a standard termination.

Generally, to determine the flat-rate premium for a plan year, participants are counted on the day before the plan year begins. However, a special rule shifts the participant count date to the first day of the plan year in certain situations that happen at the beginning of a plan year so that the change in participant count can be recognized immediately. In answer to questions from practitioners on whether the special rule applies to a transferee plan when spun off participants are transferred to an existing plan rather than a new plan, the PBGC proposes to amend its regulations to clarify that, in such plan-to-plan transfers, the participant count date of the transferee plan would shift to the first day of its plan year. Thus, the transferee plan would owe flat-rate premiums for the transferred participants. This provision generally would apply where both plans have the same plan year and the transfer happens at the beginning of the plan year.

The 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 regulations 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 (i.e., generally fewer than 3 percent of the assets are spun off).

SOURCE: PBGC proposed regulations, 84 FR 31777.

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