2012 JCEB Q&As Offer Nonbinding PBGC Responses on Standard Terminations, Reporting and Penalties | Practical Law

2012 JCEB Q&As Offer Nonbinding PBGC Responses on Standard Terminations, Reporting and Penalties | Practical Law

The Joint Committee on Employee Benefits (JCEB) of the American Bar Association (ABA) issued Q&As containing nonbinding responses from the Pension Benefit Guaranty Corporation (PBGC) to 38 questions. The Q&As address a range of topics, including premiums, PBGC governance, standard and distress/involuntary plan terminations, PBGC reporting and penalties, Employee Retirement Income Security Act of 1974 (ERISA) Sections 4062(e), 4063 and 4064, multiemployer plan issues and a summary of recent litigation.

2012 JCEB Q&As Offer Nonbinding PBGC Responses on Standard Terminations, Reporting and Penalties

by PLC Employee Benefits & Executive Compensation
Published on 26 Oct 2012 • USA (National/Federal)
The Joint Committee on Employee Benefits (JCEB) of the American Bar Association (ABA) issued Q&As containing nonbinding responses from the Pension Benefit Guaranty Corporation (PBGC) to 38 questions. The Q&As address a range of topics, including premiums, PBGC governance, standard and distress/involuntary plan terminations, PBGC reporting and penalties, Employee Retirement Income Security Act of 1974 (ERISA) Sections 4062(e), 4063 and 4064, multiemployer plan issues and a summary of recent litigation.
The Joint Committee on Employee Benefits (JCEB) of the American Bar Association (ABA) recently issued Q&As containing responses from Pension Benefit Guaranty Corporation (PBGC) staff members to 38 questions. The Q&As, compiled by the JCEB, are based on discussions between JCEB and PBGC representatives at a May 9, 2012 meeting. Responses to the questions are unofficial and nonbinding. Topics addressed include (but are not limited to):
  • PBGC governance, reporting and penalties.
  • Premiums.
  • Standard and distress/involuntary plan terminations.
  • ERISA Sections 4062(e), 4063 and 4064.
  • Multiemployer plan issues.
  • An extensive summary of litigation.
PBGC also confirmed that it continues to agree with many of its positions outlined in the 2012 Blue Book. The Blue Book for a given year refers to the summary of discussions between the enrolled actuaries program committee and staff of the PBGC held at the enrolled actuaries meeting for the year involved. Copies of the Blue Books can be found on the PBGC website.

Standard Terminations

On the subject of standard terminations, key issues covered include:
  • Market rate of interest on plan termination.
  • Standard termination audits.
When asked to explain how they are dealing with the market rate of interest on plan termination in the absence of final IRS and PBGC rules, both in the context of standard termination audits and when PBGC trustees a plan, PBGC responded that:
  • Pending finalization of an IRS hybrid plan rule, it is following its interim policy regarding this issue, which is:
    • available through FOIA; and
    • consistent with the proposed IRS rule.
  • Audits of standard terminations of hybrid plans are completed on a case-by-case basis.
  • It will not challenge any plan that follows the guidance set forth in the proposed IRS rule.
PBGC also provided an update regarding its recent experience in connection with standard termination audits, including a discussion of:
  • Common errors found.
  • How the agency has dealt with plans that distribute plan assets in satisfaction of plan liabilities before or without filing a standard termination notice.
Common errors include:
  • Reducing participants' benefits by administrative fees.
  • Failure to include all benefit form options in annuity contracts.
  • Errors in benefit calculations, for example:
    • mistakes regarding service;
    • compensation; or
    • vesting percentages.
  • PPA lump sum assumptions adopted after the plan termination date without appropriate protection for participants' benefits.
  • Distributions to missing participants made via deposits to IRAs rather than by purchase of an annuity or payment to PBGC.
  • Failure to follow requirements of PBGC's missing participants regulation, 29 C.F.R Part 4050, in calculating benefits of missing participants.
  • Failure to submit funds for missing participants' benefits within the applicable 90-day time frame.
  • Failure to include interest on benefits.
PBGC also confirmed that it audits all plans that distribute plan assets in satisfaction of plan liabilities either before or without filing a standard termination notice with PBGC. In these cases, PBGC's audit is more extensive than usual to ensure that participants are receiving their proper benefits. PBGC is considering imposing penalties in appropriate cases. In response to a follow-up question regarding whether standard termination audits could be expedited when the plan sponsor is in bankruptcy, PBGC staff members said that:
  • PBGC tries to expedite audits.
  • Anyone in this situation should reach out to PBGC to ensure that the agency is aware of the circumstances.

Multiemployer Plan Assets

PBGC was asked to update on situations under the multiemployer program that may be of interest to employee benefits attorneys, such as:
  • Withdrawal liability formulas.
  • Significant litigation in which the PBGC has been involved.
PBGC responded that it has given approval of alternative withdrawal liability allocation methods in several cases to encourage other plans to apply. The allocation methods involved splitting unfunded vested benefits between old and new employers for withdrawal liability. PBGC pointed out that the split is not for funding purposes and there is still only one funding standard account.

Litigation

PBGC summarized the outcome of several cases including PBGC v. Asahi Tec Corp. (839 F. Supp. 2d 118 (2012)). In this case of first impression, the US District Court for the District of Columbia agreed with PBGC, holding that it had jurisdiction over a foreign member of a plan sponsor's controlled group for enforcing termination liability. A foreign auto parts manufacturer bought a US manufacturer. When the US company sold its assets under Chapter 11, its pension plan was terminated. The court held that because ERISA bases liability on the fact of ownership alone, Asahi's deliberate and knowing decision to acquire a US company and subject itself to ERISA is a sufficient minimum contact for specific jurisdiction.
For more information, see Practice Note, Requirements for Qualified Retirement Plans.