PBGC Issues Proposed Regulations Increasing Number of Employers Subject to Section 4010 Reporting | Practical Law

PBGC Issues Proposed Regulations Increasing Number of Employers Subject to Section 4010 Reporting | Practical Law

The Pension Benefit Guaranty Corporation (PBGC) issued proposed regulations on defined benefit plan reporting under Section 4010 of the Employee Retirement Income Security Act of 1974 (ERISA), which codify the stabilized interest rate rules under the Moving Ahead for Progress in the 21st Century Act (MAP-21) and the Highway and Transportation Funding Act of 2014 (HATFA). The proposed regulations also limit the availability of a reporting waiver and provide two new reporting waivers.

PBGC Issues Proposed Regulations Increasing Number of Employers Subject to Section 4010 Reporting

by Practical Law Employee Benefits & Executive Compensation
Law stated as of 28 Jul 2015 • USA (National/Federal)
The Pension Benefit Guaranty Corporation (PBGC) issued proposed regulations on defined benefit plan reporting under Section 4010 of the Employee Retirement Income Security Act of 1974 (ERISA), which codify the stabilized interest rate rules under the Moving Ahead for Progress in the 21st Century Act (MAP-21) and the Highway and Transportation Funding Act of 2014 (HATFA). The proposed regulations also limit the availability of a reporting waiver and provide two new reporting waivers.
On July 24, 2015, the Pension Benefit Guaranty Corporation (PBGC) issued proposed regulations on annual financial and actuarial information reporting for defined benefit plans under Section 4010 of the Employee Retirement Income Security Act of 1974 (ERISA). The proposed regulations:
  • Limit the reporting waiver for employers with aggregate minimum plan funding shortfalls of $15 million to controlled groups with fewer than 500 participants.
  • Provide two new reporting waivers, to eliminate duplicative reporting obligations.
  • Codify the plan reporting provisions of the Moving Ahead for Progress in the 21st Century Act (MAP-21), as modified by the Highway and Transportation Funding Act of 2014 (HATFA), and PBGC Technical Updates 12-2 and 14-2.
  • Make several technical corrections, including eliminating one form of payment assumption for minimum funding purposes.
Comments on the proposed regulations are due by September 25, 2015. The proposed regulations would become effective for information years beginning after December 31, 2015, which would generally impact reporting due in 2017.

ERISA Section 4010 Reporting

ERISA Section 4010 (29 U.S.C. § 1310) requires employers that maintain significantly underfunded single employer pension plans to provide actuarial and financial information each year. If an employer's defined benefit plan is underfunded to the extent described in 29 C.F.R. Section 4010.4(a), it must file extensive information with the PBGC, including:
  • Financial statements for each controlled group member.
  • Actuarial information for most plans within the controlled group, including:
    • the funding target of the plan determined as if the plan was in at risk status for at least 5 plan years;
    • the plan's funding target attainment percentage (FTAP); and
    • estimates of plan termination liability.

MAP-21 and HATFA Rules: Impact on 4010 Reporting

MAP-21 stabilized the interest rates used by underfunded defined benefit plans to calculate plan liabilities for purposes of the minimum funding standards under the Internal Revenue Code (Code), beginning for plan years in 2012. Under MAP-21, the interest rates used to estimate these liabilities and determine employer contributions were limited to a specific "corridor" (90 to 110% for 2012, increasing by 5% beginning in 2013). These interest rate stabilization provisions are also known as "pension interest rate smoothing" or "pension smoothing" provisions. For more information on MAP-21, see Legal Update, President Obama Signs Transportation Bill with Pension Funding Provisions.
HATFA extended the 90 to 110% interest rate corridor established under MAP-21 through 2017, which ultimately reduces an employer's minimum required contributions (for more information on HATFA, see Legal Update, President Obama Signs the Highway and Transportation Funding Act of 2014 with Pension Funding Provisions).
In Technical Updates 12-2 and 14-2, the PBGC provided guidance on when MAP-21's stabilized rates are taken into account for purposes of the 4010 reporting requirement (see Legal Update, PBGC Issues Guidance on HATFA's Effect on 4010 Reporting). This guidance clarified that MAP-21's stabilized interest rates:
  • Do not apply for purposes of determining a plan's FTAP, which is required to be reported under ERISA Section 4010(d) (29 U.S.C. § 1310(d)).
  • Apply for all other 4010 requirements involving minimum funding-related determinations, including those requirements created solely by regulation.
This became significant as applied to a 4010 reporting waiver the PBGC created in 2009 for employers with an aggregate funding shortfall of $15 million or less. After MAP-21 and HATFA, some large plan sponsors were able to take advantage of this waiver to avoid 4010 reporting because their defined benefit plan underfunding fell below $15 million when using these stabilized rates.

Limiting the $15 Million Aggregate Underfunding Waiver

The PBGC states in the preamble to the proposed regulations that, as a result of the impact MAP-21 and HATFA have on the calculation of the $15 million underfunding waiver, it is not receiving valuable information from approximately 200 controlled groups for which 4010 reporting was required before MAP-21 and HATFA.
Accordingly, the PBGC is proposing to limit this waiver to apply only to controlled groups with less than 500 total plan participants. The PBGC requests public comment on whether a different participant count threshold or tying the $15 million aggregate underfunding waiver directly to non-stabilized rates would be more appropriate.

Creating New Waivers to Eliminate Duplicative Reporting

The proposed regulations provide two new reporting waivers to eliminate 4010 reporting where it would only provide information that the PBGC already receives from reportable event filings. The 4010 reporting requirement is waived for plan sponsors that must file a 4010 report solely on the basis of a reporting trigger under:
These waivers apply only if the missed contributions or minimum funding waivers were reported under the reportable events regulations by the due date for the 4010 filing.
For more information on reportable events, see Practice Note, Reportable Events for Pension Plans under ERISA and Reportable Events Notice Requirements for Pension Plans under ERISA Checklist.

Codifying 4010 Reporting Requirements under MAP-21 and HATFA

The proposed regulations codify the ERISA Section 4010 reporting requirements under MAP-21 and HATFA, by:
  • Revising the definition of the FTAP in 29 C.F.R. Section 4010.2 so that it is determined without regard for the stabilized interest rate rules under MAP-21 and HATFA. The FTAP is renamed the "4010 funding target attainment percentage" in the proposed regulations.
  • Modifying 29 C.F.R. Section 4010.8(a)(5) to clarify that the plan's funding target as of the valuation date, which is required to be reported in a 4010 filing, is determined without regard to the stabilized interest rate rules under MAP-21 and HATFA.
  • Codifying the waiver provided by Technical Update 12-2, which waives reporting if the FTAP of each plan maintained by the filer's controlled group, determined without regard to the MAP-21 stabilized interest rate rules, would be at least 80 percent if the value of plan assets used for minimum funding purposes were substituted for the value described in Notice 2012-61, Q&A NA-3 (for more information on Notice 2012-61 and Technical Update 12-2, see Legal Update, IRS and PBGC Issue Guidance on Pension Funding Stabilization Issues for Defined Benefit Plans under MAP-21).
  • Amending 29 C.F.R. Section 4010.8(d)(2) to eliminate the option to use the form-of-payment assumption used for minimum contribution purposes to determine benefit liability for 4010 reporting. Instead, the form-of-payment assumption described in 29 C.F.R. Section 4044.51 (the PBGC's regulation on the allocation of assets in single employer defined benefit plans) should be used.
The proposed regulations also include several minor corrections and revisions to the current regulations.

Practical Implications

The proposed 4010 regulations increase the number of employers that would be required to report the information required under ERISA Section 4010 to the PBGC, which includes extensive financial and actuarial information, such as estimated termination liability, across the applicable controlled group. Employers that sponsor underfunded defined benefit plans should consult with their attorneys, actuaries and advisers to determine if their reporting obligations will change as a result of this proposed rule.