PBGC Proposal Exempts More Than 90% of Plans from ERISA Reportable Events' Requirements | Practical Law

PBGC Proposal Exempts More Than 90% of Plans from ERISA Reportable Events' Requirements | Practical Law

The Pension Benefit Guaranty Corporation (PBGC) has issued proposed rule 2013-07664 which exempts more than 90% of pension plans and the companies that sponsor them from many of the reportable event requirements under ERISA. The PBGC will instead target its resources to the plans and companies that are at substantial risk of default.

PBGC Proposal Exempts More Than 90% of Plans from ERISA Reportable Events' Requirements

by PLC Employee Benefits & Executive Compensation
Published on 03 Apr 2013 • USA (National/Federal)
The Pension Benefit Guaranty Corporation (PBGC) has issued proposed rule 2013-07664 which exempts more than 90% of pension plans and the companies that sponsor them from many of the reportable event requirements under ERISA. The PBGC will instead target its resources to the plans and companies that are at substantial risk of default.
On April 2, 2013, the Pension Benefit Guaranty Corporation (PBGC) issued proposed rule 2013-07664. This proposal:
The proposal is intended to:
  • Reduce unnecessary reporting requirements by plans that are financially sound.
  • Target the PBGC's resources to plans that are at substantial risk of default.
  • Simplify reportable events notice requirements.
The major provisions of the PBGC's regulatory action include:
  • Changes to the reportable events waiver structure. A new waiver structure would replace automatic waivers with a simpler system of waivers featuring five safe harbors based on plan sponsors' financial soundness and levels of plan funding.
  • Advance reporting test conforms to the Pension Protection Act of 2006 (PPA) requirements. The PPA changed certain aspects of the test for whether advance reporting of certain reportable events is required. The PBGC's proposal bases this test on the variable-rate premium rules, in conformance with the PPA.
  • Revised definitions of reportable events. The proposal simplifies and narrows many of the definitions of reportable events so that compliance is easier and a company's reporting burden is better tied to plan risk. The reportable events definitions that are changed under this proposal include:
    • active participant reduction;
    • missed contributions;
    • inability to pay benefits when due;
    • controlled group change;
    • extraordinary dividends;
    • transfer of benefit liabilities;
    • loan default; and
    • bankruptcy or insolvency.
  • Mandatory E-Filing. The proposal makes electronic filing of reportable events notices mandatory.
The most significant provision of the rule is a proposal for a new reportable events waiver structure. Currently, Section 4043.4 of the reportable events regulation provides that the PBGC may grant waivers and extensions on a case by case basis and also provides for automatic waivers and extensions for most reportable events, based on certain criteria. In many cases it is not clear whether a plan has satisfied the criteria for a particular waiver by the filing due date and an extension gives the potential filer an opportunity to determine whether the waiver applies.
The new waiver structure would include many of the automatic waivers currently available and feature new safe harbors that would apply when a plan or sponsoring company comes within a financial soundness safe harbor.
The proposed safe harbors are:
  • Financial soundness safe harbor for plan sponsors. The PBGC proposes to base this new safe harbor on the capacity of an employer to meet its financial commitments in full and on time based on five criteria of financial soundness, including credit scores established by commercial credit reporting companies which are already issued for the vast majority of companies that sponsor ERISA plans, including small companies. This safe harbor would apply to the five reportable events described below.
  • Financial soundness safe harbor for plans. The PBGC proposes to retain plan funding as a basis for waivers for the same five events as the sponsor financial soundness safe harbor. The standard of financial soundness would be a plan's funding status. For more information on plan funding, see Practice Note, Qualified Retirement Plans in Mergers and Acquisitions: Minimum Funding Rules and PPA Funding Rules. The funding-based waivers in the existing regulation are generally tied to variable-rate premium computations, which use ongoing plan assumptions. The PBGC is proposing to provide a safe harbor if:
    • a plan is 120% funded on a premium basis for the plan year preceding the year of the event; or
    • a plan is fully funded on termination basis on the last day of the plan year preceding the year of the event.
  • Other safe harbor proposals. The PBGC also seeks proposals from the public for different safe harbors that alter the mix and relative stringency of the constituent tests of the sponsor safe harbor or combine tests from the sponsor and plan safe harbors.
The financial soundness safe harbors for plan sponsors and plans would apply to post-event reporting requirements for all of the reportable events currently subject to a funding-based waiver, except liquidation of a controlled group member and loan default. These include:
  • Active participant reduction.
  • Distribution to a substantial owner.
  • Controlled group change.
  • Extraordinary dividend.
  • Transfer of benefit liabilities.
In addition, the PBGC proposes to retain a modified version of the small-plan waiver, made applicable to more events and extended to three other events:
  • Controlled group changes.
  • Benefit liability transfers.
  • Extraordinary dividends.
For more information on the current rules for these reportable events, see Practice Note, Qualified Retirement Plans in Mergers & Acquisitions: Reportable Events.
The proposed rule includes a useful summary chart comparing the waivers under the current regulation with waivers under the revised proposal (see 2013-07664, p. 53).
The PBGC will provide for open and extensive public comment on the proposed rule. Comments must be submitted on or before 60 days after publication of this rule in the Federal Register. Comments (which will be publicly posted to pbgc.gov) may be submitted via the Federal eRulemaking Portal or by email, fax, mail or hand delivery. All submissions must include the Regulation Identifier Number (RIN 1212-AB06). In addition, a public hearing will be held on June 18, 2013. Outlines of topics to be discussed at the hearing must be submitted on or before June 4, 2013.