2014 JCEB Q&As Offer Nonbinding PBGC Responses on PBGC Coverage, the Early Warning Program and Multiemployer Plans | Practical Law

2014 JCEB Q&As Offer Nonbinding PBGC Responses on PBGC Coverage, the Early Warning Program and Multiemployer Plans | 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 40 questions addressing a range of topics, including premiums, PBGC coverage, the PBGC's Early Warning Program and multiemployer plans.

2014 JCEB Q&As Offer Nonbinding PBGC Responses on PBGC Coverage, the Early Warning Program and Multiemployer Plans

by Practical Law Employee Benefits & Executive Compensation
Published on 19 Aug 2014 • 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 40 questions addressing a range of topics, including premiums, PBGC coverage, the PBGC's Early Warning Program and multiemployer plans.
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 40 questions. The Q&As, compiled by the JCEB, are based on discussions between JCEB and PBGC representatives at a May 7, 2014 meeting. Responses to the questions are unofficial and nonbinding. Topics addressed include (but are not limited to):
  • Premiums.
  • PBGC coverage.
  • Distress and involuntary plan terminations.
  • ERISA Sections 4062(e), 4063 and 4064 (29 U.S.C. §§ 1362(e), 1363, 1364).
  • Early Warning Program.
  • Multiemployer plan issues.
  • PBGC litigation and general matters.

Premiums

The PBGC first provided guidance on:
  • Premium refunds for Puerto Rico plans.
  • Mergers, spinoffs and consolidations involving one or more plans.
  • Breakdown of the total flat-rate premium participant count.
  • The most common errors it has found in its initial reviews of premium filings.
  • The scope of its coverage.

Limitation of Premium Refunds for Puerto Rico Plans

The JCEB noted that in Q&A 1 of the 2014 Blue Book, the PBGC explained that it withdrew Opinion Letters 77-172 ( (Dec. 23, 1977)) and 85-19 ( (July 29, 1985)) (regarding PBGC coverage of plans in Puerto Rico and Guam) because it will no longer determine that a plan is covered under Title IV of ERISA if its trust is created or organized outside the US and no election under ERISA Section 1022(i) was made. The PBGC also stated in the Blue Book that it has refunded "up to six years of premiums."
The JCEB asked why the PBGC is limiting its premium refunds to six years, since the statute of limitations allows actions to be brought against the PBGC until the later of six years after the cause of action arose or three years after the earliest date on which the plaintiff acquired or should have acquired actual knowledge of the existence of the cause of action.
The PBGC first explained that its decision to withdraw those two Opinion Letters has no impact on the statute of limitations for premium refund requests made by non-parties, because only the parties that request an opinion letter may rely on it.
Regarding the premium refunds, the PBGC explained that it will refund up to six years of premiums where appropriate, consistent with ERISA Section 4003(f)(5) (29 U.S.C. § 1303(f)(5)). But the PBGC considers the statute of limitations to be tolled as of the date the request for a determination was made. For example, if a plan requested a determination in 2010 but the PBGC did not make a determination until 2013, the six year statute of limitations would be measured from 2010 and the PBGC would refund premiums dating back to 2004.
For more information on Puerto Rico plans see, Practice Notes, Required Puerto Rico Qualified Retirement Plan Amendments and Determination Letter Filing Deadline and Pension Plan Alternatives for US Employers with Operations in Puerto Rico.

Mergers, Spinoffs and Consolidations Involving One or More Plans

The variable-rate PBGC premium for small pension plans is generally based on year-old data, subject to an opt-out rule under which the small plan can base the variable-rate premium on current-year data.
When asked about whether a plan has the opt-out "history" of another plan in the context of plan mergers, spinoffs and consolidations, the PBGC stated that:
  • A plan that is spun off from another plan is considered a new plan, so it has no history for premium payment purposes.
  • When one plan is merged into another plan, the relevant history for premium payment purposes will be that of the latter plan.
  • If two plans are consolidated into one plan, the consolidated plan is considered a new plan. It has no history for premium payment purposes.
For more information on mergers and spinoffs, see Practice Note, Qualified Retirement Plans in Mergers and Acquisitions.

Breakdown of the Total Flat-rate Participant Count

For the 2014 premium payment year, plan administrators will be required, for the first time, to provide a breakdown of the total flat-rate participant count into three categories:
  • Active participants.
  • Terminated vested participants.
  • Retirees and beneficiaries receiving payment.
The PBGC was asked how to categorize an individual who is no longer working in a position that falls within the plan's coverage, but is employed in another position with a member of the contributing sponsor's controlled group (see Practice Note, Controlled Group and Affiliated Service Group Rules).
In response, the PBGC stated that, for premium payment purposes, the plan should use the breakdown in the plan's actuarial report. There is no need to change the valuation systems used by the plan. The plan should be consistent:
  • With the actuarial reports.
  • From year to year.
In addition, the reportable events regulations provide specific rules that must be followed when reporting certain events.

PBGC Coverage

The PBGC provided guidance on coverage of:
  • Puerto Rico plans.
  • Church plans.

Coverage of Puerto Rico Plans

Discussing the scope of PBGC coverage of plans in Puerto Rico and Guam, the PBGC clarified that its decision to withdraw Opinion Letters 77-172 ( (Dec. 23, 1977)) and 85-19 ( (July 29, 1985)) has no impact on coverage decisions made with respect to plans that have already undergone distress or involuntary termination and have been trusteed by the PBGC. Specifically, this means that the PBGC will not:
  • Seek to recoup benefits paid to participants.
  • Stop paying benefits solely because of its decision to withdraw the opinion letters.
  • Refund any amounts collected for employer liability and similar claims.
The PBGC will continue collection efforts for any pending claims and address terminations affected by this coverage issue according to the relevant facts and circumstances.

Standard Terminations

The PBGC answered several questions on standard terminations, including:
  • Sufficiency commitments.
  • Alternative treatment elections.
  • Form 500 filings.
  • Requesting a determination letter before assets are distributed as part of a standard termination.
  • Whether the PBGC will provide:
    • models of the notice of plan benefits applicable to different categories of participants and beneficiaries; and
    • sample detailed standard termination timelines.
  • The PBGC's experience in connection with standard termination audits.

Form 500 Review

The PBGC recently revised its standard termination forms and instructions, so that the Notice of Intent to Terminate and samples of the Notices of Plan Benefits are required as part of the Form 500 filing. The PBGC was asked what it would do when it identifies defects in one of these notices when it reviews them at the Form 500 review stage. The PBGC stated that it will respond to defects based on their type and severity. When determining whether a nullification of a plan termination is appropriate, the PBGC will follow its regulations, which allow it to consider the plan participants' interests and the correction of good faith errors.
On a related issue, the PBGC was asked whether a submission included with the Form 500 should be provided to either or both the four categories of participants noted in the instructions and the three categories of persons in the regulations. The PBGC answered that the Notices of Plan Benefits should continue to include the information required by the regulations for the three types of individuals owed benefits:
  • Persons in pay status.
  • Persons not in pay status but with valid elections or de minimis benefits.
  • All other persons not in pay status.
However, plan sponsors must also submit to the PBGC a copy of a Notice of Plan Benefits provided to each of the four categories of participants (active, retiree, terminated vested, and non-vested) within the three types of persons.

Requesting a Determination Letter Before Assets are Distributed as Part of a Standard Termination

Finally, when deciding which plans to select for a standard termination audit, the PBGC stated that it does not take into account whether an IRS determination letter has been requested or whether distribution occurred after receipt of the letter.
For more information on determination letters, see Retirement Plan Determination Letters Toolkit.

Distress and Involuntary Terminations

On distress and involuntary terminations, the PBGC discussed its activity regarding potential or actual fiduciary breach claims.
For more information on plan terminations, see Practice Note, Defined Benefit Plans: Distress and Involuntary Terminations.

ERISA Sections 4062(e), 4063 and 4064

At the Q&A session, the PBGC discussed:
  • The recent results of its enforcement of ERISA Section 4062(e) (29 U.S.C. § 1362).
  • That it is implementing an ERISA Section 4062(e) enforcement pilot program.
  • Whether an ERISA Section 4068 (29 U.S.C. § 1368) lien applies to an ERISA Section 4062(e) liability where the affected plan is ongoing and has no termination date.
  • The Inspector General's report raising concerns about the effectiveness of the PBGC's negotiated settlements for ERISA Section 4062(e) liability.
  • Whether it would accept credit default swaps in connection with settlements of ERISA Section 4062(e) liabilities.
  • Its experience with multiple employer plans regarding mergers, spinoffs, withdrawals, partitions or terminations.

Early Warning Program

At the Q&A session, the PBGC discussed:
  • Whether it would accept credit default swaps in connection with settlements in early warning program cases.
  • The types of employers it monitors in connection with the early warning program.
  • The cases it has been involved in over the past year under the early warning program and the type of transactions that are of concern to the PBGC.

Multiemployer Plan Issues

The Q&As discuss a scenario in which an employer incurs a complete withdrawal from a multiemployer plan and pays its entire withdrawal liability, and then acquires another employer in a stock acquisition that contributes to the same plan. The JCEB asked whether the contribution history of the newly-combined employer includes the withdrawn employer's pre-transaction contribution history. The JCEB's proposed response was that the contribution history of the new employer should not include the pre-acquisition contribution history of the withdrawn employer, because the latter's contribution history was effectively paid when it withdrew and paid its entire withdrawal liability. The PBGC responded by simply stating that under the Multiemployer Pension Amendments Act, disputes over the calculation of withdrawal liability or the payment schedule are resolved between the plan trustees and employers through:
  • Plan trustee review.
  • Arbitration.
  • Litigation, if necessary.
In response to several additional questions on multiemployer plans, the PBGC stated that:
  • When a multiemployer plan terminates by amendment pursuant to ERISA Section 4041A(a)(1) (29 U.S.C. § 1341), any settlement of an employer's future contribution obligation must be based on a collective bargaining agreement contribution rate that is at least equal to the highest rate during the five consecutive plan years ending on or before the plan termination date.
  • It continues to hold the view set forth in Opinion Letter 94-3 ( (Aug. 2, 1994)) (that all employers lose the benefit of the 20-year cap limitation when a plan terminates by mass withdrawal, no matter how long before the mass withdrawal date the employer withdrew).
  • In the case of a rollover from a defined contribution plan to a defined benefit plan, the rules regarding the multiemployer guarantee work differently then the rules for a single employer plan.

Litigation and General Matters

The PBGC discussed:

Practical Implications

The Q&As provide important guidance, particularly for plans in Puerto Rico and multiemployer plans. The Q&As also provide important information on the pilot program under ERISA Section 4062(e).