2013 JCEB Q&As Offer Nonbinding PBGC Responses on Premiums, Reporting and Penalties

Practical Law Legal Update 6-552-3005 (Approx. 6 pages)

2013 JCEB Q&As Offer Nonbinding PBGC Responses on Premiums, Reporting and Penalties

by Practical Law Employee Benefits & Executive Compensation

Premiums

On the subject of PBGC premium payments, PBGC in its answers:

Clarified that it is issuing premium refunds only if the requester submits an IRS Private Letter Ruling concluding that the plan is a church plan, and does not issue refunds for requests made after the statute of limitations has expired.
Described the most common errors it has been finding in its initial reviews of premium filings, including that:
- the reported information (such as employer identification number, plan number, date plan year begins) is incorrect;
- the variable rate premium is determined using the standard premium funding target when an election to use the alternative premium funding target is in effect; and
- the discount rates reported to have been used to determine the premium funding target are not acceptable given other reported information.
Stated that it could not yet say whether it would pay interest on premium overpayments retroactive to 2006 (as permitted by the Pension Protection Act of 2006).

Reporting

PBGC stated that does not have any current plans to modify, or to grant any across-the-board waivers from existing requirements under ERISA Section 4010 (29 U.S.C. § 1310), which requires sponsors of certain single-employer underfunded qualified defined benefit pension plans to provide specified financial and actuarial information to PBGC annually.

However, PBGC reiterated its recommendation, made in its Summary 4010 Report to Congress, that Congress consider legislative changes to the law. In that report, the PBGC recommended that Congress:

Create reporting criteria based on the sponsor's financial soundness rather than relying solely on the plan's funding percentage.
Eliminate the requirement to report the funding target of the plan determined as if the plan has been in at-risk status for at least 5 plan years.

PBGC also provided updated statistics on requests for waiver of and extensions for Section 4010 and financial information reporting requirements.

Penalties

PBGC noted that it has increased its premium enforcement efforts and has imposed penalties under ERISA Section 4071 (29 U.S.C. 1371) in a significant number of cases where plans failed to file required information, including:

Post-distribution certifications in standard terminations.
Reportable events notices (see Practice Note, Qualified Retirement Plans in Mergers and Acquisitions: Reportable Events and Legal Update, PBGC Proposal Exempts More than 90% of Plans from ERISA Reportable Events' Requirements).
ERISA Section 4010 filings.
Premium information.

Typically, PBGC explained, plans that have failed to file are first informed that penalties may be assessed. If the plan does not then comply, PBGC generally assesses penalties under Section 4071. PBGC urged plans that may have difficulty complying with the filing requirements to contact PBGC as soon as possible.

Standard Terminations

PBGC noted that it audited approximately 250 plan termination filings in fiscal year 2012, with corrective action required in 27% of cases, and continues to audit the termination of all plans with more than 300 participants. According to PBGC, the most common errors included:

Incorrect accrued benefit calculations.
Inaccurate lump sum calculations.
Missing participants' benefits not transferred to PBGC.
Missing or inadequate election and spousal consent forms.

PBGC also described various other mistakes and errors that typically arise, and expressed concern that plans are not maintaining and providing accurate plan documents and records.

Distress and Involuntary Terminations

Under ERISA Section 4042(a)(2) (29 U.S.C. § 1342), one of the criteria for initiation of an involuntary termination is that the plan will be "unable to pay benefits when due". The PBGC explained that this phrase has meant either:

The plan is underfunded on a termination basis and is unlikely to be able to pay benefits at some point in the future, taking into consideration the plan sponsor’s ability to fund the plan.
The plan is or will be abandoned and thus there will be no one to administer the plan.

PBGC provided instances of cases in which it initiated terminations on this basis, including:

A plan sponsor that sold the bulk of its operations and the limited business that remained was unable to fund the plan.
A plan sponsor that was liquidating and there was a small window of time during which the plan would continue to be administered.

In its answers, PBGC also:

Provided an summary of recent enforcement efforts in the context of fiduciary breaches involving plans that PBGC has become trustee of following the alleged fiduciary breach. However, PBGC also noted that it generally does not become involved in fiduciary breach cases involving multiemployer plans.
Clarified that a key factor that leads debtors to maintain plans during and after a bankruptcy rather than to attempt to terminate them is whether the minimum funding contributions are affordable and able to be made by the reorganized company.
Stated that, in the context of distress termination, it usually finds that shell entities have a de minimis value, and typically disregards shell corporations that are part of a plan sponsor controlled group for purposes of determining whether a plan meets the distress termination criteria (see Practice Note, Controlled Group and Affiliated Service Group Rules).

For more information on distress terminations, see Practice Note, Defined Benefit Plans: Distress and Involuntary Terminations.

ERISA Sections 4062(e), 4063 and 4064

PBGC discussed its ERISA Section 4062(e) (29 U.S.C. § 1362) Enforcement Pilot Program, announced in November 2012, under which it will narrow the scope of its enforcement efforts to better target at-risk plans using a financial soundness test (see Legal Updates, PBGC Announces Change to ERISA Section 4062(e) Enforcement Practices and PBGC Releases Enforcement Guidelines for ERISA Section 4062(e) Financial Assurance Program).

In the Q&A, PBGC discusses:

The substantial pension liabilities that were not enforced as a result of the program.
Potential criteria for measuring the financial soundness of a plan sponsor (and its controlled group) for purposes relating to reportable event waivers and enforcement of Section 4062(e).

PBGC also discussed instances where it worked with sponsors of multiple employer plans on various issues, including:

Requests for opinions on liability issues for a spin-off of a portion of a plan.
Whether it would assess withdrawal liability if a plan substitutes a healthy foreign company for a liquidating U.S. company currently contributing to the plan.

Minimum Funding Waivers

PBGC also discussed the process involved in minimum funding waiver requests involving amounts in excess of $1 million, emphasizing that the following certain key factors will help expedite an sponsor's application for a waiver:

Completeness of the application.
The quality of the information submitted.
The responsiveness of sponsors to follow-up data requests.

Other Issues

The Q&A addresses various other topics, including:

PBGC's Early Warning Program.
Precedent-setting litigation relating to employee benefits that has been issued during the past year.
Informal guidance in the 2013 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.

2013 JCEB Q&As Offer Nonbinding PBGC Responses on Premiums, Reporting and Penalties | Practical Law