PBGC Final Regulations Facilitate Rollovers from Defined Contribution Plans to Defined Benefit Plans | Practical Law

PBGC Final Regulations Facilitate Rollovers from Defined Contribution Plans to Defined Benefit Plans | Practical Law

The Pension Benefit Guaranty Corporation (PBGC) has issued final regulations that facilitate rollovers from defined contribution plans to defined benefit plans by exempting rollover amounts from the maximum guarantee limits and the five-year phase-in limits.

PBGC Final Regulations Facilitate Rollovers from Defined Contribution Plans to Defined Benefit Plans

by Practical Law Employee Benefits & Executive Compensation
Published on 25 Nov 2014 • USA (National/Federal)
The Pension Benefit Guaranty Corporation (PBGC) has issued final regulations that facilitate rollovers from defined contribution plans to defined benefit plans by exempting rollover amounts from the maximum guarantee limits and the five-year phase-in limits.
On November 24, 2014, the Pension Benefit Guaranty Corporation (PBGC) issued final regulations that amend its valuation and benefit payment regulations to provide protections to amounts rolled over from defined contribution plans to private-sector, single-employer defined benefit (pension) plans that later terminate in an underfunded status (that have insufficient assets to pay all benefits). These regulations finalize the PBGC's proposed regulations on rollovers from defined contribution plans to defined benefit plans, which were issued on April 2, 2014 (for information on the proposed regulations, and for background information on this development, see Legal Update, PBGC Proposed Regulations Encourage Rollovers from Defined Contribution Plans to Defined Benefit Plans).
The final regulations are identical to the proposed regulations except for several minor clarifications, made in response to comments received on the proposed regulations. Specifically:
  • The proposed regulations defined "rollover amounts" in 29 C.F.R. Section 4001.2 as, "the dollar amount of all or any part of a distribution that is rolled over into a defined benefit plan in accordance with section 401(a)(31) or 402(c) of the Internal Revenue Code." The final regulations expand this definition of rollover amounts to clarify that:
    • the amendments apply only to rollovers from defined contribution plans; and
    • rollover amounts include salary deferral contributions made by the participant, any additional employer contributions provided for under the defined contribution plan and earnings on both.
  • The final regulations amend the definition of "pension benefit" in 29 C.F.R. Section 4022.2 to provide that an annuity benefit resulting from a rollover amount is a pension benefit (and therefore is guaranteeable by the PBGC).
The changes in the proposed regulations to the rules on benefits payable in terminated single-employer plans and the allocation of assets in single-employer plans remain largely the same in the final regulations.

Practical Implications

The final regulations will promote the PBGC's goal of promoting retirement security through preserving lifetime retirement income. The final regulations support this goal by providing guarantees to defined contribution plan participants who roll over their plan benefits to a pension plan that is later terminated and guaranteed by the PBGC.