PBGC Issues Final Regulations on Pension Plan Reporting Under ERISA Section 4010

Practical Law Legal Update w-001-7682 (Approx. 8 pages)

PBGC Issues Final Regulations on Pension Plan Reporting Under ERISA Section 4010

by Practical Law Employee Benefits & Executive Compensation

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:

Identifying the members of the plan's controlled group (see Practice Note, Controlled Group and Affiliated Service Group Rules).
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, HATFA, and the BBA: 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).

Section 504 of the BBA extended the stabilized interest rates established by MAP-21 and extended by HATFA. The BBA extended these stabilized rates through 2023 (for more information on the BBA, see Legal Update, Bipartisan Budget Act of 2015 Includes Pension Funding Provisions and Repeals Automatic Enrollment Under the ACA).

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. By further extending the period for which the interest rate stabilization rules are likely to impact 4010 filings, the BBA has made it more likely that the $15 million aggregate underfunding waiver will apply.

Proposed Regulations

On July 24, 2015, the PBGC issued proposed regulations on ERISA Section 4010 reporting for defined benefit plans (for more information on the proposed regulations, see Legal Update, PBGC Issues Proposed Regulations Increasing Number of Employers Subject to Section 4010 Reporting). The final regulations make several modifications to the proposed regulations.

Modification of the $15 Million Aggregate Underfunding Reporting Waiver

The final regulations modify the reporting waiver for employers with an aggregate funding shortfall of $15 million or less. Specifically, the final rule eliminates the participant count limit added to this waiver by the proposed regulations and instead requires that the liability used to determine the 4010 funding shortfall be determined using non-stabilized rates (rather than the stabilized rates established by MAP-21). The preamble notes that the final regulations do not change how the asset portion of the 4010 funding shortfall is calculated (the asset value used for this waiver is the asset value used for funding purposes).

New Reporting Waivers

The final regulations add three new reporting waivers for defined benefit plans.

Smaller Plans Waiver

The final regulations include the smaller plans waiver, which was not included in the proposed regulations. Under this waiver, 4010 reporting is waived for controlled groups with fewer than 500 participants in all plans maintained by the controlled group, including exempt plans.

The aggregate number of participants in all plans maintained by the controlled group includes any participants covered by a multiple employer plan (including participants covered by the multiple employer plan who are not or were not employed by the employer). The preamble explains that the employer is treating as "maintaining" the whole multiple employer plan. For example, in the case of a multiple employer plan where each contributing sponsor has fewer than 500 participants in all of its plans, but the multiple employer plan as a whole covers 500 or more participants, the smaller plans waiver would not apply.

The waiver applies regardless of plan underfunding.

Other Waivers

The final regulations retain without changes two waivers from the proposed regulations, which waive reporting for plan sponsors that must file a 4010 report solely on the basis of a reporting trigger under:

29 C.F.R. Section 4010.4(a)(2), for a statutory lien resulting from missed required contributions of over $1 million.
29 C.F.R. Section 4010.4(a)(3), for outstanding minimum funding waivers exceeding $1 million.

(See Legal Update, PBGC Issues Proposed Regulations Increasing Number of Employers Subject to Section 4010 Reporting: Creating New Waivers to Eliminate Duplicative Reporting.)

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 Occurring On or After January 1, 2016.

Codification of 4010 Reporting Requirements Under MAP-21, HATFA, and the BBA

The proposed regulations codify the ERISA Section 4010 reporting requirements under MAP-21, HATFA, and the BBA 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, HATFA, and the BBA. The FTAP is renamed the "4010 funding target attainment percentage." Under ERISA Section 4010(b)(1), 4010 reporting is required if any plan sponsored by a member of the controlled group has an FTAP below 80%.
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, HATFA, and the BBA.
Codifying the waiver provided by PBGC 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% 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 Section 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) must be used. Unlike the proposed regulations, the final regulations require use of the 4044.51 assumption for purposes of 4010.8(d)(2).

Alternative Methods of Reporting Certain Actuarial Information

The final regulations provide that plans are not required to provide the at-risk funding target information (determined without regard to the stabilization rules) unless the PBGC makes a written request for the information. In that event, the plan would have at least 30 days after the PBGC's written request to provide the information. The PBGC is also adding that information to the list of information in 29 C.F.R. Section 4010.8(a)(11) that is required to be reported in an attachment to the 4010 filing (the valuation report).

Under the final regulations, plans may determine the Section 4010 FTAP using the value of plan assets used for minimum funding purposes, rather than the asset value that is determined without regard to the interest rate stabilization rules.

The final regulations also include several minor corrections and revisions to the current regulations.

Applicability Date

The final regulations are applicable to information years beginning after December 31, 2015. The first filings are due on April 17, 2017. The PBGC believes that plan sponsors will have sufficient time to comply with the final regulations but will consider case-by-case waivers in unusual situations. The PBGC has not received Section 4010 reports from certain plans since MAP-21 went into effect and it needs that information as soon as practicable to better understand their current status and its impact on the pension insurance system.

Practical Implications

Sponsors of defined benefit plans will be pleased that the PBGC's final regulations provide several new waivers of the ERISA Section 4010 reporting requirement, because the proposed regulations had effectively increased the number of employers that would be required to report the information under Section 4010. 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 the final regulations.

The PBGC noted in the preamble to the final regulations that, going forward, it may reconsider suggestions from commenters on the proposed regulations that were not incorporated into the final regulations, as well as other possibilities, as it gains experience with reporting under the new regulations.

PBGC Issues Final Regulations on Pension Plan Reporting Under ERISA Section 4010 | Practical Law