Miscellaneous Corrections, Clarifications, and Improvements
| Published date | 27 June 2019 |
| Record Number | 2019-13419 |
| Section | Proposed rules |
| Court | Pension Benefit Guaranty Corporation |
Federal Register, Volume 84 Issue 124 (Thursday, June 27, 2019)
[Federal Register Volume 84, Number 124 (Thursday, June 27, 2019)]
[Proposed Rules]
[Pages 30666-30681]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-13419]
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PENSION BENEFIT GUARANTY CORPORATION
29 CFR Parts 4001, 4006, 4010, 4041 and 4043
RIN 1212-AB34
Miscellaneous Corrections, Clarifications, and Improvements
AGENCY: Pension Benefit Guaranty Corporation.
ACTION: Proposed rule.
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SUMMARY: The Pension Benefit Guaranty Corporation (PBGC) is making
miscellaneous technical corrections, clarifications, and improvements
to its regulations on Reportable Events and Certain Other Notification
Requirements, Annual Financial and Actuarial Information Reporting,
[[Page 30667]]
Termination of Single-Employer Plans, and Premium Rates. These changes
are a result of PBGC's ongoing retrospective review of the
effectiveness and clarity of its rules as well as input from
stakeholders.
DATES: Comments must be submitted on or before August 26, 2019 to be
assured of consideration.
ADDRESSES: Comments may be submitted by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the online instructions for submitting comments.
Email: [email protected]. Refer to RIN 1212-AB34 in
the subject line.
Mail or Hand Delivery: Regulatory Affairs Division, Office
of the General Counsel, Pension Benefit Guaranty Corporation, 1200 K
Street NW, Washington, DC 20005-4026.
All submissions must include the agency's name (Pension Benefit
Guaranty Corporation, or PBGC) and the Regulation Identifier Number
(RIN) for this rulemaking (RIN 1212-AB34). Comments received will be
posted without change to PBGC's website, http://www.pbgc.gov, including
any personal information provided. Copies of comments may also be
obtained by writing to Disclosure Division, Office of the General
Counsel, Pension Benefit Guaranty Corporation, 1200 K Street NW,
Washington, DC 20005-4026, or calling 202-326-4040 during normal
business hours. TTY users may call the Federal relay service toll-free
at 800-877-8339 and ask to be connected to 202-326-4040.
FOR FURTHER INFORMATION CONTACT: Stephanie Cibinic
([email protected]), Deputy Assistant General Counsel for
Regulatory Affairs, Office of the General Counsel, Pension Benefit
Guaranty Corporation, 1200 K Street NW, Washington, DC 20005-4026; 202-
326-4400, extension 6352. TTY users may call the Federal relay service
toll-free at 800-877-8339 and ask to be connected to 202-326-4400,
extension 6352.
SUPPLEMENTARY INFORMATION:
Executive Summary
Purpose and Authority
The purpose of this regulatory action is to make miscellaneous
technical corrections, clarifications, and improvements to several
Pension Benefit Guaranty Corporation (PBGC) regulations. These changes
are based on PBGC's ongoing retrospective review of the effectiveness
and clarity of its rules, which includes input from stakeholders on
PBGC's programs.
Legal authority for this action comes from section 4002(b)(3) of
the Employee Retirement Income Security Act of 1974 (ERISA), which
authorizes PBGC to issue regulations to carry out the purposes of title
IV of ERISA. It also comes from section 4006 of ERISA, which give PBGC
the authority to prescribe schedules of premium rates and bases for the
application of those rates; section 4010 of ERISA, which gives PBGC
authority to prescribe information to be provided and the timing of
reports; section 4041 of ERISA (Termination of Single-Employer Plans);
and section 4043 of ERISA, which gives PBGC authority to define
reportable events and waive reporting.
Major Provisions
The major provisions of this proposed rulemaking would amend PBGC's
regulations on:
Reportable Events and Certain Other Notification
Requirements, by eliminating possible duplicative reporting of active
participant reductions, clarifying when a liquidation event occurs and
providing additional examples for active participant reduction,
liquidation, and change in controlled group events.
Annual Financial and Actuarial Information Reporting, by
eliminating a requirement to submit individual financial information
for each controlled group member, adding a new reporting waiver and
clarifying others, and providing guidance on assumptions for valuing
benefit liabilities for cash balance plans.
Termination of Single-Employer Plans, by providing more
time to submit a complete PBGC Form 501 in the standard termination
process.
Premium Rates, by expressly stating that a plan does not
qualify for the variable rate premium exemption for the year in which
it completes a standard termination if it engages in a spinoff in the
same year, clarifying the participant count date special rule for
transactions (e.g., mergers and spinoffs), and by modifying the
circumstances under which the premium is prorated for a short plan year
resulting from a standard termination.
Background
The Pension Benefit Guaranty Corporation (PBGC) administers two
insurance programs for private-sector defined benefit pension plans
under title IV of the Employee Retirement Income Security Act of 1974
(ERISA)--one for single-employer pension plans, and one for
multiemployer pension plans. The amendments proposed in this rulemaking
apply primarily to the single-employer program.
This proposed rulemaking comes out of PBGC's ongoing retrospective
review program to identify and ameliorate inconsistencies,
inaccuracies, and requirements made irrelevant over time. It also
responds to suggestions and questions from stakeholders that PBGC
receives on an ongoing basis and through public outreach, such as
PBGC's July 2017 ``Regulatory Planning and Review of Existing
Regulations'' Request for Information.\1\
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\1\ 82 FR 34619 (July 26, 2017).
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Proposed Amendments
The proposed technical and clarifying amendments and improvements
to PBGC's regulations are discussed below. PBGC invites comment on
these proposals.
Terminology--29 CFR Part 4001
The proposed rule would amend the general ``Definitions'' section
(29 CFR 4001.2) for terms used in regulations under title IV of ERISA
to include the terms ``Ultimate parent'' and ``U.S. entity.'' Those
terms are currently defined in PBGC's ``Reportable Events and Certain
Other Notification Requirements'' regulation (29 CFR part 4043),
``reportable events regulation,'' at Sec. Sec. 4043.2 and 4043.81(c)
respectively. Because proposed amendments to PBGC's Annual Financial
and Actuarial Information Reporting regulation (29 CFR part 4010),
``4010 reporting regulation,'' would use those same two terms, it is
appropriate to move them to the common definitions section in Sec.
4001.2.
Reportable Events and Certain Other Notification Requirements--29 CFR
Part 4043
Section 4043 of ERISA requires that PBGC be notified of the
occurrence of certain ``reportable events'' that may signal financial
issues with the plan or a contributing employer. The statute provides
for both post-event and advance reporting. PBGC's reportable events
regulation implements section 4043 of ERISA.
Reportable events include such plan events as missed contributions,
insufficient funds, large pay-outs, and such sponsor events as loan
defaults and controlled group changes--events that may present a risk
to a sponsor's ability to continue a plan. When PBGC has timely
information about a reportable event, it can take steps to encourage
plan continuation. Without timely information about a reportable
[[Page 30668]]
event, PBGC typically learns that a plan is in danger only when most
opportunities for protecting participants and the pension insurance
system have been lost.
On September 11, 2015, PBGC issued a final rule,\2\ the ``2015
Final Rule,'' implementing changes to the reportable events regulation.
The rule revised longstanding procedures governing when administrators
and sponsors of single-employer defined benefit pension plans are
required to report certain events to PBGC. The major changes in the
2015 Final Rule tied reporting waivers more closely to situations where
a contributing sponsor is at risk of not being able to continue to
maintain a plan (i.e., risk of default), revisions to definitions and
descriptions of several reportable events, and new requirements on
electronic filing. The goal of the 2015 Final Rule was to ease
reporting requirements where notice to PBGC is unnecessary but to allow
for possible earlier PBGC intervention where there is an opportunity to
help sponsors maintain a plan or otherwise preserve benefits for
participants.
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\2\ 80 FR 54980 (Sept. 11, 2015).
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Since publication of the 2015 Final Rule, PBGC has further
identified some opportunities to improve the reportable events and
notification requirements by filling in gaps where guidance is needed,
simplifying or removing language, codifying policies, and providing
examples.
Commercial Measures Criterion
Section 4043.9(e) of the reportable events regulation describes the
commercial measures waiver that is available for certain events.\3\
This waiver is available where a company that is a contributing sponsor
of a plan has adequate capacity to meet its obligations as evidenced by
satisfying a combination of certain criteria. Among the criteria
listed, the commercial measures criterion requires that the company's
probability of default on its financial obligations be no more than 4
percent over the next 5 years or 0.4 percent over the next year, as
``determined on the basis of widely available financial information on
the company's credit quality.''
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\3\ The five events are as follows: Active participant
reduction, substantial owner distributions, controlled group
changes, extraordinary dividends, and benefit liabilities transfers.
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The preamble to the 2015 Final Rule made clear that the commercial
measures criterion was to be met by looking to third party information
and not, for example, information that a company itself generates but
that might be considered ``widely available'' because the information
is posted on the company's website.\4\ However, the regulatory text in
the 2015 Final Rule did not explicitly mention third party information.
To remove any ambiguity, the proposed rule would amend Sec. 4043.9 to
make clear that a plan must use third party financial information to
satisfy the criterion for the company financial soundness safe harbor.
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\4\ See 80 FR 54986.
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Active Participant Reduction
Under Sec. 4043.23 of the reportable events regulation, an active
participant reduction reportable event generally occurs when, as a
result of a single-cause event or through normal attrition of employees
(described below), the number of active participants in a plan is
reduced below 80 percent of the number at the beginning of the year
(one-year lookback) or below 75 percent of the number at the beginning
of the prior year (two-year lookback). The regulation distinguishes
between reductions caused by single cause events and normal attrition
events. If active participants cease to be members of a plan's
controlled group due to a single cause event, such as a reorganization
or layoff, the plan administrator and contributing sponsor must file a
notice with PBGC within 30 days after the threshold is breached, unless
a waiver applies. Conversely, if the active participant reduction is
caused by the normal comings and goings of employees or other smaller
scale reductions (i.e., normal attrition), notice of the event is
extended until the premium filing due date for the plan year following
the event year.
Since publication of the 2015 Final Rule, PBGC has received
questions from practitioners, including in a comment to its 2017 RFI on
Regulatory Planning and Review of Existing Regulations (see the
``Background'' section of this preamble), about whether a plan
administrator or contributing sponsor that files a single-cause event
notice must also file an attrition event notice at a later date due to
the same active participant reduction. Upon review, PBGC recognizes
that Sec. 4043.23 could be interpreted in this manner, though this was
not PBGC's intent.
To address this issue, PBGC proposes to amend Sec. 4043.23(a)(2)
by altering the current method of counting active participants after
the end of the plan year in determining whether an attrition event has
occurred by taking into account the number of active participants that
had already been the subject of a single-cause event report in the same
plan year. Thus, to determine whether an attrition event has occurred,
the number of active participants who ceased to be active and were
covered by a single-cause event reported in the same year would be
included in the year-end count. This proposed new method of counting
would prevent duplicative reporting by disregarding the earlier single-
cause event if already reported to PBGC.
The proposed rule also would make clear that multiple single-cause
events during the plan year must be reported separately. Thus, each
time a new single-cause event results in an active participant
reduction greater than 20 percent over the number of active
participants at the beginning of the plan year, a new Form 10 would be
required to be filed. PBGC is making this clarification because PBGC
believes that dramatic reductions due to different events in the same
year could signal that the plan sponsor's ability to maintain the plan
is rapidly deteriorating.
For further explanation, the proposed rule includes examples in the
regulatory text of the interplay between single-cause and attrition
events, as well as a single-cause event that occurs over a period of
time.
The proposed rule would make non-substantive changes to the formula
for counting a single-cause event in Sec. 4043.23(a)(1) that PBGC
believes is clearer, more aligned to the proposed language in Sec.
4043.23(a)(2) described above, and easier to use.
To further reduce burden, the proposed rule would eliminate the
two-year lookback requirement. With a few years' experience under the
2015 Final Rule, PBGC has concluded that the one-year/80 percent test
provides sufficient information and undertaking the additional burden
of conducting the two-year/75 percent lookback is not necessary. Thus,
the language regarding the two-year lookback in Sec. 4043.23(a)(1) and
(2) would be removed under the proposed rule. To address the statutory
requirement, the proposed rule would waive notice of the two-year
lookback provided under section 4043(c)(3) of ERISA.
Other proposed changes to Sec. 4043.23 include amending the
current definition of ``active participant.'' The current definition
provides that an active participant means, among other things, a
participant who ``is receiving compensation for work performed,'' but
does not address whether a participant becomes inactive if the
participant leaves a controlled group member for employment by another
member of the same controlled group. The proposed rule would clarify
that a participant is
[[Page 30669]]
active if the participant receives compensation from any member of the
plan's controlled group for work performed for any member of the plan's
controlled group. The proposal thus would remove any ambiguity in the
determination rules if the participant is employed by any member within
the same controlled group.
Finally, PBGC proposes to clarify that reporting an active
participant reduction under Sec. 4043.23 would be disregarded if the
reduction was already reported under section 4062(e) and/or 4063(a) of
ERISA. The current regulation provides that a reduction in the number
of active participants may be disregarded if the reduction is timely
reported to PBGC under section 4063(a) of ERISA but does not specify
when the report must be made in relation to a Form 10 Report under
Sec. 4043.23 for the disregard provision to be available. PBGC's
intent in providing the waiver was to prevent duplicative reporting for
the same event where notice had previously been filed. To codify PBGC's
intent, the proposed rule would clarify that reporting a reduction in
the number of active participants under Sec. 4043.23 may be
disregarded if the reduction is reported under section 4062(e) and/or
4063(a) of ERISA before the filing of a notice is due under Sec.
4043.23.
Inability To Pay Benefits When Due
In general, a reportable event occurs under Sec. 4043.26 of the
reportable events regulation when a plan fails to make a benefit
payment timely or when a plan's liquid assets fall below the level
needed for paying benefits for six months. The 2015 Final Rule modified
Sec. 4043.26(a)(1)(iii) so that a plan is not treated as having a
``current inability'' to pay benefits when due if, among other things,
the failure to pay is caused solely by ``any other administrative
delay, including the need to verify a person's eligibility for
benefits, to the extent that the delay is for less than the shorter of
two months or two full benefit payment periods.'' In modifying the
regulation, the 2015 Final Rule inadvertently imposed a time limit for
verification of a person's eligibility for benefits. PBGC recognizes
that employers may need more than the specified time limit to verify a
person's eligibility for benefits and that such a circumstance is not
indicative of a possible need for plan termination.
To resolve this issue, PBGC proposes to amend Sec. 4043.26 to
clarify that an inability to pay benefits when due caused by the need
to verify eligibility is not subject to the time limit imposed for
other administrative delays.
Change in Contributing Sponsor or Controlled Group
Under Sec. 4043.29 of the reportable events regulation, a
reportable event occurs for a plan when there is a transaction that
results, or will result, in one or more persons' ceasing to be members
of the plan's controlled group. PBGC has continued to receive inquiries
about when a reportable event is triggered under Sec. 4043.29. For
instance, although the heading of Sec. 4043.29 includes ``a change in
contributing sponsor,'' the regulatory text does not. A 1996 rulemaking
added a new reportable event for transactions that result in any person
ceasing to be a member of the plan's controlled group, amending the
then existing regulation that required reporting only if there was a
change in the contributing sponsor.\5\ The 1996 rule, a product of
negotiated rulemaking, left out a specific reference to contributing
sponsors, though PBGC did not intend that changes in contributing
sponsors would no longer be reportable.
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\5\ See Reportable Events; Annual Report, 61 FR 38409 (July 24,
1996) for a description of the amendment, which was adopted without
modification in the final rule (61 FR 63988 (Dec. 2, 1996)).
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Thus, PBGC proposes to modify the event definition to make clear
that reporting would be required when a transaction results in one or
more persons ceasing to be either a contributing sponsor of a plan, or
a member of the plan's controlled group (other than by merger involving
members of the same controlled group). The current exception to the
reporting requirement for transactions that will solely result in a
reorganization involving a mere change in identity, form, or place or
organization (however effected), would apply under the proposed rule to
only ``change in controlled group'' transactions. A reorganization such
as this that involves a controlled group member that is not a
contributing sponsor does not pose a significant risk to the pension
insurance system. However, PBGC does need to know about any change to a
contributing sponsor, since it is a contributing sponsor that primarily
supports the pension plan.
The proposed rule also would revise the first example in the
existing regulation to provide greater clarity on the timing of, and
responsibility for, filing a report. In addition, the proposed rule
would add two new examples--one regarding dissolution of a controlled
group member and one describing a merger of controlled group members.
These examples illustrate some common situations implicated by the
requirements in Sec. 4043.29.\6\
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\6\ These examples also incidentally illustrate the importance
to PBGC of identifying whether value is leaving the controlled group
in analyzing whether a transaction poses a risk to the plan and the
pension insurance system. When value (e.g., business or revenue
generating assets of a sponsor) leaves a controlled group, the loss
may raise a concern about the ability of a sponsor to make
contributions to, or otherwise be able to maintain, a plan. The
example on dissolution of a controlled group reflects value leaving
the controlled group while the example on a merger of controlled
group members reflects value remaining in the controlled group
(hence PBGC's interest in being notified in the former situation but
not the latter).
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Liquidation
Section 4043.30(a)(1) of the reportable events regulation states
that a reportable event occurs for a plan when a member of the plan's
controlled group ``is involved in any transaction to implement its
complete liquidation (including liquidation into another controlled
group member).'' In discussing this provision with practitioners over
the years, it has become clear that this event description could
benefit from greater clarity and precision, particularly with respect
to what ``involved in any transaction to implement'' a liquidation
means and when the event was triggered.
One liquidation scenario that commonly causes confusion involves a
company that ceases operations and sells substantially all of its
assets over a period of time. The company continues to sponsor a plan
but with no business income, benefits stop accruing and no further plan
contributions from the company are made. The result is a ``wasting
trust'' where assets are depleted over time to make pension payments
but no new contributions are made for future payment obligations. PBGC
observes that because the plan has not been terminated, the company
does not realize a reportable event has occurred. Although a cessation
of business operations is not in and of itself a liquidation, because
the cessation is tied to a sale of substantially all of the business'
assets, with the intent to settle remaining obligations, PBGC views a
cessation in this context as part of the liquidation process.
When a company fails to notify PBGC that the company ceased
business operations and began a liquidation, PBGC encounters greater
difficulties in effectively intervening to protect plan assets and
participant benefits, thereby increasing the potential for decreased
employer funding for the plan and greater potential strain on the
pension insurance system. In some cases, PBGC did not become aware of
the process of liquidation until years later, when the
[[Page 30670]]
best opportunity for protecting plan assets and participant benefits
had passed. Liquidations of the type that concern PBGC may take a
myriad of forms and be implemented over long periods of time.
To alleviate confusion and improve precision, PBGC proposes to
clarify the definition of liquidation to state that a liquidation event
occurs when a member of the plan's controlled group ``resolves to cease
all revenue-generating business operations, sell substantially all its
assets, or otherwise effect or implement its complete liquidation
(including liquidation into another controlled group member) by
decision of the member's board of directors (or equivalent body such as
the managing partners or owners) or other actor with the power to
authorize such cessation of operations or a liquidation.'' Hence, a
cessation of operations, such as the example above, would trigger a
reportable event under Sec. 4043.30. The proposed rule includes the
word ``revenue-generating'' to qualify a cessation of business
operations in acknowledgement of the fact that various administrative
activities may continue during the winding down of a business. The use
of the word ``revenue-generating'' is therefore designed to capture the
fact that a company is not earning revenue to enable it to support the
pension plan.
The decision to liquidate can have serious implications for
participants and the pension insurance system. Given that PBGC's
success in such cases is often directly correlated with reporting an
event when there is still time to preserve plan assets, PBGC believes
triggering a reporting obligation to the time a decision by the
person(s) or body (such as a board of directors) that has the authority
to determine that a company will liquidate will be most protective of
participants and the pension insurance system. Since a liquidation may
or may not involve a formal plan, a written agreement to sell assets to
a single buyer, or a series of sales over time to maximize proceeds,
the language in the proposed rule represents as close as possible to a
uniform trigger for reporting of liquidation events. PBGC believes that
in the vast majority of cases, the decision to liquidate must go
through a formal approval or authorization process. Even in cases where
the plan sponsor is a company owned by a single person and board
formalities do not exist, a moment occurs when that owner has made the
decision to move forward with a liquidation. This decision is the
common point of departure for liquidations to move forward. For
reference and further clarity, PBGC has included in the proposed rule
three additional examples, regarding a liquidation within a controlled
group, occurring by cessation of operations, and through an asset sale.
Companies that liquidate as a result of insolvency are required to
report both events to PBGC under Sec. [thinsp]4043.30 and Sec.
[thinsp]4043.35 of the reportable events regulation. However, given the
similarities between the two events, PBGC believes that reporting to
PBGC under either section (instead of both) would be sufficient
notification. Thus, PBGC is proposing an additional waiver that would
provide relief from the possibility of duplicative reporting under a
Sec. [thinsp]4043.30 liquidation or a Sec. [thinsp]4043.35
insolvency. The proposed rule would provide parallel waivers in both
Sec. [thinsp]4043.30 and Sec. [thinsp]4043.35 to clarify that notice
would be waived if notice has already been provided to PBGC for the
same event under the former section.
PBGC does not intend to compel public company sponsors to disclose
liquidations on a Form 10 before notifying the public. Thus, the
proposed rule includes an extension under Sec. 4043.30(c) to file the
post-event reportable events notice until the earlier of the timely
filing of an SEC Form 8-K disclosing the event or the issuance of a
press release discussing it.
PBGC specifically requests comment on whether PBGC should make this
extension available for foreign private issuers and if so, how. For
example, should the regulation allow an extension to file a reportable
events notice involving a foreign private issuer that is a plan sponsor
until the earlier of the timely filing of a Form 6-K disclosing the
event or the issuance of a press release discussing it, even if the
country of incorporation for the foreign private issuer would not
require reporting as timely as is required on a Form 8-K for the same
event had the issuer been a U.S. filer? \7\
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\7\ For more information on Securities and Exchange Commission
filing obligations for foreign private issuers, see the discussion
at https://www.sec.gov/divisions/corpfin/internatl/foreign-private-issuers-overview.shtml (including Form 6-K under section III.B.3.
Periodic and Ongoing Reporting Obligations; Other Reports).
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Public Company Waiver
Five reportable events \8\ may be waived if any contributing
sponsor of the plan (before the transaction that caused the event) is a
public company, and the contributing sponsor timely files a SEC Form 8-
K disclosing the event under an item of the Form 8-K, except under Item
2.02 (Results of Operations and Financial Condition) or in financial
statements under Item 9.01 (Financial Statements and Exhibits). As
explained in the 2015 Final Rule, PBGC found that SEC filings provide
timely and adequate information to PBGC with respect to the five events
because these events are either required to be reported under a
specific Form 8-K item or because they are material information for
investors. Therefore, PBGC didn't need to compel reporting of these
events under the reportable events regulation.
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\8\ These five post-event filings are (1) active participant
reduction, (2) distribution to a substantial owner, (3) change in
contributing sponsor or controlled group, (4) extraordinary dividend
or stock redemption, and (5) transfer of benefit liabilities.
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The proposed rule does not make any changes to the public company
waiver. However, in response to questions from practitioners since
publication of the 2015 Final Rule, PBGC requests comment on whether
the waiver should be expanded to apply in situations where a parent
company timely files a Form 8-K but is not a contributing sponsor to
the plan. Specifically, would the Form 8-K filing by a parent company
that isn't a contributing sponsor provide adequate information to PBGC
with respect to each of the five events to which the waiver applies?
Annual Financial and Actuarial Information Reporting--29 CFR Part 4010
Section 4010 of ERISA requires the reporting of actuarial and
financial information by controlled groups with single-employer pension
plans that have significant funding problems. It also requires PBGC to
provide an annual summary report to Congress containing aggregate
information filed with PBGC under that section. PBGC's ``4010 reporting
regulation'' (29 CFR part 4010) implements section 4010 of ERISA.
Definitions
Section 4010.2 of PBGC's 4010 reporting regulation contains the
terms used in part 4010 and their definitions. The proposed rule would
amend this ``Definitions'' section to include the term ``Foreign
entity,'' which is used in proposed amendments to Sec. 4010.9
describing the financial information a filer is required to provide to
PBGC. The proposed definition is similar to the definition of ``Foreign
entity'' in Sec. 4043.2 of PBGC's reportable events regulation. The
only difference is that ``information year'' replaces ``date the
reportable event occurs'' in part (3) of the definition so that part
(3) is satisfied for 4010 purposes if one of three tests are met for
the fiscal year that includes the information year.
[[Page 30671]]
The proposed rule also would add to the list of common terms
referenced in Sec. 4010.2 the two terms it would define in the general
definitions section of PBGC's regulations (Sec. 4001.2). As explained
above, under ``Terminology--29 CFR part 4001,'' those terms would be
``Ultimate parent,'' and ``U.S. entity.''
Filers
Section 4010.4 of the 4010 reporting regulation prescribes who is a
filer. Paragraph (e) of this section explains how reporting is
applicable to plans to which special funding rules apply. This
paragraph provides that except in connection with the actuarial
valuation report, the special funding rules under sections 104 and
402(b) of PPA (applicable to multiple employer plans of cooperatives
and charities, and plans of commercial passenger airlines and airline
caterers, respectively) and under the Cooperative and Small Employer
Charity Pension Flexibility Act of 2013, are disregarded for all other
4010 purposes. The proposed rule would remove from paragraph (e) the
reference to PPA section 104 because it has expired.
Identifying Information
Section 4010.7 of the 4010 reporting regulation describes what
types of identifying information each filer must provide as part of its
reporting. Paragraph (a)(1) of this section specifies what information
is required to be included about current members of the filer's
controlled group, such as identifying the legal relationships of each
controlled group member to the other members. Filers identify the legal
relationships by manually entering a description, e.g., parent,
subsidiary, for each member. Identifying the legal relationships of
controlled group members in this way can be burdensome to filers in
larger controlled groups and does not provide a clear picture of the
controlled group structure, frustrating the intent of this information.
The proposed rule would provide a simple method for filers in
larger controlled groups to satisfy the requirement in paragraph (a) of
this section. Instead of entering ``parent,'' ``subsidiary,'' or other
relationship, filers with more than 10 controlled group members would
submit with their filing an organizational chart or other diagram
showing the relationship of the controlled group members to each other.
PBGC's understanding is that most filers have such diagrams. Also,
filers may already include such diagrams in reportable events filings
(29 CFR part 4043) to satisfy the requirement specified in those
instructions for a description of the controlled group structure. PBGC
believes that requiring a diagram for these larger groups would be less
burdensome to provide and would more clearly show the controlled group
structure.
Plan Actuarial Information
Section 4010.8 of the 4010 reporting regulation prescribes the plan
actuarial information a filer must provide. Paragraph (d)(2) of this
section sets the actuarial assumptions and methods to use for
determining a plan's benefit liabilities. PBGC has heard from
practitioners that the assumptions in paragraph (d)(2) as they apply to
cash balance pension plans are not clear and don't specify how these
plans should convert a lump sum payment (which is the assumption used
by most cash balance plans) to an annuity form. The proposed rule would
provide needed guidance with respect to cash balance plans on these
assumptions and make a change in the paragraph's overall structure to
improve clarity.
The proposed rule would reorganize Sec. 4010.8(d)(2) and combine
the actuarial assumptions under paragraphs (d)(2)(i) through (ii) of
this section into a table. The table would include as number (5) the
assumptions to use for valuing benefit liabilities for cash balance
plans. Cash balance plan filers must convert account balances to
annuity forms of payment using the rules under section 411(b)(5)(B)(vi)
of the Code and 26 CFR 1.411(b)(5)-1(e)(2) that specify the interest
crediting rate and annuity conversion rate upon plan termination. In
other words, for purposes of reporting benefit liabilities, a cash
balance plan would be treated as if terminated and lump sums converted
to annuity payments using the assumptions in the applicable U.S.
Department of the Treasury regulation cited to above.
The proposed edits to paragraph (d)(3) of this section focus on
improved readability and conformed citations to ERISA and the Code.
Financial Information
Section 4010.9 of the 4010 reporting regulation prescribes the
financial information a filer must submit to PBGC for each member of
the filer's controlled group. Paragraph (b) of this section permits a
filer to submit consolidated financial statements if the financial
information of a controlled group member is combined with the
information of other members in a consolidated statement. However, if
consolidated information is reported, paragraph (b)(2) requires that
revenues, operating income, and net assets for each controlled group
member also be reported.
In PBGC's 2017 Request for Information (RFI) on Regulatory Planning
and Review of Existing Regulations (noted in the ``Background'' section
of this preamble), a commenter stated that some filers have difficulty
trying to identify and collect the three types of information under
Sec. 4010.9(b)(2) for each controlled group member and recommended
that PBGC modify the regulation to request this detailed information
only when necessary as part of reviewing the plan and controlled group
financial statements. PBGC considered the comment, and after reviewing
the information it collects for 4010 purposes, PBGC believes it can
adequately assess risks to participants and plans without this detailed
information, and by using additional ``off-the-shelf'' information as
noted in the following paragraph. Therefore, the proposed rule would
eliminate that requirement in paragraph (b)(2) of Sec. 4010.9.
PBGC proposes to make another change to paragraph (b) of this
section to clarify what financial information must be provided for
controlled group members that are U.S. entities where the ultimate
parent is a foreign entity. In addition to the consolidated statements
for the whole controlled group, the filer must submit financial
information on only the U.S. entities that are members of the
controlled group. This information could be submitted in consolidated
statements. Otherwise, the filer must provide the separate audited (or
unaudited) financial statements (or tax returns if financial statements
are not available) for controlled group members that are U.S. entities.
Lastly, Sec. 4010.9 allows filers to direct PBGC to where PBGC can
find required financial information that is publicly available (in lieu
of submitting that information to PBGC). Paragraph (d) of this section
on ``submission of public information'' provides that a filer may
submit a statement indicating when the financial information was made
available to the public and where PBGC may obtain it. In PBGC's
experience, these statements have led to general websites, but not
specific web pages where the information required to be reported can be
found. Therefore, the proposed rule would clarify how to indicate where
public financial information is located. The clarification would state
that filers provide the web address (URL) and title of the web page.
The example in paragraph (d) of a Securities and Exchange Commission
filing is clarified accordingly.
[[Page 30672]]
Waivers
Reporting under section 4010 of ERISA is required if any one of
three conditions is met. However, PBGC can waive reporting under its
4010 reporting regulation and does so in three situations (with
discretion to waive in others) under Sec. 4010.11 of the regulation.
A condition triggering reporting is that the funding target
attainment percentage (FTAP) at the end of the preceding plan year, of
a plan maintained by the contributing sponsor or any member of its
controlled group, is less than 80 percent (the ``80-percent FTAP
Gateway Test''). Section 303(d)(2) of ERISA and section 430(d)(2) of
the Code provide that in determining the FTAP of a plan for a plan
year, plan assets are reduced by the amount of the plan's funding
balance. Plan sponsors are permitted under section 303(f) of ERISA and
section 430(f) of the Code to make certain elections to use, increase,
or reduce a funding balance effective at the beginning of the plan
year. Because of timing, a funding balance election that is made late
may be the sole cause of a plan having a 4010 FTAP of less than 80
percent. Practitioners have asked if PBGC would recognize for purposes
of the 80-percent FTAP Gateway Test an untimely funding balance
election.
In response, and based on a review of its experience, PBGC proposes
to recognize a late funding balance election for this purpose. The
proposed waiver would clarify that reporting is not required where a
plan makes a late election to reduce a funding balance, and the plan's
FTAP for 4010 purposes would have been greater than or equal to 80
percent had the election been timely made.
PBGC also proposes to modify two of the existing three reporting
waivers in Sec. 4010.11 of the regulation. PBGC automatically waives
reporting where: (a) The aggregate funding shortfall is not in excess
of $15 million; (b) the aggregate participant count is less than 500;
or (c) the sole reason filing would otherwise be required is because of
either a statutory lien resulting from missed contributions over $1
million or outstanding minimum funding waivers exceeding the same
amount, provided the missed contributions or applications for minimum
funding waivers were previously reported to PBGC.
Practitioners have raised with PBGC that, while it is clear under
the 80-percent FTAP Gateway Test that only plans maintained by the
controlled group on the last day of the information year are considered
in determining whether that test is met, the same is not clear under
Sec. 4010.11 in determining whether either of the first two waivers
apply. Without specifying ``on the last day of the information year,''
the language of the aggregate funding shortfall waiver in paragraph (a)
and the waiver for smaller plans in paragraph (b) of Sec. 4010.11,
could be interpreted to mean that plans maintained at any time during
the plan year must be included in the determination of whether the
waiver applies. This is not the interpretation that PBGC intended or
believes is reasonable in light of the standard in the 80-percent FTAP
Gateway Test. PBGC agrees that a clarification would be helpful.
Therefore, the proposed rule would modify paragraphs (a) and (b) of
Sec. 4010.11 to insert ``on the last day of the information year.''
Practitioners have also asked when at-risk assumptions are to be
used to calculate the funding target (see section 303(i) of ERISA and
section 430(i) of the Code for special rules for at-risk plans) for
purposes of the 4010 funding shortfall and waiving reporting where a
plan's aggregate funding shortfall is $15 million or less. In response,
the proposed rule would revise paragraph (a)(1)(i) of Sec. 4010.11 to
provide that a plan is not required to use at-risk retirement and form
of payment assumptions to determine the funding target used to
calculate the 4010 funding shortfall unless the plan is in ``at-risk
status'' for funding purposes. This follows a similar clarification
that had been made to the rules describing assumptions for determining
the premium funding target under PBGC's premium rates regulation, Sec.
4006.4(b)(3).
Termination of Single-Employer Plans--29 CFR Part 4041
A single-employer plan covered by PBGC's insurance program may be
voluntarily terminated only in a standard or distress termination. The
rules governing voluntary terminations are in section 4041 of ERISA and
PBGC's regulation on Termination of Single-Employer Plans (29 CFR part
4041), ``termination of single-employer plans regulation.''
Post-Distribution Certification
ERISA requires the plan administrator of a plan terminating in a
standard termination to certify to PBGC that the plan's assets have
been distributed to pay all benefits under the plan. Certification
under section 4041(b)(3)(B) of ERISA must be made within 30 days after
the final distribution of assets is completed.
Section 4041.29 of the termination of single-employer plans
regulation requires plans to submit by the 30-day statutory deadline a
``post-distribution certification'' (i.e., PBGC Form 501). PBGC has
heard from practitioners that it is sometimes challenging to collect
all of the information required to be submitted as an attachment to
Form 501 within the prescribed timeframe (e.g., documentation that
benefit obligations were settled for all participants including copies
of cancelled checks in the case of lump sum distributions) and have
asked whether PBGC could extend the certification deadline.
While PBGC cannot extend a statutory deadline, the proposed rule
would amend paragraph (a) of Sec. 4041.29 to provide an alternative
filing option for plan administrators who need more time to complete
the PBGC Form 501. This proposed alternative would permit a plan
administrator to submit a completed PBGC Form 501 within 60 days after
the last distribution date for any affected party if the plan
administrator certifies to PBGC that all assets have been distributed
in accordance with section 4044 of ERISA and 29 CFR part 4044 (in an
email or otherwise, as would be described in the instructions to the
Form 501) within 30 days after the last distribution date for any
affected party.
Paragraph (b) of this section and paragraph (d)(2) of Sec. 4041.30
(requests for deadline extensions) would be revised accordingly to
account for the proposed changes to Sec. 4041.29(a).
Premium Rates--29 CFR Part 4006
Under sections 4006 and 4007 of ERISA, plans covered by the
termination insurance program under title IV of ERISA must pay premiums
to PBGC. Section 4006 of ERISA deals with premium rates, including the
computation of premiums, and PBGC's regulation on Premium Rates in 29
CFR part 4006, ``premium rates regulation,'' implements section 4006 of
ERISA.
Determination of Unfunded Vested Benefits--Plans to Which Special
Funding Rules Apply
Section 4006.4 of the premium rates regulation, which provides
rules for determining unfunded vested benefits, states in paragraph (f)
that plans subject to special funding rules must disregard those rules
and determine unfunded vested benefits for premium purposes in the same
manner as all other plans. Section 4006.4(f) refers to the special
funding rules under sections 104, 105, 106, and 402(b) of the Pension
Protection Act of 2006, Public Law 109-280 (PPA), that are applicable
to
[[Page 30673]]
multiple employer plans of cooperatives and charities, PBGC settlement
plans, plans of government contractors, and plans of commercial
passenger airlines and airline caterers.
The proposed rule would remove references to PPA sections 104, 105,
and 106 because those provisions have expired. It would add a reference
to subsequent law that permanently established special funding rules
for multiple employer plans maintained by certain cooperatives and
charities (the Cooperative and Small Employer Charity Pension
Flexibility Act of 2013, Pub. L. 113-97).
Variable-Rate Premium Exemptions; Plans Terminating in Standard
Terminations
In general, a single-employer plan pays a variable-rate premium
(VRP) for the plan year ten-and-a-half months after the plan year
begins based on the level of the plan's underfunding at the beginning
of the plan year. In 2014, as part of PBGC's regulatory review process,
PBGC amended its premium rates regulation to provide for a VRP
exemption for the year in which a plan completes a standard
termination. PBGC adopted this exemption because it did not seem
appropriate to require a terminating plan to pay a VRP based on the
underfunding at the beginning of the year when, by the time the premium
was due (or shortly thereafter), the sponsor had fully funded the plan
and distributed all accrued benefits (i.e., purchased annuities or paid
lump sums) and PBGC coverage had ceased.\9\
---------------------------------------------------------------------------
\9\ Before 2014, the standard termination VRP exemption in Sec.
4006.5(a)(3) was available only if the proposed date of termination
was in a prior year, but the plan had not yet completed the close-
out by the end of that year. The 2014 change expanded that exemption
to include plans that are able to complete the termination within
one plan year. See 79 FR 13547, 13553 (March 11, 2014).
---------------------------------------------------------------------------
PBGC has received questions from practitioners as to whether a plan
qualifies for this ``final year'' exemption if a large number of
participants are spun off to a new plan or transferred to another
existing plan during the year in which the termination is completed. It
has been suggested that, if the exemption applies, a plan sponsor could
significantly reduce its VRP because the transferor plan would not owe
any VRP for its final year and the transferee plan would owe, at most,
a pro-rata VRP for the plan year in which the transfer occurs.\10\
However, the VRP exemption does not apply in this type of transaction
because the benefits of most of the participants who were in the plan
at the beginning of the year would not be fully funded or paid in full,
and for those participants, PBGC coverage would still be in effect.
PBGC added language to the 2018 premium filing instructions to
highlight to filers that the VRP exemption does not apply in such
cases.
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\10\ If the transferee plan is an existing plan, the additional
underfunding resulting from the transfer would not be reflected in
its VRP because underfunding for VRP purposes is measured at the
beginning of the year. If the transferee plan is a new plan, it
would owe only a pro-rata VRP (see Sec. 4006.5(f)(1)).
---------------------------------------------------------------------------
In light of these questions, PBGC is proposing to amend Sec.
4006.5(a)(3) of the premium rates regulation to expressly state that a
plan does not qualify for the VRP exemption for the year in which a
plan completes a standard termination if the plan engages in a spinoff
during the premium payment year. The proposed rule would make an
exception where the spinoff is de minimis pursuant to the regulations
under section 414(l) of the Internal Revenue Code (the Code), i.e.,
generally fewer than 3 percent of the assets are spun off.
To distinguish cases where the termination has not yet been
completed, the proposed changes would move the exemption for certain
plans in the process of completing a standard termination initiated in
a prior year from Sec. 4006.5(a)(3) to Sec. 4006.5(a)(4) of the
premium rates regulation.
Participant Count Date; Certain Transactions
To determine the flat-rate premium for a plan year, participants
are counted on the ``participant count date,'' generally the day before
the plan year begins. Changes in the participant count during the plan
year do not affect that year's flat-rate premium. Under the premium
rates regulation, a special rule (Sec. 4006.5(e)) shifts the
participant count date to the first day of the plan year in specified
situations that take place at the beginning of a plan year so that the
change in participant count is recognized immediately (rather than a
year later). Situations where the special rule applies include:
The first plan year a plan exists.
A plan year in which a plan is the transferor plan in the
case of a beginning of year non-de minimis spinoff.
A plan year in which a plan is the transferee plan in the
case of a beginning of year non-de minimis merger.
For example, consider a scenario where Plan A, a calendar year
plan, spins off a group of participants (and the corresponding assets
and liabilities) into new Plan B at the beginning of Plan A's 2018 plan
year (assume the spinoff is not de minimis). Because of the special
rule, both plans count participants on the first day of the year which
means Plan B owes a 2018 flat-rate premium on behalf of the transferred
participants, but Plan A does not.
PBGC has received questions from practitioners as to whether the
special rule applies to the transferee plan in a situation where spun
off participants are transferred to an existing plan instead of a new
plan. These practitioners believed the premium filing instructions
could be interpreted to provide that the special rule does not apply to
the transferee plan in this plan-to-plan transfer. However, that
interpretation would lead to an inconsistent result.
For example, assume that instead of spinning off participants into
a new plan, Plan A (in the above example) had transferred those
participants to a pre-existing Plan C (also a calendar year plan) at
the beginning of Plan C's 2018 plan year. As noted above, the special
rule would apply to Plan A, so Plan A would not include the transferred
participants in its participant count. But, if the special rule does
not apply to Plan C (i.e., to the transferee plan), Plan C would count
participants on the day before the transfer. That would mean that
neither Plan A nor Plan C would owe flat-rate premiums on behalf of the
transferred participants for 2018.
PBGC is proposing to amend the special rule in paragraph (e) of
Sec. 4006.5 to clarify that, in such plan-to-plan transfers, the
participant count date of the transferee plan shifts to the first day
of its plan year. As a result, it is clear that the transferee plan
would owe flat-rate premiums on behalf of the transferred participants.
This provision generally would operate where both plans have the same
plan year and the transfer takes place at the beginning of the plan
year.
As noted above, the special rule also applies where a plan is the
transferee plan in the case of a beginning-of-year non-de minimis
merger. For example, if two calendar year plans merge at the beginning
of 2018, the surviving plan's participant count date is shifted to
January 1, 2018. As a result, the surviving plan owes 2018 flat-rate
premiums on behalf of the participants who were previously in the
transferor plan.
PBGC exempted de minimis mergers from this special rule because
PBGC felt the burden resulting from shifting the participant count date
was not justified in the case of a de minimis merger because the number
of participants for whom neither plan would owe a flat-rate premium
would be relatively small (i.e., the regulations under section 414(l)
of the Code provide that a merger is de minimis where the liabilities
of the
[[Page 30674]]
smaller plan are less than 3 percent of the assets of the larger plan).
PBGC has received questions from practitioners as to whether this
de minimis exemption applies where the surviving plan is the smaller
plan. It has been suggested that, if the exemption applies, a plan
sponsor could avoid paying flat-rate premiums on behalf of the large
plan participants simply by merging it into a much smaller plan. In one
case, a consultant reported that a plan sponsor was considering a
strategy to establish a new plan covering only a few employees so that
it could merge a large plan into the new small plan at the beginning of
the next year and avoid paying flat-rate premiums on behalf of the
large plan participants. These results are inconsistent with the intent
of the special rule and de minimis exception.
Because of these questions, PBGC is proposing to clarify that the
special rule in paragraph (e) of this section applies in the case of a
beginning-of-year merger where a large plan is merged into a smaller
plan. This clarification maintains the de minimis exception where a
smaller plan merges into a larger plan.
Premium Proration for Certain Short Plan Years
The special rule in Sec. 4006.5(f) of PBGC's premium rates
regulation allows plan administrators to pay prorated VRP and flat-rate
premiums for a short plan year and lists the four circumstances that
would create a short year. One of those circumstances is where the
plan's assets are distributed pursuant to the plan's termination. For
example, if a plan distributed its assets in a standard termination
with a final short plan year covering nine months (i.e., 75 percent of
a full year), the calculated premium would be reduced by 25 percent.
This rule makes sense where all accrued benefits are distributed
(i.e., purchased annuities or paid lump sums) and PBGC's coverage ends.
However, where a completed termination is preceded in the same year by
a spinoff of a group of the plan's participants to another plan, the
transferred participants remain in the insurance program and PBGC
coverage of their benefits is still in effect. It has been suggested
that a plan sponsor could use this rule to significantly reduce its
premium obligation for the year simply by transferring most of its
participants to another plan early in the plan year and then
terminating what's left of the transferor plan (and, thus, owing only a
pro-rata premium for its final short plan year).
In view of these considerations, PBGC is proposing to change the
circumstances under which the premium is prorated for a short plan year
resulting from a standard termination. The proposed rule would provide
that premiums are not prorated for the year in which the plan completes
a final distribution of assets in a standard termination if the plan
engages in a spinoff in that same year, unless the spinoff is de
minimis pursuant to the regulations under section 414(l) of the Code,
i.e., generally fewer than 3 percent of the assets are spun off.
In the same paragraph, the proposed rule replaces the words
``excess assets'' with ``residual assets under section 4044(d) of
ERISA'' to be consistent with the statutory language.
Executive Orders 12866, 13563, and 13771
PBGC has determined that this rule is not a ``significant
regulatory action'' under Executive Order 12866. Accordingly, this
proposed rule is exempt from Executive Order 13771, and the Office of
Management and Budget has not reviewed it under Executive Order 12866.
Executive Order 12866 directs agencies to assess all costs and
benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, public health and safety
effects, distributive impacts, and equity).
Although this is not a significant regulatory action under
Executive Order 12866, PBGC has examined the economic and policy
implications of this proposed rule. Most of the proposed amendments
clarify regulations and remove outdated provisions, which are neutral
in their impact. A few would minimally affect the time and cost of
reporting for plans and sponsors, which is discussed in the Paperwork
Reduction Act section below.
Section 6 of Executive Order 13563 requires agencies to rethink
existing regulations by periodically reviewing their regulatory program
for rules that ``may be outmoded, ineffective, insufficient, or
excessively burdensome.'' These rules should be modified, streamlined,
expanded, or repealed as appropriate. PBGC has identified technical
corrections, clarifications, and improvements to some of its
regulations and have included those amendments in this proposed
rulemaking. PBGC expects to propose periodic rulemakings of this nature
to revise its regulations as necessary for minor technical corrections
and clarifications to rules.
Regulatory Flexibility Act
The Regulatory Flexibility Act \11\ imposes certain requirements
with respect to rules that are subject to the notice and comment
requirements of section 553(b) of the Administrative Procedure Act and
that are likely to have a significant economic impact on a substantial
number of small entities. Unless an agency determines that a final rule
is not likely to have a significant economic impact on a substantial
number of small entities, section 603 of the Regulatory Flexibility Act
requires that the agency present a final regulatory flexibility
analysis at the time of the publication of the final rule describing
the impact of the rule on small entities and seeking public comment on
such impact. Small entities include small businesses, organizations,
and governmental jurisdictions.
---------------------------------------------------------------------------
\11\ 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------
Small Entities
For purposes of the Regulatory Flexibility Act requirements with
respect to this proposed rule, PBGC considers a small entity to be a
plan with fewer than 100 participants. This is substantially the same
criterion PBGC uses in other regulations \12\ and is consistent with
certain requirements in title I of ERISA \13\ and the Code,\14\ as well
as the definition of a small entity that the Department of Labor has
used for purposes of the Regulatory Flexibility Act.\15\
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\12\ See, e.g., special rules for small plans under part 4007
(Payment of Premiums).
\13\ See, e.g., section 104(a)(2) of ERISA, which permits the
Secretary of Labor to prescribe simplified annual reports for
pension plans that cover fewer than 100 participants.
\14\ See, e.g., section 430(g)(2)(B) of the Code, which permits
single-employer plans with 100 or fewer participants to use
valuation dates other than the first day of the plan year.
\15\ See, e.g., DOL's final rule on Prohibited Transaction
Exemption Procedures, 76 FR 66637, 66644 (Oct. 27, 2011).
---------------------------------------------------------------------------
Thus, PBGC believes that assessing the impact of this final rule on
small plans is an appropriate substitute for evaluating the effect on
small entities. The definition of small entity considered appropriate
for this purpose differs, however, from a definition of small business
based on size standards promulgated by the Small Business
Administration \16\ under the Small Business Act. Therefore, PBGC
requests comments on the appropriateness of the size standard used in
evaluating the impact of the amendments in this proposed rule on small
entities.
---------------------------------------------------------------------------
\16\ See, 13 CFR 121.201.
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[[Page 30675]]
Certification
Based on its definition of small entity, PBGC certifies under
section 605(b) of the Regulatory Flexibility Act that the amendments in
this proposed rule would not have a significant economic impact on a
substantial number of small entities. As explained above under
``Executive Orders 12866, 13563, and 13771,'' some of the proposed
amendments reduce requirements for plans and sponsors, including for
small plans, resulting in administrative savings or have a very minimal
cost impact as discussed in the Paperwork Reduction Act section below.
Most of the amendments clarify regulations and remove outdated
provisions, which are neutral in their impact. Accordingly, as provided
in section 605 of the Regulatory Flexibility Act, sections 603 and 604
do not apply.
Paperwork Reduction Act
PBGC is submitting changes to the information requirements under
this proposed rule to the Office of Management and Budget (OMB) for
review and approval under the Paperwork Reduction Act (PRA). An agency
may not conduct or sponsor, and a person is not required to respond to,
a collection of information unless it displays a currently valid OMB
control number. Most of the changes PBGC expects to make are revisions
to filing instructions, where necessary or helpful, to incorporate the
clarifications in the proposed rule. Therefore, PBGC estimates the
proposed rule would have a minimal impact on the hour and cost burden
of reporting as described below.
Reportable Events Regulation
The collection of information in part 4043 is approved under
control number 1212-0013 (expires February 28, 2022). The current
information collection requirements in part 4043 have an estimated
annual hour burden of approximately 1,855 hours and a cost burden of
$439,500.
PBGC's instructions for Form 10 and Form 10-Advance would be
updated to describe, as necessary or helpful, the clarifications that
would be made by the proposed rule. The clarifications incorporated in
the instructions would replace or augment existing language but would
not create additional filing burden. However, the proposed rule would
reduce reporting of active participant reduction events by eliminating
the two-year lookback requirement. PBGC estimates that the
approximately 180 filings it receives for active participant reduction
events per year would be reduced by approximately 38 percent.
Therefore, PBGC estimates that the total average annual hour burden
under the proposed rule would be approximately 1,641 hours and the cost
burden $388,890.
Annual Financial and Actuarial Information Reporting Regulation
The collection of information in part 4010 is approved under
control number 1212-0049 (expires May 31, 2022). The current
information collection requirements have an estimated annual hour
burden of 532 hours and a cost burden of $12,871,040.
PBGC's 4010 reporting e-filing instructions would be updated, as
necessary or helpful, to describe the clarifications that would be made
by the proposed rule. The clarifications incorporated in the
instructions would replace existing language, and therefore would not
create additional filing burden in these instances.
However, PBGC estimates that the proposed rule would reduce filer
burden by eliminating the requirement of Sec. 4010.9(b)(2) to provide
the revenues, operating income, and net assets for each controlled
group member if a filer is submitting consolidated financial
information. (See Question 2 on Schedule F, Section II, of the e-4010
module of PBGC's e-filing portal on www.pbgc.gov.) PBGC estimates that
approximately 62 percent of a projected 560 filers per year (347.2
filers) are required to file Question 2 financial information. Based on
estimates of the average hour and cost burden of this requirement, PBGC
estimates that by eliminating it, the proposed rule would reduce total
average annual filer burden by approximately 17 hours and $7,742.
Therefore, PBGC estimates the aggregate annual hour burden under the
proposed rule would be approximately 515 hours and the cost burden
$12,863,298.
Termination of Single-Employer Plans Regulation
The collection of information in part 4041 is approved under
control number 1212-0036 (expires March 31, 2021). The current
information collection requirements in part 4041 (which includes
standard and distress terminations) have an estimated annual hour
burden of 29,890 hours and a cost burden of $5,963,400.
The proposed rule would revise Sec. 4041.29 to provide plan
administrators of plans terminating in a standard termination the
option of more time to complete a PBGC Form 501. PBGC estimates up to 5
minutes of time--for those plan administrators who would choose this
option--to review the instructions and send an email to PBGC's standard
termination filings email address to certify that distributions have
been made timely. There is no change in the information requirements
contained in the PBGC Form 501.
PBGC estimates that approximately 25 percent of standard
termination filers per year would choose this option. With a projected
average increase in standard terminations over the current inventory,
the total additional average hourly burden for this information
collection would be approximately 31 hours (25 percent of 1,503 plans =
375 plans x 5 minutes per plan (0.083 hours) = 31 hours). While PBGC
projects this minimal additional time to review and send an email under
the proposed new option, overall compliance for plan administrators
would be eased by extending the time to file.
Premium Rates Regulation
The collection of information with respect to premiums is approved
under control number 1212-0009 (expires June 30, 2021). PBGC's
Comprehensive Premium Filing Instructions would be updated to reflect
the changes made by the proposed rule to the premium provisions. The
updates incorporated in the instructions would replace existing
language and therefore would not create additional filing burden.
List of Subjects
29 CFR Part 4001
Business and industry, Organization and functions (Government
agencies), Pension insurance, Pensions, Small businesses.
29 CFR Part 4006
Employee benefit plans, Pension insurance.
29 CFR Part 4010
Pension insurance, Pensions, Reporting and recordkeeping
requirements.
29 CFR Part 4041
Employee benefit plans, Pension insurance, Pensions.
29 CFR Part 4043
Employee benefit plans, Pension insurance, Reporting and
recordkeeping requirements.
For the reasons stated in the preamble, PBGC proposes to amend 29
CFR parts 4001, 4006, 4010, 4041, and 4043 as follows:
PART 4001--TERMINOLOGY
0
1. The authority citation for part 4001 continues to read as follows:
[[Page 30676]]
Authority: 29 U.S.C. 1301, 1302(b)(3).
0
2. Amend Sec. 4001.2 by adding in alphabetical order, the definitions
``U.S. entity'' and ``Ultimate parent'' to read as follows:
Sec. 4001.2 Definitions.
* * * * *
U.S. entity means an entity subject to the personal jurisdiction of
the U.S. district courts.
Ultimate parent means the parent at the highest level in the chain
of corporations and/or other organizations constituting a parent-
subsidiary controlled group.
* * * * *
PART 4006--PREMIUM RATES
0
3. The authority citation for part 4006 continues to read as follows:
Authority: 29 U.S.C. 1302(b)(3), 1306, 1307.
0
4. Amend Sec. 4006.4 by revising paragraph (f) to read as follows:
Sec. 4006.4 Determination of unfunded vested benefits.
* * * * *
(f) Plans to which special funding rules apply. The following
statutory provisions are disregarded for purposes of determining
unfunded vested benefits (whether the standard premium funding target
or the alternative premium funding target is used):
(1) Section 402(b) of the Pension Protection Act of 2006, Public
Law 109-280, dealing with certain frozen plans of commercial passenger
airlines and airline caterers.
(2) Section 306 of ERISA and section 433 of the Code, dealing with
certain defined benefit pension plans maintained by certain
cooperatives and charities.
0
5. In Sec. 4006.5:
0
a. Revise paragraphs (a) and (a)(3);
0
b. Redesignate paragraph (a)(4) as paragraph (a)(5);
0
c. Add a new paragraph (a)(4); and
0
d. Revise paragraphs (e) and (f)(3).
The revisions and addition read as follows:
Sec. 4006.5 Exemptions and special rules.
(a) Variable-rate premium exemptions. A plan described in any of
paragraphs (a)(1) through (5) of this section is not required to
determine or report its unfunded vested benefits under Sec. 4006.4 and
does not owe a variable-rate premium under Sec. 4006.3(b).
* * * * *
(3) Certain plans completing a standard termination. A plan is
described in this paragraph if it--
(i) Makes a final distribution of assets in a standard termination
during the premium payment year, and
(ii) Did not engage in a spinoff during the premium payment year,
unless the spinoff is de minimis pursuant to the regulations under
section 414(l) of the Code.
(4) Certain plans in the process of completing a standard
termination initiated in a prior year. A plan is described in this
paragraph if--
(i) The plan administrator has issued notices of intent to
terminate the plan in a standard termination in accordance with section
4041(a)(2) of ERISA;
(ii) The proposed termination date set forth in the notice of
intent to terminate is before the beginning of the premium payment
year; and
(iii) The plan ultimately makes a final distribution of plan assets
in conjunction with the plan termination.
* * * * *
(e) Participant count date; certain transactions. (1) The
participant count date of a plan described in paragraph (e)(2) or (3)
of this section is the first day of the premium payment year.
(2) With respect to a transaction where some, but not all, of the
assets and liabilities of one plan (the ``transferor plan'') are
transferred into another plan (the ``transferee plan'')--
(i) The transferor plan if the spinoff is not de minimis and is
effective at the beginning of the transferor plan's premium payment
year; and
(ii) The transferee plan if the transferor plan meets the criteria
in paragraph (e)(2)(i) of this section and the transfer occurs at the
beginning of the transferee plan's premium payment year.
(3) With respect to a merger effective at the beginning of the
premium payment year, the transferee plan if--
(i) The merger is not de minimis; or
(ii) The assets of the transferee plan immediately before the
merger are less than the total assets transferred to the transferee
plan in the merger.
(4) For purposes of this paragraph (e), ``de minimis'' has the
meaning described in regulations under section 414(l) of the Code (for
single-employer plans) or in part 4231 of this chapter (for
multiemployer plans).
(f) * * *
(3) Distribution of assets. The plan's assets (other than any
residual assets under section 4044(d) of ERISA) are distributed
pursuant to the plan's termination, but only if the plan did not engage
in a spinoff during the plan year, unless the spinoff is de minimis
pursuant to the regulations under section 414(l) of the Code.
* * * * *
PART 4010--ANNUAL FINANCIAL AND ACTUARIAL INFORMATION REPORTING
0
6. The authority citation for part 4010 continues to read as follows:
Authority: 29 U.S.C. 1302(b)(3), 1310.
0
7. In Sec. 4010.2:
0
a. Amend the introductory text by removing ``and'' and adding at the
end of the sentence ``, ultimate parent, and U.S. entity''.
0
b. Add, in alphabetical order, the definition ``Foreign entity'' to
read as follows:
Sec. 4010.2 Definitions.
* * * * *
Foreign entity means a member of a controlled group that--
(1) Is not a contributing sponsor of a plan;
(2) Is not organized under the laws of (or, if an individual, is
not a domiciliary of) any state (as defined in section 3(10) of ERISA);
and
(3) For the fiscal year that includes the information year, meets
one of the following tests--
(i) Is not required to file any United States Federal income tax
form;
(ii) Has no income reportable on any United States Federal income
tax form other than passive income not exceeding $1,000; or
(iii) Does not own substantial assets in the United States
(disregarding stock of a member of the plan's controlled group) and is
not required to file any quarterly United States income tax returns for
employee withholding.
* * * * *
0
8. Amend Sec. 4010.4 by revising paragraph (e) to read as follows:
Sec. 4010.4 Filers.
* * * * *
(e) Certain plans to which special funding rules apply. Except for
purposes of determining the information to be submitted under Sec.
4010.8(h) (in connection with the actuarial valuation report), the
following statutory provisions are disregarded for purposes of this
part:
(1) Section 402(b) of the Pension Protection Act of 2006, Public
Law 109-280, dealing with certain frozen plans of commercial passenger
airlines and airline caterers.
(2) Section 306 of ERISA and section 433 of the Code, dealing with
certain defined benefit pension plans maintained by certain
cooperatives and charities.
0
9. Amend Sec. 4010.7 by revising paragraph (a) to read as follows:
[[Page 30677]]
Sec. 4010.7 Identifying information.
(a) Filers. Each filer is required to provide, in accordance with
the instructions on PBGC's website, http://www.pbgc.gov, the following
identifying information with respect to each member of the filer's
controlled group (excluding exempt entities)--
(1) Current members; individual member information. For each entity
that is a member of the controlled group as of the end of the filer's
information year--
(i) The name, address, and telephone number of the entity;
(ii) The nine-digit Employer Identification Number (EIN) assigned
by the IRS to the entity (or if there is no EIN for the entity, an
explanation); and
(iii) If the entity became a member of the controlled group during
the information year, the date the entity became a member of the
controlled group.
(2) Current members; legal relationships of members. If, as of the
end of the filer's information year, the filer's controlled group
consists of--
(i) More than ten members, an organization chart or other diagram
showing the members of the filer's controlled group as of the end of
the filer's information year and the legal relationships of the members
to each other.
(ii) Ten or fewer members, the legal relationship of each entity to
the plan sponsor (for example, parent, subsidiary).
(3) Former members. For any entity that ceased to be a member of
the controlled group during the filer's information year, the date the
entity ceased to be a member of the controlled group and the
identifying information required by paragraph (a)(1) of this section as
of the day before the entity left the controlled group.
* * * * *
0
10. Amend Sec. 4010.8 by revising paragraphs (d)(2) and (3) to read as
follows:
Sec. 4010.8 Plan actuarial information.
* * * * *
(d) * * *
(2) Actuarial assumptions and methods. The value of benefit
liabilities must be determined using the rules in paragraphs (d)(2)(i)
through (iii) of this section.
(i) Benefits to be valued. Benefits to be valued include all
benefits earned or accrued under the plan as of the end of the plan
year ending within the information year and other benefits payable from
the plan including, but not limited to, ancillary benefits and
retirement supplements, regardless of whether such benefits are
protected by the anti-cutback provisions of section 411(d)(6) of the
Code.
(ii) Actuarial assumptions. The value of benefit liabilities must
be determined using the actuarial assumptions described in the
following table:
Table 1 to Paragraph (d)(2)(ii)
------------------------------------------------------------------------
------------------------------------------------------------------------
Actuarial assumptions table to paragraph (d)(2)(ii) of this section
------------------------------------------------------------------------
Assumptions: As prescribed in accordance with
------------------------------------------------------------------------
Interest................ Sec. 4044.52(a).
Form of payment......... Sec. 4044.51.
Expenses................ Sec. 4044.52(d).
Decrements:
Mortality...... Sec. 4044.53.
Retirement..... Sec. Sec. 4044.55-4044.57.
Other (e.g., Either Option 1 or Option 2--
turnover, disability).
-------------------------------------------
Option 1: Option 2:
Disregard (i.e., Use the same
assume 0% assumptions as used
probability of to determine the
decrements other minimum required
than mortality or contribution under
retirement section 303 of
occurring). ERISA and section
430 of the Code for
the plan year
ending within the
filer's information
year.
If there is no
distinction between
termination and
retirement
assumptions,
reflect only rates
for ages before the
Earliest PBGC
Retirement Date (as
defined in Sec.
4022.10 of this
chapter).
-------------------------------------------
Cash balance plan account Section 204(b)(5)(B)(vi) of ERISA and
conversions. section 411(b)(5)(B)(vi) of the Code
(which deal with the interest crediting
rate and annuity conversion rates), as if
the plan terminated on the last day of
the plan year ending within the filer's
information year.
------------------------------------------------------------------------
(iii) Future service. Future service expected to be accrued by an
active participant in an ongoing plan during future employment (based
on the assumptions used to determine benefit liabilities) must be
included in determining the earliest and unreduced retirement ages used
to determine the expected retirement age and in determining an active
participant's entitlement to early retirement subsidies and supplements
at the expected retirement age. See the examples in paragraph (e) of
this section.
(3) Special actuarial assumptions for exempt plan determination.
Solely for purposes of determining whether a plan is an exempt plan for
an information year, the value of benefit liabilities may be determined
by substituting the retirement age assumptions in paragraph (d)(2) of
this section for the retirement age assumptions used by the plan for
minimum funding purposes for the plan year ending within the
information year without regard to the at-risk assumptions of section
303(i) of ERISA and section 430(i) of the Code.
* * * * *
0
11. Amend Sec. 4010.9 by removing ``Web site'' and adding in its place
``website'' in paragraph (a) and revising paragraphs (b), (d), and (e)
to read as follows:
Sec. 4010.9 Financial information.
* * * * *
[[Page 30678]]
(b) Consolidated financial statements. If the financial information
of a controlled group member is combined with the information of other
group members in consolidated financial statements, a filer may provide
the following financial information in lieu of the information required
in paragraph (a) of this section--
(1) The audited consolidated financial statements for the
controlled group for the filer's information year or, if the audited
consolidated financial statements are not available by the date
specified in Sec. 4010.10(a), unaudited consolidated financial
statements for the fiscal year ending within the information year; and
(2) If the ultimate parent of the controlled group is a foreign
entity, financial information on the U.S. entities (other than an
exempt entity) that are members of the controlled group. The
information required by this paragraph (b)(2) may be provided in the
form of consolidated financial statements if the financial information
of each controlled group member that is a U.S. entity is combined with
the information of other group members that are U.S. entities.
Otherwise, for each U.S. entity that is a controlled group member,
provide the financial information required in paragraph (a) of this
section.
* * * * *
(d) Submission of public information. If any of the financial
information required by paragraphs (a) through (c) of this section is
publicly available, the filer, in lieu of submitting such information
to PBGC, may include a statement with the other information that is
submitted to PBGC indicating when such financial information was made
available to the public and where PBGC may obtain it (including the URL
and title of the web page if applicable). For example, if the
controlled group member has filed audited financial statements with the
Securities and Exchange Commission, it need not file the financial
statements with PBGC but instead can identify the SEC filing and the
URL and title of the SEC web page where the filing can be retrieved as
part of its submission under this part.
(e) Inclusion of information about non-filers and exempt entities.
Consolidated financial statements provided pursuant to paragraph (b) of
this section may include financial information of persons who are not
controlled group members (e.g., joint ventures) or are exempt entities.
0
12. In Sec. 4010.11:
0
a. Revise paragraphs (a) and (a)(1);
0
b. Add ``on the last day of the information year'' after the words
``controlled group'' in the first sentence in paragraph (b)(1);
0
c. Redesignate paragraph (d) as paragraph (e); and
0
d. Add a new paragraph (d).
The revisions and addition read as follows:
Sec. 4010.11 Waivers.
(a) Aggregate funding shortfall not in excess of $15 million
waiver. Unless reporting is required by Sec. 4010.4(a)(2) or (3),
reporting is waived for a person (that would be a filer if not for the
waiver) for an information year if, for the plan year ending within the
information year, the aggregate 4010 funding shortfall for all plans
(including any exempt plans) maintained by the person's controlled
group on the last day of the information year (disregarding those plans
with no 4010 funding shortfall) does not exceed $15 million, as
determined under paragraphs (a)(1) and (2) of this section.
(1) 4010 funding shortfall; in general. A plan's 4010 funding
shortfall for a plan year equals the funding shortfall for the plan
year as provided under section 303(c)(4) of ERISA and section 430(c)(4)
of the Code, with the following exceptions:
(i) The funding target used to calculate the 4010 funding shortfall
is determined without regard to the interest rate stabilization
provisions of section 303(h)(2)(C)(iv) of ERISA and section
430(h)(2)(C)(iv) of the Code, and except for a plan that is in at-risk
status for minimum funding purposes for the plan year ending within the
filer's information year, without regard to the rules in section
303(i)(1) of ERISA and section 430(i)(1) of the Code.
(ii) The value of plan assets used to calculate the 4010 funding
shortfall is determined without regard to the reduction under section
303(f)(4)(B) of ERISA and section 430(f)(4)(B) of the Code (dealing
with reduction of assets by the amount of prefunding and funding
standard carryover balances).
* * * * *
(d) 4010 funding target attainment percentage below 80 percent
because of late election to waive a funding balance. If reporting is
required solely under Sec. 4010.4(a)(1), reporting is waived for a
person (that would be a filer if not for the waiver) for an information
year if, for the plan year ending within the information year, for any
plan (including an exempt plan) maintained by the members of the
contributing sponsor's controlled group with a 4010 funding target
attainment percentage below 80 percent, each such plan--
(1) Would have had a 4010 funding target attainment percentage for
that plan year of 80 percent or more if a timely election to reduce a
funding balance pursuant to section 303(f)(5) of ERISA and section
430(f)(5) of the Code had been made; and
(2) Such an election was made after the applicable deadline and
before the due date of the 4010 filing.
* * * * *
PART 4041--TERMINATION OF SINGLE-EMPLOYER PLANS
0
13. The authority citation for part 4041 continues to read as follows:
Authority: 29 U.S.C. 1302(b)(3), 1341, 1344, 1350.
0
14. Revise Sec. 4041.29 to read as follows:
Sec. 4041.29 Post-distribution certification.
(a) Filing requirement. The plan administrator must either--
(1) Within 30 days after the last distribution date for any
affected party, file with PBGC a post-distribution certification (PBGC
Form 501), completed in accordance with the instructions thereto; or
(2)(i) Within 30 days after the last distribution date for any
affected party, certify to PBGC, in the manner prescribed in the
instructions to PBGC Form 501, that the plan assets have been
distributed as required, and
(ii) Within 60 days after the last distribution date for any
affected party, file a post-distribution certification (PBGC Form 501),
completed in accordance with the instructions thereto.
(b) Assessment of penalties. PBGC will assess a penalty for a late
filing under paragraph (a) of this section only to the extent the
completed PBGC Form 501 is filed more than 90 days after the
distribution deadline (including extensions) under Sec. 4041.28(a).
0
15. Amend Sec. 4041.30 by revising paragraph (d)(2) to read as
follows:
Sec. 4041.30 Requests for deadline extensions.
* * * * *
(d) * * *
(2) Post-distribution deadlines. Extend the filing deadline under
Sec. 4041.29(a).
PART 4043--REPORTABLE EVENTS AND CERTAIN OTHER NOTIFICATION
REQUIREMENTS
0
16. The authority citation for part 4043 continues to read as follows:
Authority: 29 U.S.C. 1083(k), 1302(b)(3), 1343.
Sec. 4043.2 [Amended]
0
17. Amend Sec. 4043.2 by removing ``and'' and adding in its place ``,
[[Page 30679]]
ultimate parent, and U.S. entity'' in the introductory text, and
removing the definition ``U.S. entity.''
Sec. 4043.3 [Amended]
0
18. Amend Sec. 4043.3(c) by removing ``Web site'' and adding in its
place ``website''.
Sec. 4043.9 [Amended]
0
19. Amend Sec. 4043.9(e)(2)(i) by adding ``third party'' after
``available''.
0
20. Revise Sec. 4043.23 to read as follows:
Sec. 4043.23 Active participant reduction.
(a) Reportable event. A reportable event occurs for a plan:
(1) Single-cause event. (i) On each date in a plan year when, as a
result of a new single cause, the ratio of the aggregate number of
individuals who ceased to be active participants because of that
single-cause, to the number of active participants at the beginning of
such plan year, exceeds 20 percent.
(ii) Examples of single-cause events include a reorganization or
restructuring, the discontinuance of an operation or business, a
natural disaster, a mass layoff, or an early retirement incentive
program.
(2) Attrition event. At the end of a plan year if the sum of the
number of active participants covered by the plan at the end of such
plan year, plus the number of individuals who ceased to be active
participants during the same plan year that are reported to PBGC under
paragraph (a)(1) of this section, is less than 80 percent of the number
of active participants at the beginning of such plan year.
(b) Determination rules--(1) Determination dates. The number of
active participants at the beginning of a plan year may be determined
by using the number of active participants at the end of the previous
plan year, and the number of active participants at the end of a plan
year may be determined by using the number of active participants at
the beginning of the next plan year.
(2) Active participant. ``Active participant'' means a participant
who--
(i) Is receiving compensation from any member of the plan's
controlled group for work performed for any member of the plan's
controlled group;
(ii) Is on paid or unpaid leave granted for a reason other than a
layoff;
(iii) Is laid off from work for a period of time that has lasted
less than 30 days; or
(iv) Is absent from work due to a recurring reduction in employment
that occurs at least annually.
(3) Employment relationship. For purposes of determining whether a
participant is an active participant, a participant does not cease to
be active if the person leaves employment with one member of a plan's
controlled group to become employed by another controlled group member.
(c) Reductions due to cessations and withdrawals. For purposes of
paragraph (a) of this section, a reduction in the number of active
participants is to be disregarded to the extent that it--
(1) Is attributable to an event described in sections 4062(e) or
4063(a) of ERISA, and
(2) Is timely reported to PBGC under section 4062(e) and/or section
4063(a) of ERISA prior to the timely filing of the notice required by
paragraph (a) of this section.
(d) Waivers--(1) Small plan. Notice under this section is waived if
the plan had 100 or fewer participants for whom flat-rate premiums were
payable for the plan year preceding the event year.
(2) Low-default-risk. Notice under this section is waived if each
contributing sponsor of the plan and the highest level U.S. parent of
each contributing sponsor are low-default-risk on the date of the
event.
(3) Well-funded plan. Notice under this section is waived if the
plan is in the well-funded plan safe harbor for the event year.
(4) Public company. Notice under this section is waived if any
contributing sponsor of the plan before the transaction is a public
company and the contributing sponsor timely files a SEC Form 8-K
disclosing the event under an item of the Form 8-K other than under
Item 2.02 (Results of Operations and Financial Condition) or in
financial statements under Item 9.01 (Financial Statements and
Exhibits).
(5) Statutory events. Notice is waived for an active participant
reduction event described in section 4043(c)(3) of ERISA except to the
extent required under this section.
(e) Extension--attrition event. For an event described in paragraph
(a)(2) of this section, the notice date is extended until the premium
due date for the plan year following the event year.
(f) Examples--(1) Determining whether a single-cause event occurred
(Example 1). A calendar-year plan had 1,000 active participants at the
beginning of the current plan year. As the result of a business unit
being shut down, 160 participants are permanently laid off on July 30.
Prior to July 30, and as part of the course of regular business
operations, some active participants terminated employment, some
retired and some new hires became covered by the plan. Because
reductions due to attrition are disregarded for purposes of determining
whether a single-cause event has occurred, it is not necessary for the
sponsor to tabulate an exact active participant count as of July 30.
Rather, the relevant percentage for determining whether a single-cause
event occurred is determined by dividing the number of active
participants laid-off as a result of the business unit shut down to the
beginning of year active participant count. Because that ratio is less
than 20 percent (i.e., 160/1,000 = .16, or 16 percent), a single-cause
event under paragraph (a)(1) of this section did not occur on July 30.
However, if, as a result of the business unit shutdown, additional
layoffs occur later in the same year, a single-cause event may
subsequently be triggered (See Example 3).
(2) Determining whether an attrition event occurred in year when a
single-cause event occurred (Example 2).--(i) Assume the same facts as
in Example 1 except that the number of active participants laid off on
July 30 was 230 and thus, a single-cause event occurred. Further,
assume that the event was timely reported to PBGC (i.e., on or before
August 30). Lastly, assume the active participant count as of year-end
is 600.
(ii) To prevent duplicative reporting (i.e., to ensure that the
participants who triggered a single-cause reporting requirement do not
also trigger an attrition event), the 230 participants who triggered
that single-cause reporting requirement are not taken into account for
purposes of determining whether an attrition event occurred. This is
accomplished by increasing the year-end count by 230. Therefore, the
applicable percentage for the attrition determination is 83 percent
(i.e., (600 + 230)/1,000 = .83). Because 83 percent is greater than 80
percent, an attrition event has not occurred.
(3) Single-cause event spread out over multiple dates (Example 3).
(i) Assume the same facts as in Example 1 except that the layoffs
resulting from the business unit shut down are spread out over several
months. The following table summarizes the applicable calculations:
[[Page 30680]]
Table 1 to Paragraph (f)(3)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Single-cause event spread out over multiple dates
---------------------------------------------------------------------------------------------------------------------------------------------------------
Date Number laid-off Aggregate reduction Applicable percentage
--------------------------------------------------------------------------------------------------------------------------------------------------------
February 1...................................... 50 50 50/1,000 = 5 percent.
May 15.......................................... 50 100 100/1,000 = 10 percent.
September 1..................................... 110 210 210/1,000 = 21 percent.
November 1...................................... 40 250 250/1,000 = 25 percent.
--------------------------------------------------------------------------------------------------------------------------------------------------------
(ii) A single-cause event occurs on September 1 because that is the
first time the applicable percentage exceeds 20 percent. This event
must be reported by October 1. The November 1 layoff does not trigger a
subsequent single-cause event because the layoff does not amount to an
additional 20 percent decline in active participants. However, they
will be considered in the determination of whether an attrition event
occurs at year-end as explained in paragraph (f)(3)(iii) of this
section.
(iii) As illustrated in paragraph (f)(2) of this section (Example
2), for purposes of determining whether an attrition event has
occurred, the year-end count is increased by the number of participants
that triggered a single-cause event. In this case, that number is 210.
The fact that an additional 40 active participants were laid off as a
result of the business unit shut down after the single-cause event
occurred does not affect the calculation because it was not already
reported to PBGC. For example, if the year-end active participant count
is 560, the number that gets compared to the beginning-of-year active
participant count is 770 (i.e., 560 + 210 = 770). Because 770 is less
than 80 percent of 1,000, an attrition event has occurred and must be
reported.
(4) Multiple single-cause events in same plan year (Example 4).
Assume the same facts as in Example 1 except that the July 30 shutdown
of the business unit resulted in 205 layoffs on that date. A single-
cause event occurred and is timely reported. Later in the same plan
year, the company announces an early retirement incentive program and
210 employees participate in the program with the last employees
participating in the program retiring on November 15 of the plan year.
A new single-cause event has occurred as of November 15 resulting in a
reporting obligation of the active participant reduction due to the
retirement incentive program (210/1,000 = 21 percent).
0
21. Amend Sec. 4043.26 by revising paragraph (a)(1) to read as
follows:
Sec. 4043.26 Inability to pay benefits when due.
(a) * * *
(1) Current inability. A plan is currently unable to pay benefits
if it fails to provide any participant or beneficiary the full benefits
to which the person is entitled under the terms of the plan, at the
time the benefit is due and in the form in which it is due. A plan is
not treated as being currently unable to pay benefits if its failure to
pay is caused solely by--
(i) A limitation under section 436 of the Code and section 206(g)
of ERISA (dealing with funding-based limits on benefits and benefit
accruals under single-employer plans),
(ii) The need to verify a person's eligibility for benefits,
(iii) The inability to locate a person, or
(iv) Any other administrative delay, to the extent that the delay
is for less than the shorter of two months or two full benefit payment
periods.
* * * * *
Sec. 4043.29 Change in contributing sponsor or controlled group.
0
22. Amend Sec. 4043.29 by revising paragraphs (a) and (c) to read as
follows:
(a) Reportable event. (1) A reportable event occurs for a plan when
there is a transaction that results, or will result, in one or more
persons' ceasing to be a--
(i) Contributing sponsor of the plan, or
(ii) Member of the plan's controlled group (other than by merger
involving members of the same controlled group).
(2) For purposes of this section, the term ``transaction''
includes, but is not limited to, a legally binding agreement, whether
or not written, to transfer ownership, an actual transfer of ownership,
and an actual change in ownership that occurs as a matter of law or
through the exercise or lapse of pre-existing rights. Whether an
agreement is legally binding is to be determined without regard to any
conditions in the agreement. A transaction that does not involve a
change in contributing sponsor described in this paragraph (a) is not
reportable if it will result solely in a reorganization involving a
mere change in identity, form, or place of organization, however
effected.
* * * * *
(c) Examples. The following examples assume that no waiver applies.
(1) Controlled group breakup. Company A (the contributing sponsor
of Plan A), and Company B (the contributing sponsor of Plan B) are in
the same controlled group with Parent Company AB. On March 31, Parent
Company AB and Company C enter into an agreement to sell the stock of
Company B to Company C, a company outside of the controlled group. The
transaction will close on August 31 and Company B will continue to
maintain Plan B. Both Company A (Plan A's contributing sponsor) and the
plan administrator of Plan A are required to report that Company B will
leave Plan A's controlled group. Company B (Plan B's contributing
sponsor) and the plan administrator of Plan B are required to report
that Company A and Parent Company AB are no longer part of Plan B's
controlled group. Both reports are due on April 30, 30 days after they
entered into the agreement to sell Company B.
(2) Change in contributing sponsor. Plan Q is maintained by Company
Q. Company Q enters into a binding contract to sell a portion of its
assets and to transfer employees participating in Plan Q, along with
Plan Q, to Company R, which is not a member of Company Q's controlled
group. There will be no change in the structure of Company Q's
controlled group. On the effective date of the sale, Company R will
become the contributing sponsor of Plan Q. A reportable event occurs on
the date of the transaction (i.e., the date the binding contract was
executed), because as a result of the transaction, Company Q (and any
other member of its controlled group) will cease to be a member of Plan
Q's controlled group. The event is not reported before the notice date.
If on the notice date the change in the contributing sponsor has not
yet become effective, Company Q has the reporting obligation. If the
change in the contributing sponsor has become effective by the notice
date, Company R has the reporting obligation.
(3) Dissolution of controlled group member. Company A (which
maintains Plan A) and Company B are in the same
[[Page 30681]]
controlled group with Parent Company AB. Pursuant to an asset sale
agreement, Company B sells its assets to a company outside of the
controlled group. After the sale, Company B will be dissolved and no
longer operating. Since Company B will no longer be a member of Plan
A's controlled group, a reportable event occurs on the date Company B
enters into the asset sale agreement. Note that this event may also be
required to be reported as a liquidation event under 29 CFR 4043.30.
(4) Merger of controlled group members. Company A (which maintains
Plan A) and Company B are in the same controlled group with Parent
Company AB. Parent Company AB decides to merge the operations of
Company B into Company A. Although Company B will no longer be a member
of Plan A's controlled group, no report is due given Company B is
merging with Company A.
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23. Revise Sec. 4043.30 to read as follows:
Sec. 4043.30 Liquidation.
(a) Reportable event. A reportable event occurs for a plan when a
member of the plan's controlled group--
(1) Resolves to cease all revenue-generating business operations,
sell substantially all its assets, or otherwise effect or implement its
complete liquidation (including liquidation into another controlled
group member) by decision of the member's board of directors (or
equivalent body such as the managing partners or owners) or other actor
with the power to authorize such cessation of operations, sale, or a
liquidation, unless the event would be reported under paragraph (a)(2)
or (3) of this section;
(2) Institutes or has instituted against it a proceeding to be
dissolved or is dissolved, whichever occurs first; or
(3) Liquidates in a case under the Bankruptcy Code, or under any
similar law.
(b) Waivers--(1) De minimis 10-percent segment. Notice under this
section is waived if the person or persons that liquidate under
paragraph (a) of this section do not include any contributing sponsor
of the plan and represent a de minimis 10-percent segment of the plan's
controlled group for the most recent fiscal year(s) ending on or before
the date the reportable event occurs.
(2) Foreign entity. Notice under this section is waived if each
person that liquidates under paragraph (a) of this section is a foreign
entity other than a foreign parent.
(3) Reporting under insolvency event. Notice under this section is
waived if reporting is also required under Sec. 4043.35(a)(3) or (4)
and notice has been provided to PBGC for the same event under that
section.
(c) Public company extension. If any contributing sponsor of the
plan is a public company, notice under this section is extended until
the earlier of--
(i) The date the contributing sponsor timely files a SEC Form 8-K
disclosing the event under an item of the Form 8-K other than under
Item 2.02 (Results of Operations and Financial Condition) or in
financial statements under Item 9.01 (Financial Statements and
Exhibits); or
(ii) The date when a press release with respect to the liquidation
described under paragraph (a) of this section is issued.
(d) Examples--(1) Liquidation within a controlled group. Plan A's
controlled group consists of Company A (its contributing sponsor),
Company B, Company Q (the parent of Company A and Company B). Company B
represents the most significant portion of cash flow for the controlled
group. Company B experiences an unforeseen event that negatively
impacts operations and results in an increase in debt. The controlled
group liquidates Company B by ceasing all operations, settling its
debts, and merging any remaining assets into Company Q. (For purposes
of this example, it does not matter under which subparagraph of
paragraph (a) of this section reporting is triggered). The transaction
is to be treated as a tax-free liquidation for tax purposes. Both
Company A (Plan A's contributing sponsor) and the plan administrator of
Plan A are required to report that Company B will liquidate within the
controlled group.
(2) Cessation of Operations. Plan A is sponsored by Company A. The
owners of Company A decide to cease all revenue-generating operations.
Certain administrative employees will wind down the business and
continue to be employed until the wind down is complete, which could
take several months. Company A is required to report a liquidation
reportable event 30 days after the decision is made to cease all
revenue-generating operations.
(3) Sale of Assets. Plan A is sponsored by Company A. In a meeting
of the Board of Directors of Company A, the Board resolves to sell all
the assets of Company A to Company B. Under the asset sale agreement
with Company B, Company B will not assume Plan A; Company A expects to
undertake a standard termination of Plan A. Company A is required to
report a liquidation event 30 days after the Board resolved to sell the
assets of Company A.
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24. Amend Sec. 4043.35 by adding paragraph (b)(3) to read as follows:
Sec. 4043.35 Insolvency or similar settlement.
* * * * *
(b) * * *
(3) Liquidation event. Notice under paragraph (a)(3) or (4) of this
section is waived if reporting is also required under Sec. 4043.30 and
notice has been provided to PBGC for the same event under that section.
Sec. 4043.81 [Amended]
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25. Amend Sec. 4043.81 by removing paragraph (c).
Issued in Washington, DC by.
Gordon Hartogensis,
Director, Pension Benefit Guaranty Corporation.
[FR Doc. 2019-13419 Filed 6-26-19; 8:45 am]
BILLING CODE 7709-02-P
