Miscellaneous Corrections, Clarifications, and Improvements
| Published date | 04 February 2020 |
| Citation | 85 FR 6046 |
| Record Number | 2020-01628 |
| Section | Rules and Regulations |
| Court | Pension Benefit Guaranty Corporation |
Federal Register, Volume 85 Issue 23 (Tuesday, February 4, 2020)
[Federal Register Volume 85, Number 23 (Tuesday, February 4, 2020)]
[Rules and Regulations]
[Pages 6046-6064]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-01628]
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PENSION BENEFIT GUARANTY CORPORATION
29 CFR Parts 4001, 4006, 4010, 4041, 4043, and 4233
RIN 1212-AB34
Miscellaneous Corrections, Clarifications, and Improvements
AGENCY: Pension Benefit Guaranty Corporation.
ACTION: Final 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,
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:
Effective date: This rule is effective on March 5, 2020.
Applicability dates: Certain amendments made by this rule are
applicable as described below.
The changes in 29 CFR 4006.5(f)(3), which deal with
premium proration for short plan years where the plan's assets are
distributed in a termination, are applicable to plan years beginning in
or after 2020.
The changes in 29 CFR 4010.7(a)(2), Sec. 4010.9(b)(2),
and Sec. 4010.11(a)(1)(i), (which deal with identifying legal
relationships of controlled group members, consolidated financial
statements, and calculating the funding target for purposes of the 4010
funding shortfall waiver, respectively) are applicable to 4010 filings
due or amended on or after April 15, 2020. The changes in Sec.
4010.8(d)(2) for valuing benefit liabilities in cash balance plan
account conversions are applicable to plan years beginning on or after
January 1, 2020.
The changes in 29 CFR 4041.29 are applicable to plan
terminations for which, as of March 5, 2020, the statutory deadline for
certifying that plan assets have been distributed as required, has not
passed.
The changes in 29 CFR 4043.23, Sec. 4043.27(d)(3), Sec.
4043.29, Sec. 4043.30, 4043.31(c)(6), Sec. 4043.32(c)(4), and Sec.
4043.35(b)(3) (which deal with active participant reductions, changes
in contributing sponsor or controlled group, liquidation, insolvency or
similar settlement, and the public company waiver) are applicable to
post-event reports for those reportable events occurring on or after
March 5, 2020.
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-
229-6352. TTY users may call the Federal relay service toll-free at
800-877-8339 and ask to be connected to 202-229-6352.
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 gives 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 rulemaking 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, clarifying reporting waivers, and
providing
[[Page 6047]]
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 modifying the
circumstances under which the premium is prorated for a short plan year
resulting from a plan's 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 rulemaking arises from PBGC's ongoing retrospective regulatory
review program to identify and correct unintended effects,
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 Rule
PBGC published a proposed rule on June 27, 2019,\2\ and received
five written comments. The commenters were supportive of PBGC's
regulatory review efforts and expressed that the clarifications and
updates proposed would improve filer compliance and reduce reporting
burden. Commenters also made helpful observations and suggestions for
further clarification that PBGC incorporated in the final rule,
particularly with respect to the regulations on ``Annual Financial and
Actuarial Information Reporting'' and ``Reportable Events and Certain
Other Notification Requirements.'' Otherwise the final rule is
substantially the same as the proposed with minor editorial changes.
The public comments, PBGC's responses, and the provisions of this final
rule are discussed with respect to each of the regulations as
identified below.
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\2\ 84 FR 30666.
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Terminology--29 CFR Part 4001
The final rule, like the proposed, amends 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 amendments to
PBGC's Annual Financial and Actuarial Information Reporting regulation
(29 CFR part 4010), ``4010 reporting regulation,'' 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 to maintain 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 event, PBGC typically learns that a plan is in danger of
failing only when the time has passed for PBGC to work with the sponsor
to protect participants and the pension insurance system.
On September 11, 2015, PBGC issued a final rule,\3\ 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), revised definitions and
descriptions of several reportable events, and required 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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\3\ 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, providing
examples, and further reducing unnecessary reporting. Those
improvements are contained in this final rule.
Company Low-Default-Risk Safe Harbor--Commercial Measures Criterion
Section 4043.9(e) of the reportable events regulation describes the
standards for the low-default-risk safe harbor that is available for
five events.\4\ The low-default-risk safe harbor 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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\4\ The five events are: 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.\5\ However, the regulatory text in
the 2015 Final Rule did not explicitly mention third party information.
To remove any ambiguity, the final rule, like the proposed, amends
Sec. 4043.9(e)(2)(i) 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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\5\ See 80 FR 54986.
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[[Page 6048]]
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 a plan loses more than 20 percent of its active participants
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 reduction, 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, although this
was not PBGC's intent.\6\
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\6\ In PBGC Technical Update 17-1, issued September 15, 2017,
PBGC provided interim guidance on reporting under Sec. 4043.23 by
providing an alternative method for determining whether an active
participant reduction due to attrition must be reported to PBGC
under Sec. 4043.23(a)(2).
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To address this issue, the final rule, like the proposed, amends
Sec. 4043.23(a)(2) to alter the way active participants are counted at
the end of the plan year when 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 participants who ceased to be active and were
covered by a single-cause event reported in the same year are included
in the year-end count (even though such participants are not active at
year-end). This new method of counting would prevent duplicative
reporting by disregarding the earlier single-cause event if already
reported to PBGC.
PBGC received one comment stating the rule as proposed could
suggest that an active participant reduction report due to attrition
could be required even if an earlier single-cause event had occurred,
but had not been reported to PBGC (e.g., a reporting waiver applied).
The commenter recommended clarifying the language in the final rule if
that wasn't PBGC's intent. It is PBGC's intent that an active
participant reduction because of a single-cause event can only be
disregarded for purposes of the attrition count if it was previously
reported to PBGC. The purpose of the new counting method is to address
and prevent situations of duplicative reporting, so no change was made
in the final rule.
The final rule, like the proposed, also clarifies 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
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.
The final rule, like the proposed, includes examples showing the
interplay between single-cause and attrition events, as well as a
single-cause event that occurs over a period of time.
The final rule also adopts the proposed rule's 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
language in Sec. 4043.23(a)(2) described above, and easier to use.
To further reduce reporting burden, the final rule, like the
proposed, eliminates the two-year/75 percent lookback requirement. Two
commenters to the proposed rule supported this change. With a few
years' experience under the 2015 Final Rule, PBGC 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. To address the statutory requirement, the
final rule, like the proposed, waives notice of the two-year lookback
provided under section 4043(c)(3) of ERISA.
The final rule, like the proposed, also clarifies the definition of
``active participant'' in Sec. 4043.23(b)(2). That definition provides
that an active participant for purposes of the active participant
reduction event means, among other things, a participant who ``is
receiving compensation for work performed,'' but does not address
whether a participant is considered active or inactive if the
participant ceases employment with one of the contributing sponsors of
the plan, and begins working for another member of the same controlled
group. The final rule clarifies that a participant is considered
``active'' for this purpose 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.
Finally, the existing 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 such 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.\7\ To codify
PBGC's intent, the final rule, like the proposed, clarifies that
reporting a reduction in the number of active participants under Sec.
4043.23 may be disregarded if the reduction is timely reported under
section 4062(e) and/or 4063(a) of ERISA \8\ before the filing of a
notice is due under Sec. 4043.23.
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\7\ See the proposed rule, Reportable Events and Certain Other
Notification Requirements, 64 FR 20039 (April 3, 2013) for a
discussion of improving the waiver structure. The final rule was
published on September 11, 2015 (80 FR 54980).
\8\ PBGC created a new forms series for reporting under section
4062(e) of ERISA in September 2019 intended to clarify and simplify
the process for providing PBGC the required notifications following
a substantial cessation of operations and election to make
additional annual contributions to satisfy resulting liability. The
forms are available on PBGC's website at https://www.pbgc.gov/prac/reporting-and-disclosure/erisa-section-4062-e.
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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
[[Page 6049]]
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, the final rule, like the proposed, amends
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 had received inquiries about when
a reportable event is triggered under this section. For instance,
although the heading of Sec. 4043.29 includes ``a change in
contributing sponsor,'' the regulatory text does not.
In response to the questions PBGC had received, the proposed rule
would have modified the description of the event so that the event and
the heading were consistent (i.e., to require reporting when a
transaction results in one or more persons ceasing to be a contributing
sponsor of a plan, or ceasing to be a member of the plan's controlled
group (other than by merger involving members of the same controlled
group).
PBGC received two comments to this proposal. Both commenters
suggested that the proposed modification would broaden the event by
requiring plan administrators and sponsors to report changes in a
contributing sponsor even where the former contributing sponsor remains
within the controlled group. One commenter added that this type of
change in contributing sponsor could be determined through other
regular PBGC filings, such as annual premium filings. The other
commenter stated that actuaries, who identify reportable events to plan
sponsors and administrators, are unlikely to know about contributing
sponsor changes within a controlled group, so the event could be easily
missed. The commenters suggested narrowing the proposed event
definition so that it does not apply to a change in contributing
sponsor within the controlled group.
PBGC considered the comments, and after further reviewing risk to
the insurance program, decided not to adopt the proposed amendment in
the final rule. Changes in a contributing sponsor to the plan may raise
concerns, since contributing sponsors support the pension plan.
However, if a change does not result in a contributing sponsor ceasing
to be a member of the plan's controlled group,\9\ PBGC believes the
risk to the plan's participants and to the insurance program doesn't
rise to the level of a reportable event. All members of a controlled
group are jointly and severally liable under ERISA and the Code for
obligations to the pension plan,\10\ and PBGC believes the current
statutory rules adequately ensure that PBGC has the tools to protect
the pension plan where the controlled group doesn't change.\11\
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\9\ 29 CFR 4001.2 provides that ``controlled group'' means, in
connection with any person, a group consisting of such person and
all other persons under common control with such person, determined
under Sec. 4001.3 of this part. For purposes of determining the
persons liable for contributions under section 412(b)(2) of the Code
or section 302(b)(2) of ERISA, or for premiums under section
4007(e)(2) of ERISA, a controlled group also includes any group
treated as a single employer under section 414(m) or (o) of the
Code. Any reference to a plan's controlled group means all
contributing sponsors of the plan and all members of each
contributing sponsor's controlled group. [emphasis added]
\10\ 29 U.S.C. 1082(b)(2) and 26 U.S.C. 412(b)(2).
\11\ Controlled group members are liable under section 4062(a)
of ERISA for termination liability, section 4068 of ERISA for net
worth and liens, section 430(k) of the Code for liens for missed
contributions, and section 4007(e)(2) of ERISA for premium payments.
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Where there is a transaction that causes the controlled group to
change, including by a change in contributing sponsor, where one or
more members ceases to be a member of the controlled group, that event
must be reported to PBGC under Sec. 4043.29. PBGC clarifies this
section by adding the parenthetical ``(including any person who is or
was a contributing sponsor)'' to modify ``one or more persons''' in the
event definition in paragraph (a)(1). The final rule also changes the
event heading to read ``Change in controlled group.'' While headings do
not have the force of law, PBGC believes modifying the heading will
help minimize confusion.
The final rule, like the proposed, also revises the examples in
this section. The first example is revised to provide greater clarity
on the timing of, and responsibility for, filing a report. Two new
examples--one regarding dissolution of a controlled group member and
one describing a merger of controlled group members illustrate some
common situations implicated by the requirements in Sec. 4043.29.
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 occurs. In particular, one such liquidation
scenario that commonly results in increased risk of plan termination
involves a company that ceases operations and sells substantially all
of its assets over a period of time. As described in the preamble to
the proposed rule, the company continues to sponsor a plan, but there
is no new business income and any existing company assets may be used
to cover other financial obligations, such as business wind-down costs
and settlement of debts with other creditors.
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 loss of
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 best opportunity
for protecting plan assets and participant benefits had passed.
The type of liquidations that concern PBGC may take a myriad of
forms and be implemented over long periods of time (like the example
above). To alleviate confusion and improve precision, the final rule,
like the proposed, clarifies 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
[[Page 6050]]
example above, would trigger a reportable event under Sec. 4043.30.
The final rule, like the proposed, 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 finding out
about an event when there is still time to preserve plan assets, PBGC
believes requiring reporting close to the time a decision to liquidate
the company is made by the person(s) or body (such as a board of
directors) that has the authority to make that decision 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 final 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 included in the final
rule the three additional examples it proposed 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 adding a waiver to provide relief from the
possibility of duplicative reporting under a Sec. [thinsp]4043.30
liquidation or a Sec. [thinsp]4043.35 insolvency. The final rule, like
the proposed, provides parallel waivers in both Sec. [thinsp]4043.30
and Sec. [thinsp]4043.35 to clarify that notice is waived if notice
has already been provided to PBGC for the same event under the other
section.
Public Company Extension--Liquidation Events
PBGC does not intend to compel public company sponsors to disclose
liquidations on a Form 10 before notifying the public. Thus, the final
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 a SEC Form 8-K disclosing the event or the issuance of a press
release discussing it.
PBGC requested comment on whether the public company extension
should be 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 SEC 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? \12\
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\12\ 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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PBGC received no comments and has determined that the public
company extension should not be available with respect to a SEC Form 6-
K filing. As noted above, a Form 6-K may not require the same
disclosure or be filed as soon after an event as a SEC Form 8-K.\13\
However, the final rule clarifies that the public company extension is
available to a foreign private issuer that is a public company where an
English language press release relating to the event is issued in the
U.S.
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\13\ See 17 CFR 240.13a-16, Reports of foreign private issuers
on Form 6-K (17 CFR 249.306), which provides that the Form 6-K
report is required to be transmitted promptly after the information
required by Form 6-K is made public by the issuer, by the country of
its domicile or under the laws of which it was incorporated or
organized, or by a foreign securities exchange with which the issuer
has filed the information.
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PBGC in this final rule also applies the public company extension
for liquidations to the parent company of a contributing sponsor within
the same controlled group. The final rule provides that where a
contributing sponsor's parent is a public company within the same
controlled group, and files a Form 8-K or issues a press release
disclosing the liquidation event, the due date for reporting the event
to PBGC is extended to the earlier of either of those public
disclosures. PBGC extended the public company waiver in the same manner
as described below.
Public Company Waiver
Reporting for five reportable events \14\ is 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 sufficiently 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 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 via a Form 10 under the
reportable events regulation.
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\14\ 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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PBGC requested comment in the proposed rule on whether the public
company waiver should be expanded to apply in situations where a parent
company that is not a contributing sponsor to the plan timely files a
SEC Form 8-K disclosing the event. PBGC received two comments that
supported expanding the waiver. One stated that if a Form 8-K
disclosing an event filed by a contributing sponsor is appropriate to
waive reporting, then substantially the same information disclosed on a
Form 8-K, but filed by a parent company, should also suffice. The other
commenter suggested that reportable event notices generally should be
waived where information required by PBGC is already publicly
available.
In the interest of avoiding duplicative reporting where appropriate
and possible, the final rule expands the public company waiver for the
five events to apply where the contributing sponsor to the plan or the
parent company (if not the contributing sponsor) files a Form 8-K
adequately disclosing the event under an item of the Form 8-K other
than under Item 2.02 or in financial statements under Item 9.01. Where
a Form 8-K provides timely and sufficient information to PBGC with
respect to the reportable event, PBGC sees no reason to make a
distinction as to who makes the filing
[[Page 6051]]
between the contributing sponsor or the sponsor's parent company.
In this regard, PBGC is also clarifying in the Form 10 instructions
what information is sufficient with respect to a particular reportable
event for the public company waiver to apply. In general, for all five
events, information should include the plan name, a brief description
of the pertinent facts relating to each event, and the date and type of
event being disclosed. As an example of information that would be
relevant to a specific event, for an active participant reduction
notice required because of a single-cause event, this information would
include a statement explaining the cause of the reduction, such as
facility shutdown or sale, discontinued operations, winding down of the
company, or reduction in force. Plan administrators and sponsors should
refer to the revised instructions and description of the public company
waiver for the information relevant for each of the five events.
As stated in the DATES section of this preamble, this expansion of
the public company waiver is applicable to post-event reports for those
reportable events occurring on or after March 5, 2020.
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 final rule, like the
proposed, amends this ``Definitions'' section to include the term
``Foreign entity,'' which is used in amendments to Sec. 4010.9
describing the financial information a filer is required to provide to
PBGC. This 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.
The final rule, like the proposed, also adds to the list of common
terms referenced in Sec. 4010.2 the two terms it defines in the
general definitions section of PBGC's regulations (Sec. 4001.2). As
explained above, under ``Terminology--29 CFR part 4001,'' those terms
are ``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 the Pension Protection Act of 2006, Public Law 109-280 (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, Public Law 113-97, are disregarded for
all other 4010 purposes. The final rule, like the proposed, removes
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 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 final rule, like the proposed, provides a simple method for
filers in larger controlled groups to satisfy the requirement in
paragraph (a) of this section. Instead of manually entering ``parent,''
``subsidiary,'' or other relationship, filers with more than 10
controlled group members would just submit with their filing an
organizational chart or other diagram showing the relationship of the
controlled group members to each other.
Three commenters to the proposed rule suggested that PBGC permit
filers to include an organizational chart with their filing before the
final rule is effective, citing the reduced burden and streamlining of
requirements. Two of the three noted that while many filers have such
diagrams readily available, some do not, and requested that the
organizational chart be an optional method for filers to satisfy the
legal relationship requirement.
PBGC considered these suggestions to make the chart an optional
method to satisfy the legal relationship requirement and decided not to
make the suggested change in the final rule.\15\ Submitting a chart,
which commenters agreed is something most companies already have,
reduces burden by streamlining this reporting requirement for most
filers. While it may add some burden for a minority of filers that do
not have such diagrams, having controlled group member relationships
more clearly presented overall benefits filers and PBGC by reducing the
number of follow up questions to clarify the information as well as
errors in data entry of information.
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\15\ PBGC did not issue guidance at the suggestion of two
commenters to permit plans to submit a chart before a final rule is
effective. As noted above, some comments suggested that PBGC change
its proposed provision, therefore it would not be appropriate to
issue guidance before publishing a final rule informing the public
of PBGC's decision and the basis for it.
---------------------------------------------------------------------------
PBGC also clarifies in the final rule that for purposes of
determining whether the requirement to provide an organizational chart
applies, exempt entities are disregarded, (i.e., the requirement
applies only to controlled groups with more than 10 non-exempt
entities). For these filers, exempt entities may, but need not be,
included in the organizational chart.
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 had 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 a lump
sum payment (which is the assumption used by most cash balance plans)
under such a plan should be converted to an annuity form. The final
rule provides needed guidance with respect to cash balance plans on
these assumptions and changes the paragraph's structure to improve
clarity.
The final rule, like the proposed, reorganizes Sec. 4010.8(d)(2)
by combining the actuarial assumptions of this section into a table and
includes an assumption
[[Page 6052]]
that was inadvertently left out of the table in the proposed rule. The
table includes 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 above.
Two commenters asked PBGC to clarify how benefit liabilities should
be determined for cash balance plans if the annuity conversion basis
includes a mortality table that is automatically updated each year to
reflect expected improvements in mortality experience (such as the
applicable mortality table in section 417(e)(3) of the Code), and notes
that 26 CFR 1.411(b)(5)-1(e)(2)(iii)(A)(2) provides that the mortality
table that applies as of the annuity starting date is used if the
annuity starting date is after the date of plan termination. The
commenters recommended that PBGC permit use of the mortality table for
the information year for 4010 reporting.
PBGC agrees that for 4010 reporting purposes expected improvements
in mortality experience that apply under a cash balance plan for years
after the information year need not be reflected in the calculation of
benefit liabilities. Accordingly, the final rule provides that filers
may disregard the updates to reflect expected improvements in mortality
experience that are described in 26 CFR 1.411(b)(5)-1(e)(2)(iii)(A)(2)
for the purpose of valuing benefit liabilities under Sec.
4010.8(d)(2).
The same commenters requested that PBGC make this provision
applicable for 4010 filings from cash balance plans due for the second
information year (i.e., 2020) after the year in which the final rule is
effective. The commenters stated that by the time a final rule is
effective, filers are likely to have already valued benefit liabilities
using different assumptions for the 2019 information year. PBGC
recognizes that some filers may have already begun or completed such
valuations for the 2019 information year using alternative methods and
that modifications may need to be made to valuation software to
implement the final rule. In addition, PBGC recognizes that having the
new rule apply for all 2020 information year filings may pose problems
for some filers (e.g., a plan with a 7/1/2019-6/30/2020 plan year
reported in a filing for a 1/1/2020-12/31/2020 information year).
Therefore, as stated in the ``Dates'' section above, PBGC is making
this valuation method applicable to plan years beginning on or after
January 1, 2020. Cash balance plan filers may use the method prescribed
in the final rule for valuing benefit liabilities for plan years
beginning before 2020, regardless of which information year the filing
is for, but they are not required to do so.
Another commenter stated that it assumed under the proposed rule
that pre-retirement mortality could still be disregarded in determining
benefit liabilities for 4010 purposes if the plan actuary does not use
an assumption of pre-retirement mortality for funding purposes (as is
permitted under Treasury regulations).\16\ The commenters requested
that this be clarified in the final rule. PBGC did not consider this
comment because for purposes of determining benefit liabilities using
the assumptions under section 4044 of ERISA and PBGC's regulation (as
prescribed in section 4010(d) of ERISA), pre-retirement mortality was
never disregarded.
---------------------------------------------------------------------------
\16\ See 26 CFR 1.430(d)(1)(f)(2).
---------------------------------------------------------------------------
The final rule, like the proposed, also includes edits to Sec.
4010.8(d)(3) to conform citations to ERISA and the Code and includes an
additional edit to improve readability.
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) had also
required filers to report revenues, operating income, and net assets
for each controlled group member.
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 believes it can adequately assess risks to participants and
plans without this detailed information, and with the ``off-the-shelf''
information on U.S. entities with foreign parents, as described
below.\17\ Therefore, PBGC proposed to remove the regulatory
requirement to provide controlled group member-specific detail. Two
commenters to the proposed rule supported the removal, and PBGC is
eliminating the requirement in the final rule.
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\17\ In PBGC Technical Update 19-1, issued October 16, 2019,
PBGC waived the requirement in Sec. 4010.9(b)(2) to provide member-
specific financial information. See https://www.pbgc.gov/prac/other-guidance/4010-financial-information-reporting-waiver.
---------------------------------------------------------------------------
As noted above, the final rule, like the proposed, also clarifies
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 consolidated (audited or
unaudited) financial statements on only the U.S. entities that are
members of the controlled group. If consolidated information is not
available, the filer must provide 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 indicate 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 final rule, like the proposed, clarifies that filers must provide
the exact URL for the web page where public financial information is
located. The example of a Securities and Exchange Commission filing in
paragraph (d) is clarified accordingly.
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
[[Page 6053]]
situations (with discretion to waive in others) under 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.
PBGC received questions from practitioners about which plans are
considered when determining if either of the first two waivers apply.
Practitioners noted that the regulation clearly states that for
purposes of the below-80 percent 4010 funding target attainment
percentage (FTAP) triggering event for 4010 reporting (the ``80% 4010
FTAP Gateway Test'') only plans maintained by the controlled group on
the last day of the information year are considered, but that the same
is not clear under Sec. 4010.11 for purposes of 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% 4010 FTAP Gateway Test. Therefore, the final
rule, like the proposed, modifies paragraphs (a) and (b) of Sec.
4010.11 to insert ``on the last day of the information year.''
In response to practitioner questions, PBGC had addressed in the
proposed rule when at-risk assumptions (under section 303(i) of ERISA
and section 430(i) of the Code) are to be used to calculate the funding
target for purposes of the 4010 funding shortfall and waiving reporting
where a plan's aggregate funding shortfall is $15 million or less. The
proposed rule would have revised paragraph (a)(1)(i) of Sec. 4010.11
to provide that at-risk retirement and form of payment assumptions are
not required to be used to determine the funding target used to
calculate the 4010 funding shortfall for a plan unless the plan is in
``at-risk status'' for funding purposes.
Commenters suggested that additional guidance is needed with
respect to how the 4010 funding shortfall should be determined for
plans in at-risk status. For example, commenters questioned whether the
phase-in rule provided in section 303(i)(5) of ERISA for plans that
have been in at-risk status for fewer than five consecutive years
applies. They suggested other clarifications with respect to the
participant count date for the $700 per participant load, and the 4
percent expense load on the not at-risk funding target.
As the commenters note, PBGC intended for filers to be able to use
already-calculated amounts for purposes of determining the 4010 funding
shortfall. But on further review, and in light of the complications
arising with respect to the at-risk transition rules, PBGC has decided
to simplify a plan's calculations for determining whether the $15
million aggregate funding shortfall waiver applies. In this regard, the
final rule provides that the special rules for at-risk plans in section
303(i) of ERISA and section 430(i) of the Code are disregarded for
purposes of determining the funding target underlying the 4010 funding
shortfall for a plan, even if the plan is in at-risk status. Based on
PBGC's review of plans in at-risk status, disregarding the at-risk
rules solely for purposes of determining whether the 4010 funding
shortfall waiver applies is unlikely to extend the waiver to plans it
wasn't intended to cover. PBGC believes it can reduce administrative
burden on plans while maintaining the original intent and integrity of
this waiver.
Proposed Waiver
The primary condition triggering reporting is that the 4010 FTAP of
a plan maintained by the contributing sponsor or any member of its
controlled group, is less than 80 percent (the ``80% 4010 FTAP Gateway
Test'' mentioned above). 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
prefunding and funding standard carryover balances. Plan sponsors are
permitted under section 303(f) of ERISA and section 430(f) of the Code
to elect to reduce (i.e., waive) some or all of such funding balances,
and by doing so increase the plan's FTAP.\18\
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\18\ See 26 CFR 1.430(f)-1(f)(2) for rules on timing of
elections.
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PBGC is aware of situations where a plan's 4010 FTAP was below 80
percent but would have been at least 80 percent if such an election had
been made timely with respect to 4010 reporting. To the extent the plan
sponsor of these plans are willing to waive funding balances at a later
date and thereby commit not to use the funding balances to satisfy the
following year's funding requirement, PBGC believes it would be
appropriate to waive the 4010 reporting requirement. Therefore, PBGC
had proposed to create an automatic 4010 reporting waiver where a plan
sponsor 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.
However, commenters raised issues with how this automatic waiver
would work in practice. Some stated that such a waiver could be useful,
but only in limited circumstances, and suggested technical
clarifications around its application. Others requested clarity
specifically about what is a ``late election'' to reduce a funding
balance for 4010 reporting purposes because, for minimum funding
purposes, ``late elections'' do not take effect for the plan year for
which they are nominally made. Additional questions concerned whether a
``late election'' could be made only if the funding balance existed on
the valuation date for the 4010 FTAP and had not been used against
required minimum contributions, and the amount by which funding
balances must be reduced.
PBGC considered these technical questions and concurs with the
commenters that, as drafted, the automatic waiver leaves many questions
unanswered. In light of this, and because it is likely that this
automatic waiver would help only a few, if any, filers, PBGC is not
adopting the proposed waiver in this final rule. PBGC encourages the
plan sponsor of a plan with a 4010 FTAP below 80 percent solely because
of an administrative error with respect to the timing of a funding
balance election to request a case-specific waiver pursuant to Sec.
4010.11(d).
Commenters suggested that PBGC in the final rule automatically
waive 4010 reporting in other situations, such as where a plan's 4010
FTAP would have been 80 percent or more (or the 4010 funding shortfall
would have been less than $15 million) if not for the timing of a
contribution that was made too late to count as a prior year
contribution (i.e., more than 8\1/2\ months after the end of the prior
plan year), as well as in situations where 4010 reporting is triggered
by an acquisition. Creating additional reporting waivers is beyond the
scope of this final rule, and PBGC has not included automatic waivers
for the suggested situations. Where
[[Page 6054]]
extenuating circumstances come into play (e.g., a contribution was late
because it was inadvertently wired to the wrong account), plan sponsors
may request a case-specific waiver pursuant to Sec. 4010.11(d). PBGC
reviews such requests based on the facts and circumstances of specific
cases.
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 a plan administrator 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 the statutory deadline for certifications,
the final rule, like the proposed, amends Sec. 4041.29(a) to provide
an alternative filing option for plan administrators who need more time
to complete the PBGC Form 501. This alternative permits 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 described in the instructions to the Form 501)
within 30 days after the last distribution date for any affected party.
The proposed rule revised Sec. 4041.29(b) and paragraph (d)(2) of
Sec. 4041.30 (requests for deadline extensions) only to account for
the proposed changes to Sec. 4041.29(a).
One commenter expressed support for the additional time to file a
Form 501 in Sec. 4041.29(a)(2).
The same commenter suggested that PBGC modify proposed Sec.
4041.29(b) in the final rule to clarify when PBGC would begin assessing
penalties for required information not received by the deadlines in
Sec. 4041.29(a). Penalties under section 4071 of ERISA apply where
there is a failure to timely provide required information. Thus,
penalties may be assessed where a filing (e.g., the Form 501) is not
filed by the stated deadline, or where a filing is submitted on time,
but some or all required information is omitted or wrong. The commenter
suggested the language of proposed Sec. 4041.29(b)--that PBGC will
assess a penalty ``only to the extent a completed Form 501 is filed
more than 90 days after the distribution deadline (including
extensions) under Sec. 4041.28(a)''--could imply that PBGC may assess
a penalty on an incomplete Form 501 before the 90-day threshold is
reached. The commenter suggested replacing the words ``only to the
extent'' with the words ``only if'' to clarify that penalties may only
be assessed if required filings are submitted more than 90 days after
the distribution deadline.
PBGC's proposed changes in Sec. 4041.29 to provide an alternative
filing deadline for the Form 501 were not intended to alter the long-
standing penalty relief provided for in Sec. 4041.29(b). Therefore,
the final rule modifies the language in paragraph (b) to make clear
that PBGC will not assess a penalty if the required information (e.g.,
the certification or Form 501) is filed within 90 days after the
distribution deadline.
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) referred 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 multiple employer plans of cooperatives and charities, PBGC
settlement plans, plans of government contractors, and plans of
commercial passenger airlines and airline caterers.
The final rule, like the proposed, removes references to PPA
sections 104, 105, and 106 because those provisions have expired. It
adds a reference to the special funding rules of section 306 of ERISA
and section 433 of the Code that apply to certain multiple-employer
defined benefit pension plans maintained by certain cooperatives and
charities, and that were added in 2014.\19\
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\19\ Cooperative and Small Employer Charity Pension Flexibility
Act, Public Law 113-97 (Apr. 7, 2014).
---------------------------------------------------------------------------
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 standard termination of a plan is
completed (``2014 rule''). PBGC adopted this exemption because it did
not seem appropriate to require a VRP of a terminating plan 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.\20\
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\20\ 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 rule 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).
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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
had been suggested that, if the
[[Page 6055]]
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.\21\ 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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\21\ 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)).
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In light of these questions, the final rule, like the proposed,
amends 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 standard termination of the plan is completed if the plan
engages in a spinoff during the premium payment year. In addition, the
final rule provides an exception where 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 other
words, the VRP exemption applies for the year in which a standard
termination for the plan is completed even if the plan engages in a de
minimis spinoff during the year.
To distinguish cases where the termination has not yet been
completed, the final rule, like the proposed, moves 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.
PBGC received three comments with respect to its proposed amendment
to Sec. 4006.5(a)(3). Two commenters acknowledged that this provision
is ``clear and workable.'' Three commenters suggested that it
represents a change to the current provision and requested that it
apply only prospectively. PBGC disagrees that the amendment represents
a change to the provision. PBGC believes its interpretation of the 2014
rule is the only reasonable one. It is based directly on the
regulation's application to a plan that ``makes a final distribution of
assets in a standard termination during the premium payment year.'' The
preamble to the 2014 rule states plainly that the exemption applies
only when all benefits are fully satisfied in accordance with the
standard termination rules. A plan that first transfers benefits (and
associated assets) to another plan before completing a standard
termination does not make a final distribution of assets in
satisfaction of all benefits. As explained in the proposed rule, the
amendment to Sec. 4006.5(a)(3) is merely to expressly state the
circumstances in which a plan does not qualify for the VRP exemption.
Therefore, the final rule does not provide an applicability date for
this provision.
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 (i.e., the ``special rule''). Situations where this 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 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.
As explained in the proposed rule, 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.
Therefore, PBGC is adopting in the final rule its proposed
clarifications to 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.
Doing so makes clear that the transferee plan, in such a transaction,
owes flat-rate premiums on behalf of the transferred participants. This
provision generally operates 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 smaller plan are less than 3 percent of the assets of the larger
plan).
PBGC received questions from practitioners as to whether this de
minimis exemption applies where the surviving plan is the smaller plan.
It had 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
[[Page 6056]]
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.
The final rule, like the proposed, clarifies that the special rule
in paragraph (e) of Sec. 4006.5 applies in the case of a beginning-of-
year merger where a large plan is merged into a smaller plan (i.e., the
exception for de minimis mergers does not apply if the transaction is
structured such that the smaller plan is the surviving plan).
PBGC received four comments with respect to the proposed provisions
clarifying the special participant count date rule. While the
commenters appreciated clarification of the rules, they believed the
clarifications represented changes and should be applied only
prospectively. Two of these commenters stated that some sponsors had
completed transactions (e.g., plan mergers) in reliance on their
interpretation of how the special participant count date rules work.
PBGC considered these comments. However, the provisions do not affect
whether a transaction was (or was not) permissible. Rather, they simply
set forth when the special rules apply in determining the participant
count date. And as explained in the proposed rule, the provisions are
merely clarifications of the existing special rules and as such, the
final rule does not provide an applicability date for these provisions.
Two commenters recommended that PBGC eliminate the exceptions to
the special rule for de minimis transactions (e.g., spinoffs, mergers)
and three commenters recommended that the special rule, which currently
applies only to transactions that occur at the beginning of a plan
year, also apply to transactions that occur on the last day of the
prior plan year. PBGC considered the comments and believes it would not
be appropriate to implement either change without providing an
opportunity for public comment. PBGC believes both suggestions merit
consideration and intends to do additional research and analysis to
determine if such changes are warranted and/or appropriate. In
particular, PBGC is concerned that eliminating the de minimis exception
could result in some plans owing larger premiums than under the current
rule.
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 plan 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, the final rule, like the proposed,
changes the circumstances under which the premium is prorated for a
short plan year resulting from a plan's termination to exclude
situations where 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). As stated in the Dates section above, this
provision is applicable for plan years beginning in or after 2020. In
addition, the final rule, like the proposed, replaces the words
``excess assets'' in Sec. 4006.5(f)(3) with ``residual assets under
section 4044(d) of ERISA'' to be consistent with the statutory
language.
Miscellaneous
This final rule corrects and updates the phone numbers for the PBGC
multiemployer program division contact and the PBGC Participant and
Plan Sponsor Advocate in the model notices contained in Appendix A to
part 4233, the Partitions of Eligible Multiemployer Plans regulation.
Executive Orders 12866, 13563, and 13771
The Office of Management and Budget (OMB) has determined that this
rulemaking is not a ``significant regulatory action'' under Executive
Order 12866. Accordingly, this final rule is exempt from Executive
Order 13771, and OMB 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 final rule. Most of the final rule 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 has included those amendments in this final rule. 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 \22\ 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 604 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 steps taken to minimize
the impact. Small entities include small businesses, organizations, and
governmental jurisdictions.
---------------------------------------------------------------------------
\22\ 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------
[[Page 6057]]
Small Entities
For purposes of the Regulatory Flexibility Act requirements with
respect to this final 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 \23\ and is consistent with
certain requirements in title I of ERISA \24\ and the Code,\25\ as well
as the definition of a small entity that the Department of Labor has
used for purposes of the Regulatory Flexibility Act.\26\
---------------------------------------------------------------------------
\23\ See, e.g., special rules for small plans under part 4007
(Payment of Premiums).
\24\ 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.
\25\ 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.
\26\ 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 \27\ under the Small Business Act. Therefore, PBGC
requested comments on the appropriateness of the size standard used in
evaluating the impact of the amendments in this proposed rule on small
entities. PBGC received no comments on this point.
---------------------------------------------------------------------------
\27\ See, 13 CFR 121.201.
---------------------------------------------------------------------------
Certification
Based on its definition of small entity, PBGC certifies under
section 605(b) of the Regulatory Flexibility Act that the amendments in
this final 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 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 final 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 is making are revisions to
filing instructions, where necessary or helpful, to incorporate the
clarifications in the final rule. Therefore, PBGC estimates the final
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 are being
updated to describe, as necessary or helpful, the clarifications made
by the final rule and for other informational purposes. The
clarifications incorporated in the instructions would replace or
augment existing language but would not create additional filing
burden. However, the final 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 final 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 are being updated, as
necessary or helpful, to describe the clarifications made by the final
rule. The clarifications incorporated in the instructions replace
existing language, and therefore would not create additional filing
burden in these instances. With respect to the requirement in Sec.
4010.7 to submit an organizational chart or other diagram in place of
information describing legal relationships of controlled group members,
PBGC expects this change will reduce burden for most filers, but may
increase burden for filers that do not have an organizational chart
readily available. Overall, PBGC estimates that this requirement will
not change the aggregate hour and cost burden.
However, PBGC estimates that the final 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. (Former Question 2 on Schedule F, Section II, of the e-
4010 module of PBGC's e-filing portal.) 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 final 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
final 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 final 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
[[Page 6058]]
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 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 February 28, 2022). PBGC's
Comprehensive Premium Filing Instructions are being updated to reflect
the changes made by the final rule to the premium provisions. The
updates incorporated in the instructions 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.
29 CFR Part 4233
Employee benefit plans, Pension insurance, Reporting and
recordkeeping requirements.
For the reasons stated in the preamble, PBGC amends 29 CFR parts
4001, 4006, 4010, 4041, 4043, and 4233 as follows:
PART 4001--TERMINOLOGY
0
1. The authority citation for part 4001 continues to read as follows:
Authority: 29 U.S.C. 1301, 1302(b)(3).
0
2. Amend Sec. 4001.2 by adding in alphabetical order definitions for
``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) introductory text 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.
[[Page 6059]]
0
7. In Sec. 4010.2:
0
a. Amend the introductory text by removing ``and'' before
``unreduced'' and adding at the end of the sentence ``, ultimate
parent, and U.S. entity''; and
0
b. Add in alphabetical order a definition for ``Foreign entity''.
The addition reads 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:
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) Ten or fewer members (excluding exempt entities), the legal
relationship of each entity to the plan sponsor (for example, parent,
subsidiary).
(ii) More than ten members (excluding exempt entities), an
organizational 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. Exempt
entities may, but need not, be included in this organizational chart or
diagram.
(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)
------------------------------------------------------------------------
------------------------------------------------------------------------
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 Either Option 1 or
decrements (e.g., 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).
[[Page 6060]]
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. Expected improvements
in mortality experience that apply under
the plan for periods after the
information year may be disregarded for
valuing benefit liabilities for 4010
reporting purposes.
------------------------------------------------------------------------
Other (e.g., cost-of-living Use the same assumptions as used to
increases, marital status). determine the minimum required
contribution under section 303 of ERISA
and section 430 of the Code for 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
using the same retirement assumptions as used to determine the minimum
required contribution under section 303 of ERISA and section 430 of the
Code for the plan year ending within that 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) introductory text and revising
paragraphs (b), (d), and (e).
The revisions read as follows:
Sec. 4010.9 Financial information.
* * * * *
(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
exact URL for the web page where the financial information is located).
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 exact URL for the 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) introductory text 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);
The revisions 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 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 without regard to the at-risk plan
provisions in section 303(i) of ERISA and section 430(i) 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).
* * * * *
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--
[[Page 6061]]
(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 if the required
information 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 a 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 ``,
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 in paragraph (c) by removing ``Web site'' and
adding in its place ``website''.
Sec. 4043.9 [Amended]
0
19. Amend Sec. 4043.9 in paragraph (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'' for purposes of this
section 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 participant 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 before the due date 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, or the parent
company within a parent-subsidiary controlled group of any such
contributing sponsor, is a public company and 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.
Before 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
[[Page 6062]]
subsequently be triggered (See Example 3 in paragraph (f)(3) of this
section).
(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 in paragraph (f)(1) of this section 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 in paragraph (f)(1) of this
section except that the layoffs resulting from the business unit shut
down are spread out over several months. Table 1 to paragraph (f)(3)
summarizes the applicable calculations:
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 is part of the same
single-cause event already timely reported to PBGC. 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 Example 2 in paragraph (f)(2) of this
section, 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 in paragraph (f)(1) of this
section 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 (210/1000
= 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.
* * * * *
0
22. Amend Sec. 4043.27 by revising paragraph (d)(3) to read as
follows:
Sec. 4043.27 Distribution to a substantial owner.
* * * * *
(d) * * *
(3) Public company. Notice under this section is waived if any
contributing sponsor of the plan before the transaction, or the parent
company within a parent-subsidiary controlled group of any such
contributing sponsor, is a public company and 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).
0
23. Amend Sec. 4043.29 by revising the section heading and paragraphs
(a), (b)(6), and (c) to read as follows:
Sec. 4043.29 Change in controlled group.
(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' (including any person who is or was a contributing sponsor)
ceasing to be a 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 is not
[[Page 6063]]
reportable if it will result solely in a reorganization involving a
mere change in identity, form, or place of organization, however
effected.
(b) * * *
(6) Public company. Notice under this section is waived if any
contributing sponsor of the plan before the transaction, or the parent
company within a parent-subsidiary controlled group of any such
contributing sponsor, is a public company and 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).
(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. If on the notice due 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 due 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 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.
0
24. 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 timely to PBGC for the same event under
that section.
(c) Public company extension. If any contributing sponsor of the
plan, or the parent company within a parent-subsidiary controlled group
of such contributing sponsor, is a public company, the due date for
notice under this section is extended until the earlier of--
(1) The date the contributing sponsor or parent company 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
(2) The date when a press release with respect to the liquidation
described under paragraph (a) of this section is issued in the U.S. in
the English language.
(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 of paragraphs (a)(1)
through (3) 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
[[Page 6064]]
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.
0
25. Amend Sec. 4043.31 by revising paragraph (c)(6) to read as
follows:
Sec. 4043.31 Extraordinary dividend or stock redemption.
* * * * *
(c) * * *
(6) Public company. Notice under this section is waived if any
contributing sponsor of the plan before the transaction, or the parent
company within a parent-subsidiary controlled group of any such
contributing sponsor, is a public company and 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).
0
26. Amend Sec. 4043.32 by revising paragraph (c)(4) to read as
follows:
Sec. 4043.32 Transfer of benefit liabilities.
* * * * *
(c) * * *
(4) Public company. Notice under this section is waived if any
contributing sponsor of the plan before the transaction, or the parent
company within a parent-subsidiary controlled group of any such
contributing sponsor, is a public company and 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).
0
27. 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 timely to PBGC for the same event under that
section.
Sec. 4043.81 [Amended]
0
28. Amend Sec. 4043.81 by removing paragraph (c).
PART 4233--PARTITIONS OF ELIGIBLE MULTIEMPLOYER PLANS
0
29. The authority citation for part 4233 continues to read as follows:
Authority: 29 U.S.C. 1302(b)(3), 1413.
Appendix A to Part 4233--[Amended]
0
30. Amend the two model notices in appendix A by removing the phone
number ``(202) 326-4000 x6535'' under PBGC Contact Information after
``Phone:'' and adding in its place ``(202) 229-6047'', and by removing
the phone number ``(202) 326-4488'' under PBGC Participant and Plan
Sponsor Advocate Contact Information after ``Phone:'' and adding in its
place ``(202) 229-4448''.
Issued in Washington, DC.
Gordon Hartogensis,
Director, Pension Benefit Guaranty Corporation.
[FR Doc. 2020-01628 Filed 2-3-20; 8:45 am]
BILLING CODE 7709-02-P
