PBGC changing enforcement approach to target pension plans at risk

The Pension Benefit Guaranty Corporation (PBGC) has announced that it is changing its procedures for protecting pension plans under ERISA §4062(e) by targeting enforcement efforts where plans are at risk of default and reducing financial guarantee requirements where plans are not at risk. The PBGC is starting a pilot program that will focus enforcement on companies where there is a higher risk of default. As a result, 92% of companies that sponsor pension plans will not face enforcement efforts, according to the PBGC.

“Instead of using a one-size-fits-all approach, we are focusing on the handful of companies that pose real risk,” said PBGC Director Josh Gotbaum. “For most companies, it will mean fewer requirements and less hassle — and it will let us use our resources where they’re really needed.”

Substantial cessations of operations

ERISA §4062 covers liability requirements when a single-employer plan is terminated in a distress termination or is terminated by the PBGC. Under ERISA §4062(e), a company must report to the PBGC when it ceases operations at a facility and more than 20% of the workers participating in the pension plan lose their jobs. The PBGC requires such a company to provide financial security to protect the plan, typically by making additional contributions to the plan or by providing a financial guarantee. The requirement to provide financial security has been enforced regardless of the size of the plan or the financial health of the sponsoring company.

Pilot program

In response to a directive from President Obama to review and reconsider regulatory requirements and to comments from the business community about the imposition of the requirements even when there was little threat to the retirement security of the employees or to the PBGC, the PBGC has decided to change its approach to enforcement. The PBGC is implementing a pilot program that will focus enforcement on companies that have a higher risk of default. Where companies meet standard tests of financial soundness or have less than 100 participants, the PBGC will not require the companies to provide financial guarantees. The PBGC will use standards of financial soundness that are already utilized by businesses and plans.

However, the PBGC explains that companies must still report ERISA §4062(e) events.

The PBGC expects that the pilot program will be modified based on experience. As to the status of the 2010 proposed regulations on ERISA §4062(e), the PBGC states that it is using the pilot program to help decide what changes to make to the proposed regulations.

Source: PBGC News Release No. 12-32, November 2, 2012, and Frequently Asked Questions 4062(e) Enforcement Pilot Program.

For more information, visit http://www.wolterskluwerlb.com/rbcs.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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