PBGC final regs expand its missing participant program to DC, multiemployer DB, and other DB plans

The Pension Benefit Guaranty Corporation (PBGC) has issued final regulations that expand its existing missing participants program to cover terminated 401(k) and most other defined contribution (DC) plans, multiemployer defined benefit (DB) plans, and certain DB plans that are not currently covered by the program. The PBGC has revised the existing program to establish programs for these plans that are similar to the existing missing participant program as well as to simplify procedures and remove unnecessary rules. The regulations are effective January 22, 2018, and are generally applicable for plans that terminate on or after January 1, 2018. The PBGC is also creating new forms for the various types of plans.

Background

Currently, the missing participants program receives benefits from administrators of terminated single-employer DB plans covered by the Title IV insurance program when plan administrators have been unable to locate participants. The PBGC assumes the responsibility of locating the missing plan participants and paying benefits to those participants who are located.
Section 410 of the Pension Protection Act of 2006 (PPA; P.L. 109-280) provides for the participation of certain terminating plans not covered by the missing participants program. Specifically, PPA directs the PBGC to issue regulations for terminating multiemployer DB plans covered by Title IV similar to the current rules that apply to covered single-employer DB plans when they terminate. In addition, plan administrators of other plans not covered by Title IV will be permitted, but not required, to elect to transfer missing participant benefits to the PBGC. These plans include qualified DC plans, DB plans that have no more than 25 active participants and are maintained by professional service employers, and the portion of defined benefit pension plans that provide benefits based upon the separate accounts of participants and, therefore, are treated as defined contribution plans under ERISA.

Implementation of expanded program

The PBGC has issued final regulations that will implement the expansion of its missing participant program by establishing rules to handle the benefits of missing participants and beneficiaries under terminated multiemployer plans covered by Title IV similar to the rules for covered single-employer plans and by providing for a similar voluntary program for terminated non-covered plans. The final regulations also streamline requirements and eliminate unnecessary provisions in the existing program. Under the regulations, the PBGC will charge fees for plans to transfer benefits into the program that will not exceed the PBGC’s costs. The PBGC stated that a few changes were made in the final regulations in response to comments received, but the final regulations are substantially similar to the proposed regulations. Thus, responding to comments on the proposed rule, the final regulations modify the criteria for being “missing,” provides more flexibility in the diligent search rules for DB plans, and simplifies the existing procedures for DB plans to determine the appropriate sum to transfer to the PBGC on behalf of a missing participant or beneficiary.
The final regulations are organized into four subparts: a revised program for the single-employer DB plans covered by Title IV and new programs for DC plans, small professional service DB plans, and multiemployer plans covered by Title IV. According to the PBGC, major features include:

  • A new option for DC plans to deal with missing participants and beneficiaries when closing out the plan and to make it more likely that missing persons will receive their benefits.
  • A unified unclaimed pension database of information about missing participants and their benefits from terminated defined benefit and defined contribution plans.
  • A centralized, reliable, easy-to-use directory through which persons who may be owed retirement benefits from DB or DC plans could find out whether benefits are being held for them.
  • Robust features to protect private information about missing participants and their beneficiaries from inadvertent disclosure.
  • Periodic active searches by the PBGC for missing participants.
  • Provision for a one-time administrative fee to be charged for plans that transfer missing participants’ benefits into the program; no fee for benefits of $250 or less, no ongoing maintenance fees, and no distribution charge.
  • Treating participants or beneficiaries as “missing” if they fail to make necessary benefit elections upon plan termination or fail to accept lump-sum benefits, such as where there are uncashed checks.
  • Fewer benefit categories and fewer sets of actuarial assumptions for DB plans determining the amount to transfer to the PBGC and a free on-line calculator to do certain actuarial calculations.
  • Elimination of unnecessary rules.

Voluntary reporting for DC plans

After receiving comments supporting and opposing voluntary reporting for DC plans, the PBGC has decided that the final regulations, like the proposed, will provide that the PBGC’s missing participants program is voluntary for terminated non-PBGC-insured plans (e.g., DC plans) and that a non-PBGC-insured plan that chooses to use the programs may elect to be a “transferring plan” or a “notifying plan.” A transferring plan sends the benefit amounts of missing distributees to the PBGC’s missing participants programs. A notifying plan informs the PBGC of the disposition of the benefits of one or more of its missing distributees. The PBGC notes, however, that it will reevaluate the decision after the plans and the Agency gain actual experience with the programs. Furthermore, in order to avoid “cherry-picking,” a DC plan that chooses to participate in the missing participants program and elects to be a transferring plan must transfer the benefits of all its missing participants into the missing participants program.

Fees

Fees will be set forth in the missing participant forms and instructions. The PBGC will charge a one-time $35 fee per missing distributee, payable when benefit transfer amounts are paid to the PBGC, without any obligation to pay the PBGC continuing “maintenance” fees or a distribution fee. There will be no charge for amounts transferred to the PBGC of $250 or less, and no charge for plans that only send information about missing participant benefits to the PBGC. The PBGC will review both the amount of the fee and the fee structure in the future to determine what is appropriate.
The PBGC explained that the missing participant program remains mandatory for PBGC-insured single-employer DB plans and will be mandatory for PBGC-insured multiemployer plans. Upon termination, these plans must either transfer the benefits of missing participants to the PBGC, or purchase annuities and send the PBGC information about the annuity provider. In contrast, terminated DC plans may transfer the accounts of missing participants to the PBGC or send the PBGC information about where the accounts of missing participants were transferred.

Filing forms

To reduce the burden, the PBGC has decided that it will not initially require that a plan submit specific documentation of diligent searches with its filing, since compliance with the regulations (including the performance of diligent searches) must be certified on the form. The PBGC notes that it might revisit this decision if it appears necessary to encourage compliance with the diligent search.
The PBGC has made the regulations less specific about documentation generally. Rather than trying to be more inclusive about data to be filed, the final regulations simply refer to the missing participant forms and instructions for data required. However, the final regulations do list the three types of payments required: fees, benefit transfer amounts, and interest on the latter (for defined benefit plans, if owed). And it retains the supplemental filing requirement from the proposed regulations for a plan to submit additional information if PBGC requests.
The PBGC notes that in redesigning its missing participants forms for use in the new programs, the new forms contain only about 75% as many blanks to fill in as the current forms.

Abandoned plans.

The final regulations, like the proposed, provide that the requirements to use the missing participants programs, including filing requirements and forms and instructions, apply to all terminated DC plans that choose to use the program, including abandoned plans and QTAs winding up such plans.

Deadlines.

The filing deadline set in the filing instructions for Title IV single-employer DB plans is the same as under existing regulations-the date the post-distribution certification is due (i.e., within 30 days after the last distribution date). This is a change from the proposed regulations. For plans not covered by Title IV, the filing instructions set the deadline as the later of 90 days after completion of all distributions not subject to the missing participants program or one year after the plan’s termination date under IRS Rev. Rul. 89-87.

PBGC’s function

The fact that the PBGC has no authority over DC plans and small professional service defined benefit plans led the PBGC to re-evaluate its function under the missing participants programs with respect to all plans covered by the programs. Thus, the PBGC has removed from the final regulations provisions dealing with audits and related matters, and replaced them with provisions making clear that as the missing participants program administrator, the PBGC relies on information from plans participating in the program and accepts that information. The PBGC holds the information and funds entrusted to it and passes them on to proper claimants. While this does not mean that mistakes cannot be corrected, it does mean that the missing participants programs will not be expected to take the initiative in making corrections. However, the PBGC notes that its role as administrator of the missing participants programs does not detract from its authority as administrator of the Title IV insurance program, including matters bearing on the missing participants programs.

Effective/applicability dates

The final regulations are effective January 22, 2018. The regulations apply to the termination of a plan other than a multiemployer plan covered by Title IV of ERISA where the date of plan termination is after calendar year 2017. These rules apply to the close-out of a multiemployer plan covered by Title IV of ERISA where the close-out is completed after calendar year 2017. Note, however, that these regulations do not apply to the PBGC’s payment of missing participant benefits attributable to prior terminations. The rules provided in the regulations under ERISA Sec. 4050 as in effect prior to January 22, 2018 apply to the PBGC’s payment of missing participant benefits attributable to prior terminations.

Source: 82 FR 60800.
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