PBGC proposes conforming changes to guaranteed benefits and asset allocation regs concerning owner-participants

The Pension Benefit Guaranty Corporation (PBGC) has issued proposed rules to conform its guaranteed benefits and asset allocation regulations to changes in the phase-in rules for owner-participants under the Pension Protection Act of 2006 (PPA).
ERISA Secs. 4022 and 4044 cover the PBGC’s guarantee of plan benefits and allocation of plan assets, respectively, under terminated single-employer defined benefit plans. Special provisions within these sections apply to owner-participants, who have certain ownership interests in their plan sponsors. PPA made changes to these provisions, which the PBGC has been operating under since they became effective. With these proposed regulations, the PBGC intends to increase transparency into its operations and provide guidance for plan administrators on the impact of the statutory changes.
The proposed regulations would amend the PBGC’s benefit payment regulation by replacing the guarantee limitations applicable to substantial owners with a new limitation applicable to majority owners. In addition, the proposed regulations would amend the PBGC’s asset allocation regulation by prioritizing funding of all other benefits in priority category 4 ahead of those benefits that would be guaranteed but for the new, owner-participant limitation. The proposed regulations also clarify that plan administrators may continue to use the simplified calculation in the existing rule to estimate benefits funded by plan assets and provide new examples to aid plan administrators in implementation.
In related amendments, the PBGC proposes to make conforming amendments to its regulations on terminology, termination of single-employer plans, and reportable events and certain other notification requirements. The PBGC also proposes to correct PBGC Reg. §4022.62(e), which currently provides that in a PPA 2006 bankruptcy termination, “bankruptcy filing date” is substituted for “proposed termination date” in PBGC Reg. §4022.62(c), by making the substitution applicable to both paragraph (c) (applicable to non-owner-participants) and paragraph (d) (applicable to owner-participants) of PBGC Reg. §4022.62.

Amendments unrelated to PPA

The PBGC proposes to make minor, nonsubstantive changes to the examples not involving owner-participants in PBGC Reg. §4022.62 and §4022.63 of the benefit payment regulation in order to improve readability. The PBGC also proposes to correct two clerical errors that were made when the PBGC previously amended the regulation—the first duplicated paragraph (f) of PBGC Reg. §4022.62, and the second duplicated the designation of paragraph (c)(1) of PBGC Reg. §4022.63. Finally, the PBGC proposes to replace the term “estimated title IV benefit” with “estimated asset-funded benefit” at PBGC Reg. §4022.63.


The PBGC proposed regulations would follow the applicability dates of the provisions of PPA that the regulations would incorporate. Thus, the proposed amendments would be applicable to plan terminations under ERISA Sec. 4041(c) with respect to which notices of intent to terminate are provided under ERISA Sec. 4041(a)(2) after December 31, 2005, and under ERISA Sec. 4042 with respect to which notices of determination are provided under that section after December 31, 2005.

Source: PBGC proposed regulations, 83 FR 9716.
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