The PBGC has issued proposed regulations that would amend its current rules under ERISA §4062(e) on the reporting of and liability for certain substantial cessations of operations by employers that maintain single-employer defined benefit plans. The PBGC has also submitted draft information requirements under the proposed rules to the Office of Management and Budget. Comments on the proposed rules and the draft information requirements must be submitted on or before October 12, 2010.
The proposed regulations address the applicability and enforcement of ERISA §4062(e), which governs liability to the PBGC in cases where an employer ceases operations at a facility, resulting in the separation from employment of more than 20% of the total number of employees participating in a plan established and maintained by the employer. The applicability provisions of the proposed regulations provide guidance on whether and when a "4062(e) event" occurs. The enforcement provisions describe the PBGC's 4062(e) investigatory program, provide rules for notifying the PBGC of 4062(e) events, explain how 4062(e) liability is calculated and how it is to be satisfied, and require the preservation of records about events that may be 4062(e) events. The proposed rules also provide for waivers in appropriate circumstances.
Applicability provisions
The PBGC proposes to provide guidance on whether and when a 4062(e) event occurs by explaining each of the key terms that appear in the statute and in the proposed regulation: "operation," "facility," "cease," "separate," and "result." The proposed regulations introduce the term "active participant base" to describe the baseline number of active participants against which the statutorily required decline in active participants would be measured and to serve as the denominator of the apportionment fraction used in calculating liability for a 4062(e) event.
Enforcement provisions
The proposed regulations provide two processes by which the PBGC would learn about 4062(e) events: PBGC investigations and reports to the PBGC by plan administrators. The proposed rules also describe the liability that arises when a 4062(e) event occurs and how the liability is satisfied and would prescribe recordkeeping requirements. Provision would also be made for waivers in appropriate circumstances.
Under ERISA §4003(a), the PBGC has investigative authority under Title IV and regulations thereunder. The preamble to the proposed regulations states that the PBGC's 4062(e) enforcement "has been strongly supported by investigations" and that the PBGC "expects its section 4062(e) investigatory activity to continue, notwithstanding the inclusion in the proposed regulation of detailed reporting requirements." The investigation provisions in the proposed regulations would include a deadline for responding to PBGC information requests, and failure to respond by the deadline could result in the assessment of penalties. There would also be a requirement to correct or update information submitted to the PBGC that was or became materially wrong or outdated.
Under ERISA §4063(a), the plan administrator of a multiple employer plan must report the withdrawal of a substantial employer from the plan to the PBGC within 60 days after the withdrawal. The proposed regulation would provide that notice of a 4062(e) event must be filed with the PBGC by the plan administrator of the affected plan within 60 days. The 60 days would run from the later of the cessation date or the date when the number of active participant separations resulting from the cessation exceeds 20% of the active participant base.
In addition, the PBGC proposes to require that employers and plan administrators preserve records about potential 4062(e) events that tend to show whether such an event in fact occurred and, if so, how much the resultant liability is. The recordkeeping provision would also permit the PBGC to proceed on the basis of reasonable assumptions if employer or plan records were insufficient. The proposed record retention period would be five years, which matches the period for which the security provided by an employer with respect to a 4062(e) event can be held -- and thus the PBGC's window for enforcing ERISA §4062(e). The proposed rules would also include a provision explicitly authorizing the PBGC to grant waivers where warranted by the circumstances. According to the preamble to the proposed regulations, the PBGC's experience with ERISA §4062(e) enforcement suggests that the Agency "may encounter situations it does not now foresee, and this waiver provision is meant to provide a measure of flexibility in interpreting and applying the law."
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.