In mid-2018, the Pension Benefit Guaranty Corporation (“PBGC”) began posting Q&As for practitioners on its website. Last week, PBGC posted an update, including several additional Q&As. The Q&As are available on the PBGC’s “Staff Responses to Practitioner Questions” page, which can be found by clicking here.
These “PBGC-curated” Q&As substitute for the Q&As that were developed by the American Bar Association Joint Committee on Employee Benefits in prior years. They reflect questions commonly asked of PBGC lawyers, actuaries, and other professionals and are similar to the SEC Corporation Finance Division’s Manual of Public Available Telephone Interpretations, which served as one of the models.
The Q&As are grouped by topic, and cover 430(k) Liens, Bankruptcy Claims, Premiums, Distress Terminations, Guaranteed Benefits, Reportable Events, Valuations, Standard Terminations, and an “Other” (just two so far, on counting days toward regulatory deadlines and on “§ 4062(c) claims”). The Q&As mainly address PBGC’s single-employer plan insurance program; only a few address the agency’s separate multiemployer plan insurance program.
Newly released Q&As on Guaranteed Benefits address phase-in of newly covered plans, substantial owner plans, and scheduled benefit increases. Under the phase-in rule, if a plan terminates within five years of establishment, benefits are guaranteed only 20 percent per year the plan has been in existence (for instance, 60 percent if the plan has been in existence for three years). Similarly, a benefit increase is guaranteed only 20 percent per year from the later of the date the plan was adopted or became effective.
Phase-in of newly covered plans would be of interest to sponsors of plans that are or were exempt from coverage (such as church plans, government plans, and small professional service employer plans) and to their participants. If a plan ceases to be exempt, for instance if a church plan elects to be covered, benefits would not be fully guaranteed for five years. Phase-in of substantial owner plans, which are exempt if they are maintained exclusively for owners, would be of interest to small business owners and to their employees, for the same reason. Phase-in of scheduled benefit increases would apply when benefits are not pegged to salary and are set to increase periodically (for instance, by a collective bargaining agreement) in order to keep pace with inflation.
Newly released Q&As on Reportable Events cover an asset sale by a plan sponsor, followed by its dissolution and the parent company’s assumption of plan sponsorship, and spinoffs of plan assets and benefit liabilities by multiple-employer plans to plans of withdrawn employers. They will be of interest to internal ERISA compliance officers and to ERISA counsel, for plans and employers, and to those involved in negotiating changes in plan sponsorship or structure.
Note that Reportable Event notices are usually provided after the fact. PBGC’s Early Warning Program addresses potential risks before a transaction closes. Details on the PBGC’s Early Warning Program may be found by clicking here.
Weight of Staff Interpretations
The Q&As are accompanied by the following disclaimer:
“The interpretations presented below reflect the views of the staff of PBGC. They are not rules, regulations, or statements of the Corporation.
These positions do not necessarily contain a discussion of all material considerations necessary to reach the conclusions stated, and they are not binding due to their informal nature. Accordingly, these responses are intended as general guidance and should not be relied on as definitive. There can be no assurance that the information presented in these interpretations is current, as the positions expressed may change without notice.”
Despite the disclaimer, the Q&As reflect the thinking of PBGC staff, and are based on experience, so they give some indication of how particular matters would be handled.
If you have any questions about the Q&As or about any aspect of our firm’s PBCG practice area, please feel free to contact us.