By Harold Ashner and Israel Goldowitz
On September 11, 2023, the American Bar Association (“ABA”) posted a summary of the May 3, 2023, meeting between representatives of the Pension Benefit Guaranty Corporation (“PBGC”) and representatives of the ABA’s Joint Committee on Employee Benefits (“JCEB”). Two Wagner Law Group attorneys — Israel Goldowitz (former PBGC Chief Counsel) and Harold Ashner (former PBGC Assistant General Counsel for Legislation and Regulations) – coordinated the meeting for the JCEB representatives.
As discussed in the summary, which is available at www.americanbar.org/content/dam/aba/events/employee_benefits/technicalsessions/2023-pbgc-report.pdf, there were several key points discussed at the meeting, including the following:
- Reportable Events Experience. PBGC staff reported that reportable events filings during fiscal year 2022 (ending September 30, 2022) were down about 30% from the preceding fiscal year, noting that the decline was likely due to improved funding and reduced minimum funding requirements under recent legislation. Staff also noted that, despite the overall decrease in reports, reported active participant reductions increased, likely due to attrition, plan freezes, and the effects of the pandemic. In addition, staff noted that the PBGC website has a simplified guide to reportable events for small plans (pbgc.gov/prac/reporting-and-disclosure/small-plan-reportable-reference), and recommended that practitioners regularly remind their clients of the list of reportable events.
- Early Warning Program. Staff advised that there had been little recent activity in this area. Staff pointed to corporations’ focus on servicing debt during the pandemic, the benign effect of rising interest rates on pension liabilities, funding relief under ARPA and other recent legislation, and a decline in LBO activity. Staff noted that there had been no change in the program, just a few years of unusual experience.
- Standard Termination Audit Experience. PBGC staff addressed common errors detected in standard termination audits, including the rollover of small benefits (valued at $5,000 or less) to IRAs for non-responsive participants rather than, as required, payment to PBGC’s Missing Participants program; premature distributions (after the notice of intent to terminate is issued and before the end of the 60-day period after the filing of the Form 500 with PBGC, or with no standard termination notice or filing); pro rata distributions when plan assets are not sufficient to provide all benefit liabilities; and the absence of spousal consent to alternative forms of distributions. Staff also noted that lump sum windows generally are not typical plan practice, and that a lump sum window shortly before termination would generally be considered “in anticipation of termination” (see 29 CFR § 4044.4(b)), and thus could result in a violation of the Title IV asset allocation rules if all benefit liabilities are not ultimately satisfied.
- Pension De-Risking. PBGC staff addressed annuity “buy-ins” and “buyouts,” noting that a buyout shortly before termination would be considered to be “in anticipation of termination,” as previously described. Staff also noted that small plans often purchase annuities for select participants, and then run short of assets to satisfy other benefit liabilities.
- Missing Participants Experience. PBGC staff noted that, although the Missing Participants program had been expanded in 2018 to include terminating multiemployer plans, defined contribution plans, and non-PBGC covered defined benefit plans, 80% of cases involve PBGC-covered defined benefit plans (with the remainder being mainly defined contribution plans, including Roth and other non-taxable accounts). Staff also said that PBGC continues to find missing information for Roth accounts (g., the split between contributions and investment income, or the contribution dates) and inconsistencies between the total contribution amount and the information regarding the split between contributions and investment income.
- Special Financial Assistance. PBGC staff reported that 78 initial or supplemental applications for SFA had been approved since the advent of the program (covering 574,000 participants and accounting for $47.4 billion in SFA), and that 38 applications, including three supplemental applications, were under review (covering 865,000 participants and, if approved, accounting for $21.4 billion in SFA). Staff also noted that it had returned about half of all applications for resubmission for reasons such as:
- overly aggressive assumptions, including those that anticipated IRS interest rate issuances; those that captured the fourth preceding month where the IRS issuance is made mid-month, see ERISA Section 4262(e)(3); those that included excessive contribution base unit (“CBU”) declines and high inflation (g., 5% per year for 30 years); and those that are inconsistent with other assumptions (such as by treating rehires as new hires with past service grants, thus double counting those liabilities);
- double counted participants (which affects PBGC premium and expense projections), due to an error in commonly used software;
- mathematical errors, such as reversal of signs (+/-);
- failure to pro rate first-year interest, see 29 CFR § 4262.12(a)(2);
- failure to follow model plan amendments; and
- use of obsolete templates.
There were several other issues discussed at the meeting, as detailed in the summary on the ABA’s website. If you are facing PBGC-related issues, you should feel free to contact The Wagner Law Group for assistance.