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Pension Plan Sponsors May Be Subject To New PBGC Coverage Determination Form

Proposed forms for future coverage determination requests would collect information on the four most commonly requested plans, including:

  1. Section 4021(b)(3) church plans,
  2. Section 4021(b)(9) plans which are established and maintained exclusively for the benefit of plan sponsor's substantial owners,
  3. Section 4021(b)(13) plans which are established and maintained by professional services employers and cover 25 or fewer active participants since Sept. 2, 1974, and
  4. Section 1022(I)(1) Puerto Rico-based plans

Currently, covered benefit pension plans are defined as those described in section 4021(a) of ERISA, provided that such a plan is not qualified under one of the exemptions listed in section 4021(b)(1)-(13). The PBGC may determine if a plan is covered when such a question arises.

The PBGC's primary intent in requesting new disclosure forms is to determine whether or not a pension plan is covered by the PBGC insurance program. If the coverage determination is affirmative, then the plan will be subject to PBGC reporting requirements and will also have to pay premiums based on head count and funding levels.

At a basic level, the pursuit of additional plan information is a risk management initiative on the part of the PBGC. The agency is trying to manage liabilities by determining what their premium requirements are in the future.

This is particularly true in the case of Section 4021(b)(3) church plans. Church plans are generally not subject to the Employee Retirement Income Security Act of 1974 (ERISA), although some church plans do qualify. Many charitable organizations are run by churches, and it can be unclear as to whether a corresponding pension or welfare plan is a "church plan." Indeed, church plans have often been the subject of ERISA litigation in recent years.

The PBGC is already dealing with significant funding risks. As reported in the PBGC 2018 Annual Report, the PBGC Single-Employer Program and Multiemployer Program have both operated at a deficit for 15 years or longer. While PBGC's overall net financial position remained in deficit in FY 2018, the Single Employer Program showed improvement. The PBGC Multiemployer Insurance Program continues to face insolvency by the end of fiscal year 2025, with a projected deficit of about $89.5 billion in future dollars. The PBGC estimates that 1.3 participants in 130 multiemployer plans may lose benefits over the next 20 years as their plans become insolvent.

The growing popularity of pension risk transfers is also complicating PBGC efforts to manage its overall risks. Using this technique, fully funded corporate pension plans are being transferred to professional managers based on the purchase of annuities to fund future obligations. When this happens, the pension plan is no longer required to pay PBGC premiums, thereby reducing PBGC future revenues. Many Fortune 500 companies have transferred risk in recent years.

On a related subject, the PBGC also seeks to collect additional data on five reportable items for plans that are covered by a PBGC insurance program. The five events include:

  1. Active participant reduction
  2. Distribution to a substantial owner
  3. Transfer of benefit liabilities
  4. Change in contributing sponsor or controlled group
  5. Extraordinary dividend or stock redemption

This increased reporting initiative also supports PBGC efforts to accurately forecast future assets and liabilities.

Under the Paperwork Reduction Act, the PBGC is seeking the Office of Management and Budget's (OMB) approval to collect certain information over three years. The PBGC says this information is necessary to determine what plans are covered by Title IV of the Employee Retirement Income Security Act of 1974 (ERISA). Any information collected by the PBGC during this process would be confidential as required by the Freedom of Information Act and the Privacy Act.

The PBGC estimates it will collect about 425 forms annually, and that each form would require 20 hours of manpower to review, with only half of that being conducted by plan office time and the other half by outside professionals including lawyers and actuaries. As such, the PBGC estimates an annual cost burden of $1,487,500.

This new request is modified from an earlier request that was published in the Federal Register by the PBGC on December 4, 2018. The PBGC adjusted the originally proposed form and instructions based on comments received, including a modification that allows certain plans not yet in existence to request a coverage determination from the PBGC.

Under the current request, the PBGC will create a pilot program to allow such plans not yet in existence to request a coverage determination as to whether the exemptions under sections 4021(b)(13) and 4021(b)(9) are applicable. Agencies will not be able to collect such information unless it displays a valid OMB control number. Likewise, individuals are not required to respond to such collections unless they display a valid OMB control number.

Public comment on the proposed data collection and methodology were accepted by the PBGC through June 7, 2019. A copy of the request is posted on PBGC's website, in addition to the Federal Register notice.

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