The Pension Benefit Guaranty Corp., in a policy reversal, has agreed to exempt most companies and their pension plans from sweeping “reportable events” requirements first proposed in 2009. This news should be a relief for the many small or financially sound companies with defined benefit plans that had expressed concern about reporting relatively minor business changes to PBGC, even when their risk of pension default was slight.
In an April 3 press release, PBGC said the new proposal would eliminate half the reporting requirements now applicable to financially healthy companies with pension plans. Although only in proposed, and not final, form, plans still have had to comply with these rules or seek waivers not to.
Part 4043 of the Code of Federal Regulations requires that plan administrators and sponsors notify PBGC about a wide range of corporate or plan situations that may signal business problems. The regulation demands notice to PBGC concerning company events including bankruptcies, mergers, spinoffs, liquidations and loan defaults, as well as plan events such as missed contributions, decreases in the number of covered employees, insufficient funds and large payouts.
In what it called a break with past practice, PBGC has scheduled a public hearing June 18 on the 28-page reportable events proposal and ways to help plans avoid unnecessary reporting.
The proposed new rule aims to amending existing regulation to track new legal rules, change the scope of some reportable events and replace the existing waiver structure with one that includes safe harbors that ease reporting burdens, PBGC said in the announcement. The new proposed rule is expected to take effect Jan. 1, 2014.
PBGC said its analysis of the proposed increase in reportable events requirements found that “pension funding levels were a poor measure of actual default risk, and that the financial soundness of the company sponsoring the plan was much more important. Financially sound companies almost never defaulted on their pensions, even if their plans were underfunded.” As reported, PBGC will begin using credit scores, net income, the absence of secured debt and defaults on major loans, and lack of missed pension contributions as criteria for determining financial soundness.
The agency explained it was responding to concerns from plan sponsors about when event reporting can be waived, especially for small businesses; the number of reportable events now in place; and the amount of tracking necessary for the company and the agency to determine whether a reportable event has occurred. It’s also interested in comments on its electronic filing system.
Finding out More
For more information about PBGC reporting requirements, see ¶841 in the Pension Plan Fix-It Handbook.
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