The Pension Benefit Guaranty Corporation (PBGC) recently issued Technical Update 13-1 (the Update) that extends interim guidance for plan years beginning after 2012 for complying with certain reportable event requirements until amended reportable event regulations are issued and become effective.
Under ERISA Section 4043 and the PBGC regulations thereunder, a contributing sponsor or plan administrator of a defined benefit pension plan subject to Title IV of ERISA must notify the PBGC when certain events occur that may indicate a plan funding problem and possible need to terminate the plan. These “reportable events” include failures to make minimum required funding contributions, missed benefit payments and changes in the controlled group of a contributing sponsor. In certain circumstances, these reportable events must be reported to the PBGC before the event occurs (“advance notice”), and in other circumstances the reporting requirement is waived if the plan’s funding level is at or above certain levels. The PBGC’s reportable events regulations provide for waivers and extensions, some of which are based on quantities used in calculating variable-rate plan termination insurance premiums (VRPs) payable by plan sponsors for the plan year in which the event occurs or becomes effective, calculated as of the “testing date” for that year.
After receiving notice of a reportable event, the PBGC may seek more information and will decide whether or not PBGC action is needed. For failures to report when required, the PBGC may assess penalties of up to $1,000 per day.
The Pension Protection Act of 2006 (PPA) modified the way in which VRPs are calculated. Thereafter, pending amendment of the reportable events regulations to conform to and implement the changes to the calculation of VRPs, beginning in 2007 the PBGC has issued a series of technical updates to provide temporary guidance in light of the PPA changes.
In November 2009, the PBGC issued proposed regulations addressing reportable events and their required filings in light of the PPA changes. However, in the Update the PBGC has announced it intends to issue new proposed regulations, although no date was given for when this will occur.
Summary of Extended Interim Guidance
The Update extends interim guidance on the following topics for plan years beginning after 2012:
- Funding-Related Determinations for Reportable Event Waivers, Extensions and Advance Reporting
For certain reportable events, a plan’s funding status will determine whether (i) a reportable event is waived; (ii) the reporting deadline is extended to a later date; or (iii) the reporting is required before the actual event occurs. The Update confirms that the amount of a plan’s unfunded vested benefits and the value of its assets and liabilities used to calculate the VRP for a plan year should be used for determining events occurring during the following year.
For example, under the PBGC regulation at 29 C.F.R. Section 4043.61, a plan sponsor is subject to advance reporting if (i) the plan has vested benefit amounts that exceed the actuarial value of plan assets by more than $50 million; and (ii) the plan has a funded vested percentage of less than 90 percent. In the case of a calendar year plan with a Jan. 1 valuation date, the VRP values determined as of Jan. 1, 2012 (for purposes of determining the 2012 VRP) are also to be used for determining the $50 million threshold and the 90 percent unfunded vested percentage in applying the advance reporting requirements for events in 2013.
- Missed Quarterly Contributions
- Plans with Fewer than 25 Participants
The reportable event for failing to make one or more required quarterly contributions for a year is waived if (i) the plan has fewer than 25 participants for the year; (ii) flat-rate premiums were payable to the PBGC on behalf of the plan for the prior year; and (iii) the failure to make the contributions is not the result of the plan sponsor’s financial inability to make the payment.
- Plans with 25 or More Participants but Fewer than 100 Participants
For plans with 25 or more participants but fewer than 100 participants, the PBGC will consider the reporting requirement satisfied as to a failure to make one or more required quarterly contributions for the current year if (i) flat-rate premiums were payable to the PBGC on behalf of the plan for the prior year; (ii) the failure is not the result of the plan sponsor’s financial inability to make the payment; and (iii) a notice with the following information is filed with the PBGC by the time the first missed quarterly reportable event for the plan year would otherwise be due:
- The name of the plan and the employer identification number and plan number most recently reported for the plan in a PBGC premium filing;
- The date the current year began;
- A statement that a quarterly contribution to the plan for the current year has not been (or will not be) timely made;
- A statement that financial inability to make the contribution is not the reason for not making the contribution;
- The last day for satisfying the minimum funding requirement for the plan for the current year (the final payment date);
- A statement that the filer understands that if the minimum funding requirement for the plan is not satisfied by the final payment date, a reportable event notice must be filed under the reportable events regulation; and
- The name, telephone number and email address of a person (who may be the filer) whom the PBGC may contact for additional information.
Notification must be made either in the manner required for reportable events generally or by e-mail to
The PBGC has needed to provide interim guidance since the proposed regulations were issued because those regulations have not been finalized and will not be finalized in their current form.
In the Update, as it did in the previous technical update providing interim guidance, the PBGC has candidly described the public comment on the 2009 proposed regulations as “generally negative.” This is not surprising, as the proposed regulations would have addressed matters in addition to changes required by the PPA, such as the elimination of longstanding automatic waivers of certain types of reportable transactions.
For example, since 1996, the PBGC regulation at 29 C.F.R. Section 4043.25 has provided that a reportable event occurs when a minimum funding payment to a plan is not made by the due date for the payment, except that notice to the PBGC is waived if the required minimum funding payment is made by the 30th day after its due date. The proposed regulations would have eliminated this automatic waiver as well as automatic waivers in various other instances.
The proposed regulations generated considerable concern because commercial lenders typically incorporate PBGC reportable events into credit agreements as triggers indicating that the borrower’s ability to pay is in question and possibly constituting a default under the loan. The elimination of the waivers could result in defaults occurring even in situations where the creditworthiness of the plan sponsor/borrower remains sound. This explains the PBGC’s comment in the Update, the same as in the interim guidance for 2012, that “[i]n response to the comments and in the spirit of Executive Order 13563 on Improving Regulation and Regulatory Review, PBGC plans to issue a new proposal that will more effectively target troubled plans and sponsors while reducing burden for those that are financially sound.”
Other business transactions may require representations that no reportable event has occurred for which the reporting requirement has not been waived. The elimination of the waivers can thus be problematic in noncredit situations as well.
Pension plan sponsors and administrators need to understand and pay heed to PBGC reportable events, not only for ERISA compliance and avoidance of penalties, but also to avoid defaults under financing arrangements and to avoid misrepresentations in other types of agreements.
For further information on the Update, please contact any of the authors, Robert Cipolla, James McElligott, Jr., and Larry Goldstein, or any other members of the McGuireWoods employee benefits team.