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Plan terminations.

802. What is a "standard termination"?

Under a standard termination, the defined benefit plan is voluntarily terminated by the plan sponsor after it has been determined that, as of the effective date of the termination, the plan has sufficient assets to satisfy the actuarially determined benefits it is obligated to pay to plan participants and beneficiaries.

A standard termination of a single employer defined benefit plan occurs when:

1. The plan administrator provides the 60-day advance notice of intent to terminate (see Q 803) to affected parties;

2. The plan administrator has completed and issued a notice to the PBGC that contains detailed information and a certification prepared by an enrolled actuary (see Q 804);

3. A notice of benefit commitments to be paid is provided to participants and beneficiaries; and

4. The PBGC has not issued a notice of noncompliance to the plan administrator advising the plan that the PBGC has determined that the plan does not have sufficient assets for benefit liabilities, and/or that the PBGC determines that there is reason to believe that the requirements of a standard termination have not been met. (1)

ERISA Section 4001(a)(16) provides that benefit liabilities are "the benefits of their (the plan sponsor's) employees and their beneficiaries under the plan" (within the meaning of IRC Section 401(a)(2)).

Update--New Audit Initiative in Standard Terminations. As part of a new enforcement initiative, PBGC now audits all plans that distribute plan assets in satisfaction of plan benefits before or without filing a standard termination notice (Form 500) in accordance with PBGC's regulations in governing the standard termination process. (1) (PBGC reserves the right to take any other appropriate action in such circumstances.) (2)

803. Who must receive notice when a plan sponsor intends to terminate a defined benefit plan? And what information must such individuals receive?

ERISA Section 4041(a)(2) requires that "not less than 60 days before the proposed termination date of a standard termination ... the plan administrator shall provide each affected party a written notice of intent to terminate stating that such termination is intended and the proposed termination date." This is commonly referred to as the "60-Day Notice of Intent to Terminate," and it may not be provided more than 90 days before the proposed termination date, although the PBGC may consider the notice to be timely filed if it was early by a de minimis number of days and the PBGC finds that the early issuance was the result of an administrative error. If, after the proposed termination date, an individual becomes the beneficiary of a deceased participant or an alternate payee under a QDRO, the notice must also be provided to that individual. The notice must include a statement indicating how the participant or beneficiary can obtain a copy of the plan's summary plan description. (3)

Affected parties are defined as:

1. Each participant in the plan;

2. Each beneficiary of a deceased participant;

3. Each alternate payee under an applicable qualified domestic relations order;

4. Each employee organization that currently represents any group of participants;

5. The employee organization that last represented a group of currently unrepresented employees within the 5-year period preceding the issuance of the notice of intent to terminate; and

6. The PBGC.

The plan administrator shall issue the 60-day notice of intent to terminate to the affected parties by hand delivery or first class mail or courier service to the last known address of the affected parties.4 The following information must be included in the 60-day notice:

1. The name of the plan and the contributing sponsor;

2. The employer identification number ("EIN") and the plan number ("PN");

3. The name, address and telephone number of the person whom an affected party may contact with questions concerning the plan termination;

4. A statement that the plan administrator expects to terminate the plan in a standard termination on a proposed termination date that is either a specific date set forth in the notice or a date that is to be determined upon the occurrence of some future event;

5. The nature of the future event, if the termination date is dependent upon (1) when that event is expected to occur, and (2) when the termination will occur in relation to the event;

6. A statement that benefit and service accruals will continue until the termination date or, if applicable, that benefit accruals have been frozen as of a specific date in accordance with ERISA Section 204(h);

7. A statement that, in order to terminate in a standard termination, plan assets must be sufficient to provide all benefit liabilities under the plan with respect to each participant and each beneficiary of a deceased participant;

8. A statement that, after plan assets have been distributed to provide all benefit liabilities with respect to a participant or a beneficiary of a deceased participant, either by the purchase of an irrevocable commitment or commitments from an insurer to provide benefits, or by an alternative form of distribution provided for under the plan, the PBGC's guarantee with respect to that participant's or beneficiary's benefit ends;

9. If distribution of benefits under the plan may be wholly or partially satisfied by the purchase of irrevocable commitments from an insurer:

(a) The name and address of the insurer(s) from whom the plan administrator intends to purchase the irrevocable commitments; or

(b) If the plan administrator has not identified an insurer or insurers at the time the notice of intent to terminate is issued, a statement that: (i) irrevocable commitments may be purchased from an insurer to provide some or all of the benefits under the plan; (ii) the insurer(s) have not yet been identified; and (iii) affected parties will be notified at a later date (no later than 45 days prior to the distribution date) of the name and address of the insurer(s) from whom the plan administrator intends to purchase the irrevocable commitments;

10. A statement that if the termination does not occur, the plan administrator will notify the affected parties in writing of that fact;

11. A statement that each affected party, other than the PBGC or any employee organization, will receive a written notification of the benefits that the person will receive; and

12. For retirees only, a statement that their monthly (or other periodic) benefit amounts will not be affected by the plan's termination. (1)

Any non-vested or partially vested participant who has been cashed out under the provisions of Internal Revenue Code Section 411(a)(7) and Treasury Regulation [section] 1.411(a)-7(d) is not a participant who must receive a notice of plan benefits. This includes any 0% vested participant who is "deemed" to have been cashed out under the terms of the plan.

804. What other notice requirements are required in a defined benefit plan termination?

The plan administrator must provide a notice to each affected person (as of the proposed termination date) that details the amount of the individual's plan benefits as of the proposed termination date. The notice must include:

1. The age of the participant or beneficiary;

2. The length of service to be credited at termination;

3. Actuarial assumptions used in calculating benefits (including the applicable interest rate);

4. The wages at the time of termination; and

5. Any other information that the PBGC may require.

This notice must be provided no later than the date on which the 60-day notice of intent to terminate has been provided to the PBGC. (1)

In addition, ERISA Section 4041(b)(2)(A) requires the plan administrator to file PBGC Form 500, "Standard Termination Notice Single-Employer Plan Termination," no later than 180 days after the proposed date of termination. Form 500 must be filed with the PBGC. In addition, an enrolled actuary must certify: (1) the projected amount of assets of the plan; (2) the actuarial present value of the benefit liabilities; and (3) that the plan is projected to be sufficient (as of the proposed date of final distribution) for such benefit liabilities. The enrolled actuary must submit this information on Schedule EA-S, "Standard Termination Certification of Sufficiency," which is attached to Form 500. The Notice is considered filed with the PBGC as of the date of the mailing, provided that there is evidence of a postmark. If the notice is made through a private delivery service, the date of filing is generally the date of deposit with the delivery service so long as the PBCG receives it within two business days. If the filing is done electronically, the date of filing is generally the date of the electronic transmission to the PBGC. Any information deemed received on a weekend, federal holiday or after 5:00 p.m. on a business day, is considered filed on the next regular business day. (2)

PBGC has issued a final rule for computing liability when employers with underfunded pension plans close down a facility and lay off a significant percentage of their workforce. The final rule adopts the proposed rule without substantive changes, and provides an illustrative example. The regulations are effective for "Section 4062(e) events" occurring on or after July 17, 2006.

805. What is a distress termination?

A distress termination occurs when a defined benefit plan does not have sufficient assets to satisfy the benefit obligations owed to participants and beneficiaries. To voluntarily terminate a defined benefit plan under a distress termination, one of the following conditions must be satisfied:

1. The plan sponsor is in liquidation or bankruptcy proceedings due to insolvency;

2. The plan sponsor is undergoing reorganization in bankruptcy or insolvency proceedings;

3. Termination of the defined benefit plan is required in order to allow the plan sponsor to service the payment of debts while staying in business; or

4. Termination of the defined benefit plan is required in order to allow the plan sponsor to avoid unreasonably burdensome pension costs caused by a declining workforce. (1)

Under a distress termination of a single employer plan, the plan administrator must provide a 60day notice of intent to terminate to all affected parties, which includes the proposed termination date.2 In addition, the plan administrator must provide to the PBGC the following information from a certified enrolled actuary:

1. The amount of the current value of plan assets;

2. The actuarial present value of the benefit liabilities under the plan; and

3. The actuarial present value of benefits under the plan that are guaranteed by the PBGC. (3)

When the determination has been made that plan assets are not sufficient to satisfy benefit obligations, the PBGC must be provided with:

1. The name and address of each participant and beneficiary under the plan;

2. Any additional information required by the PBGC in order for them to make guaranteed payments to participants and beneficiaries; and

3. Certification by the plan administrator that the information on which the enrolled actuary based his certifications is accurate and complete, and all other information provided to the PBGC is accurate and complete. (4)

806. What are the PBGC proposed regulations on providing information to affected parties in distress or PBGC-initiated plan terminations?

Section 506 of the Pension Protection Act of 2006 (PPA) amended ERISA Sections 4041 and 4042 to add disclosure provisions for distress or PBGC-initiated terminations.These provisions allow an affected party to request information related to a plan termination from the plan administrator in the case of a distress termination under ERISA Section 4041 and from the plan administrator, plan sponsor, and PBGC in the case of a termination under ERISA Section 4042. (1)

"Affected party" is defined in ERISA Section4001 (a)(21) to include each participant in the plan, each beneficiary under the plan, each employee organization representing plan participants, and PBGC.

These rules require the plan administrator to provide, upon request, to affected parties information it has submitted to PBGC no later than 15 days after the receipt of a request for the information from the affected party, of the provision of new information to the PBGC relating to an earlier request.

The new rule also provides a confidentiality provision that allows a court to limit disclosure of confidential information to an authorized representative.

Regarding PBGC-initiated terminations, the rules require that following receipt by the plan administrator of a Notice of Determination, the plan sponsor, plan administrator, and PBGC must provide information related to the termination to an affected party upon request. The plan sponsor or plan administrator must, not later than 15 days after receipt of a request, provide copies of any information it provided to PBGC in connection with the termination. PBGC must, not later than 15 days after receipt of a request, provide a copy of the administrative record, including the trusteeship decision record. The confidentiality provision provided for in a distress-termination also applies under the new rules to a PBGC initiated termination.

Information to be Disclosed in Distress Terminations

In a distress termination, ERISA Section 4041(a)(2) requires a plan administrator to provide to each affected party, a notice of intent to terminate containing information as set forth in Section 4041.43 of PBGC's regulation on Termination of Single Employer Plans.

PBGC regulations also require that a separate notice with additional information be filed with PBGC on PBGC Form 600, Distress Termination, Notice of Intent to Terminate. Additional information must be submitted to PBGC at a later date in accordance with section 4041(c)(2) of ERISA and Section 4041.45 of the regulations, if necessary.

"PBGC recognizes that because the statute references only Section 4041(a)(2), which addresses the notice of intent to terminate, it is possible to read Section 4041(c)(2)(D)(i) as requiring that a plan administrator disclose only the Form 600. Such a narrow reading, however, would be at odds with Congress's intent to provide greater disclosure of information submitted to PBGC in connection with a distress termination." Therefore, PBGC's interpretation, as detailed in the proposed regulations, require that a request for this information must:

1. Be made in writing to the plan administrator;

2. State the name of the plan and that the request is for information submitted to PBGC with respect to the application for a distress termination of the plan;

3. State the name of the person making the request, the person's relationship to the plan, and that that relationship meets the definition of "affected party"; and

4. Be signed by the person making the request. (1)

In meeting its disclosure obligations, a plan administrator must, under the proposed regulations, provide the information no later than the fifteenth business day after receipt of the request. However, if the Form 600 has not yet been provided to PBGC at that time, the administrator has until the fifteenth business day after providing the Form 600 to PBGC to provide it to the affected party. Similarly, for any additional submission of information to PBGC a plan administrator has until the fifteenth business day after the submission to provide the information to an affected party that has filed a request. (2)

Information to Be Disclosed in PBGC-Initiated Terminations

Where the PBGC initiates a plan termination and has issued notice of such intent, a plan sponsor or plan administrator of a single-employer plan that has received such notice must provide to an affected party any information provided to the PBGC in connection with the plan termination. (3)

Pursuant to the PPA amendments to ERISA Section 4042(c)(3) a plan sponsor or plan administrator has fifteen days following a request for this information to provide it to the requesting party. In addition, PBGC itself must, on request, provide a copy of the administrative record, including the trusteeship decision record, of the terminated plan.

An affected party may file a request for information beginning on the third business day after PBGC has issued notice that the plan should be terminated. (4)

As with distress terminations, the proposed regulations for PBGC initiated terminations mandate any disclosure request for information satisfy the four elements detailed above. (5) The proposed regulations allow 15 business days for providing requested information. (6)

An affected party with respect to the plan covered under the proposed regulations may make a request to PBGC for the administrative record of PBGC's determination that the plan should be terminated. Requests for information from PBGC follow the same procedures with respect to when a request may be filed and the contents of the request. In addition, the proposal requires that the request be sent to PBGC's Disclosure Officer and be prominently identified as an "Administrative Record Request." (7)

Upon receiving the request, the PBGC will promptly notify the plan administrator and plan sponsor that it has received a request for the administrative record and the date by which PBGC will provide it to the affected party. (8)

A plan administrator or plan sponsor that has received notification of a request for the administrative record may seek a court order under which those portions of the administrative record that contain confidential information will be disclosed only to authorized representatives (within the meaning of ERISA Section 4041(c)(2)(D)(iv)) that agree to ensure the confidentiality of such information, and that it will not be disclosed to other affected parties. (1)

In providing that information, PBGC will use measures, including electronic measures, reasonably calculated to ensure actual receipt of the material by the intended recipient. (2)

807. What must a plan sponsor do if the plan does not satisfy the requirements of a distress termination?

If a plan does not satisfy the statutory requirements for a distress termination and there are insufficient assets to satisfy the plan's benefit obligations, the plan sponsor cannot terminate the plan. In order to terminate an underfunded plan, the plan sponsor must provide sufficient assets that would enable the plan to go forward with a standard termination. Otherwise, the plan sponsor must continue the plan. (3)

If the plan sponsor must continue the operation of the plan, the plan may be amended to freeze benefit accruals for current participants and to prohibit the addition of new participants. A frozen plan must continue to be maintained in accordance with current law, including any statutorily required amendments.

808. What benefits are guaranteed by the PBGC?

With certain limitations, the PBGC guarantees the payment of all nonforfeitable benefits under a terminated single employer plan. The limitations restrict the amount of benefits that have been increased through a plan amendment within five years of the termination date. (4)

The guaranteed benefits payable by the PBGC are defined as the amount, as of the date of termination, of a benefit provided under a plan, to the extent that:

1. The benefit is a nonforfeitable benefit;

2. The benefit qualifies as a pension benefit; and

3. The participant is entitled to the benefit. (5)

Qualified pre-retirement survivor annuities "with respect to a participant under a terminated single-employer plan shall not be treated as forfeitable solely because the participant has not died as of the termination date." (6)

Under ERISA Section 4022(b)(3), the amount of monthly benefits guaranteed by the PBGC cannot have an actuarial value that exceeds the actuarial value of a monthly benefit in the form of a life annuity commencing at age 65. This amount will be adjusted on an annual basis to reflect the cost of living. (1)

The PBGC has issued a regulation that increases the maximum value of benefits payable by the PBGC as a lump-sum distribution from $3,500 to $5,000. This rule has been drafted to reflect the recent amendment of ERISA Section 203(e), which specifies the maximum amount that a plan may pay in a single installment without the participant's consent. (2)

If the guaranteed benefit is payable at an age earlier than age 65, the maximum guaranteed benefit will be actuarially reduced based upon the earlier commencement of benefits. (3)

The PBGC will recoup an overpayment in a PBGC trusteed plan if, at any time:

1. PBGC determines that net benefits paid with respect to any participant in a PBGC trusteed plan exceeded the total amount to which the participant (and any beneficiary) was entitled up to that time; and

2. The participant (or beneficiary) is, as of the termination date entitled to receive future benefit payments. (4)

For a participant who dies after the termination date, the PBGC will generally not seek recoupment of overpayments from the participant's estate. (5)

The PBGC issues a news release on an annual basis that provides the cost-of-living adjustment.

For single-employer plans terminated in 2010, the maximum guaranteed monthly benefit is $4,500.00 per month ($54,000 per year) for workers who begin receiving payments from PBGC at age 65. (6) If the benefit starts before age 65, or if there are survivor benefits, the maximum guarantee is less. In some instances, a retiree may receive more than the maximum, such as when the plan has sufficient assets to pay non-guaranteed benefits or when portions of funds are recovered from companies on behalf of trusteed plans. Examples of the maximum guarantee for a single life annuity with no survivor benefits are reported on the Internet at: http://www.pbgc.gov/media/news-archive/2005/pr06-09.html.

The PBGC provides insurance for more than 1,650 defined benefit multiemployer plans. These multiemployer plans provide retirement benefits to more than 9.5 million workers and retirees. Under the multiemployer plan program, the PBGC provides financial assistance to plans that become insolvent. A multiemployer plan is considered insolvent if the plan is unable to pay benefits at least equal to the PBGC guaranteed limits when due. (1)

The Consolidated Appropriations Act, 2001, signed into law December 21, 2000, more than doubled the monthly PBGC multiemployer guarantee under Title IV of ERISA. For multiemployer plans, the monthly PBGC guarantee for plans that have not received PBGC financial assistance within a 1-year period ending on December 21, 2000 is 100% of the first $11 of the monthly benefit accrual rate and 75% of the next $33 for each year of service. For example, a worker with 30 years of service and a benefit accrual rate of $23 per month, the maximum guarantee will be $600 per month, or $7,200 per year. (2) Prior to the amendment, the monthly guarantee equaled a participant's years of service multiplied by 100% of the first $5 of the monthly benefit accrual rate and 75% of the next $15. The prior limit had been in effect since 1980.

809. Will the PBGC guarantee benefits in a plan that the IRS has disqualified?

ERISA Section 4022(b)(6) states that "no benefits accrued under a plan after the date on which the Secretary of the Treasury (the IRS) issues notice that he has determined that any trust which is a part of a plan does not meet the requirements of IRC Section 401(a), or that the plan does not meet the requirements of IRC Section 404(a)(2), are guaranteed under this section unless such determination is erroneous."

Benefits accrued under a plan after the date on which the IRS has disqualified a plan, or after the date of the adoption of an amendment that causes the plan to be disqualified will not be guaranteed by the PBGC. (3)

810. How will a plan amendment affect the PBGC guarantee upon a plan's termination?

ERISA Section 4022(b)(7) provides for a 5-year phase-in of benefits that have been increased through a plan amendment within five years of a defined benefit plan's termination. The formula applied to the phase-in rule is spelled out as follows:

Benefits will be guaranteed to the extent of the greater of:

(1) 20% of the amount guaranteed; or

(2) $20 per month;

multiplied by the number of years (not to exceed five) during which the plan amendment has been in effect.

Benefit increases are defined as "any benefit arising from the adoption of a new plan or an increase in the value of benefits payable arising from an amendment to an existing plan. Such increases include, but are not limited to, a scheduled increase in benefits under a plan or plan amendment, such as a cost of living increase, and any change in plan provisions that advances a participant's or beneficiary's entitlement to a benefit, such as liberalized participation requirements or vesting schedules, reductions in the normal or early retirement age under a plan, and changes in the form of benefit payments." (1)

The definition of years under the phase-in period is each complete 12-month period prior to the plan's termination date. (2)

Any amendments that benefit a substantial owner will be subject to a 30-year phase-in rule. (3) A substantial owner is defined as: (1) any individual who owns the entire interest in an unincorporated trade or business; (2) in the case of a partnership, a partner who owns, directly or indirectly, more than 10% of either the capital interest or the profits interest in such partnership; or (3) in the case of a corporation, owns, directly or indirectly, more than 10% of either the voting stock or all stock of that corporation. (4)

811. Who are "affected parties" in a defined benefit plan termination?

"Affected parties" are those individuals who must receive the various notices that must be provided in the defined benefit plan termination process. An affected party is defined as:

1. Each participant in the plan;

2. Each beneficiary under the plan who is the beneficiary of a deceased participant;

3. Each beneficiary who is an alternate payee under a qualified domestic relations order;

4. Each employee organization currently representing participants in the plan;

5. The Pension Benefits Guaranty Corporation;

6. The employee organization that last represented such a group of participants within the 5-year period preceding the issuance of the Notice of Intent to Terminate; and

7. Any individual identified in writing to receive notice on behalf of an affected party. (5)

812. What is the importance of a defined benefit plan's termination date?

The termination date of a plan is to be determined by the plan sponsor or by the PBGC, depending upon which of the two is terminating the plan. (1) The importance of the plan's termination date is that it is upon that date that certain determinations are made, including:

1. Which rights accrue to which participants;

2. When the plan sponsor's funding obligation ends; (2)

3. The PBGC's obligation for guaranteed benefits; and

4. The plan sponsor's liability for underfunding.

In situations where the plan sponsor has initiated termination proceedings, the notice of intent to terminate must be provided to affected parties at least 60 days before the intended termination date. (3)

813. When will the PBGC initiate a plan termination?

The PBGC may institute proceedings under ERISA Section 4042(a) to terminate a defined benefit plan whenever it has determined that:

1. The plan has not satisfied the minimum funding standards;

2. The plan will be unable to pay benefits when due;

3. A distribution of more than $10,000 was made to a substantial owner in any 24-month period for reasons other than death and, subsequent to such distribution, there remain unfunded vested liabilities; or

4. The possible long-run loss of the corporation with respect to the plan may reasonably be expected to unreasonably increase if the plan is not terminated.

The PBGC will institute termination proceedings in federal court "as soon as practicable" to terminate a single employer plan whenever the PBGC determines that the plan does not have sufficient assets available to pay benefits that are currently due under the terms of the plan. (4)

The PBGC may reinstitute a plan against which it has begun termination proceedings and return the plan to its pre-termination status if the PBGC determines that circumstances have changed. (5) The LTV case prompted the establishment of ERISA Section 4047, which expressly grants the authority of restoration to the PBGC. In the LTV case, the plan sponsor terminated three underfunded defined benefit plans covered by the PBGC. After termination proceedings were instituted by the PBGC, the plan sponsor established new defined benefit plans that were to provide the benefits lost as a result of the PBGC's termination of the initial three plans. In effect, the plan sponsor was attempting to provide the entire amount of guaranteed benefits under the first three plans by shifting the burden for the minimum PBGC guaranteed benefits onto the PBGC and picking up the difference through the subsequent plans. The PBGC protested and attempted to reinstitute the initial three plans to their pre-termination status, thereby leaving the full funding obligation to the plan sponsor. The plan sponsor protested, but the United States Supreme Court sided with the PBGC.

814. What is involved in the final distribution of assets in a defined benefit plan standard termination?

In a standard termination, the PBGC has 60 days within which to issue a notice of noncompliance. The final distribution of assets in a defined benefit plan termination must occur no later than 180 days after the expiration of this 60-day period (assuming the plan has not received a notice of noncompliance). (1) The PBGC and the plan sponsor may jointly extend the 60-day noncompliance notice period by a jointly executed written agreement. (2) Such an extension may be necessary in order for the plan to establish, to the satisfaction of the PBGC, that the plan has sufficient assets to meet benefit obligations and has followed the procedural requirements of a standard termination.

The plan is entitled to an automatic extension of the 180-day distribution period if the plan sponsor:

1. Submits a complete request for a determination letter to the IRS with respect to the plan termination on or before the date when the plan files the standard termination notice (on PBGC Form 500) with the PBGC;

2. Does not receive a determination letter at least 60 days before the expiration of the 180-day period; and

3. On or before the expiration of the 180-day period, notifies the PBGC in writing that an extension of the distribution deadline is required and certifies that the conditions in (1) and (2) have been met. (3)

The PBGC may grant a discretionary extension of the 180-day period if the plan administrator is unable to complete the distribution of plan assets within that time frame. The PBGC will grant a discretionary extension if it is satisfied that the delay in issuing the final distribution of plan assets is not due to the inaction or action of the plan administrator or the plan sponsor, and that the final distribution can be completed by the date requested. (4)

ERISA Section 4041(b)(3) provides that in the final distribution of assets through a standard termination, the plan administrator will:

1. Purchase irrevocable commitments from an issuer to provide all benefit liabilities under the plan; or

2. In accordance with the plan provisions and applicable PBGC regulations, otherwise fully provide all benefit liabilities under the plan, including the transfer of assets for missing participants to the PBGC (see Q 816).

Within 30 days after the final distribution of all assets, the plan administrator shall send notice to the PBGC certifying that the assets of the plan have been distributed in accordance with the provisions of ERISA Section 4041(b)(3)(A).This notice will be provided on PBGC Form 501 "Post Distribution Certification for Standard Termination."

The PBGC may assess a penalty, payable to the PBGC, for a failure to timely file any required notice or other required material information. (1) The amount of this penalty is not to exceed $1,100 for each day for which such failure continues. This has been reduced regarding Form 501 to $25 per day for the first 90 days of delinquency, and $50 per day for each day beyond that. The PBGC may reduce or eliminate the penalty if the plan sponsor demonstrates reasonable cause for the delay. (2)

815. Does the Pension Benefits Guaranty Corporation (PBGC) retain any responsibility for the provision of benefits after the purchase of annuities by a terminating pension plan?

No, PBGC Opinion Letter 91-1 provides that the purchase of an irrevocable annuity contract for the provision of benefits to participants and beneficiaries in connection with the termination of a pension plan ends the PBGC's obligation to guarantee any of the plan's obligations. Therefore, if the insurance company is unable to provide all of the benefits guaranteed under the annuity contract, the PBGC will not assume the obligation to make up the difference. Furthermore, the PBGC has indicated, in Opinion Letter 91-4, that the plan sponsor is not required to make up such difference if it acted in accordance with the provisions of the plan and in accordance with applicable regulations. They further advise that the plan sponsor has an obligation under the fiduciary provisions of Title I of ERISA to act prudently in the selection of the annuity provider.

816. How are the assets of missing participants handled when a defined benefit plan terminates?

In the termination of a defined benefit plan, the plan sponsor is required to complete a "diligent search" to locate all missing participants. (4) A diligent search is one that:

1. Begins not more than six months before notices of intent to terminate are issued and is carried on in such a manner that, if the individual is found, distribution to the individual can reasonably be expected to be made on or before the deemed distribution date (or, in the case of a recently missing participant, on or before the 90th day after the deemed distribution date);

2. Includes an inquiry of plan beneficiaries of the missing participant; and

3. Includes the use of a commercial locator service (without charge to the missing participant, or a reduction of their benefit).1

If a diligent search yields no result, the plan administrator may request the assistance of the IRS in attempting to locate the missing participants. The IRS will forward a letter to the missing participant's last known address on file with the IRS. The IRS will not levy a charge against the plan if there are fewer than 50 participants in the request for them to forward letters. (2)

Under the PBGC's "Missing Participants Program," for standard terminations, if all attempts to locate a missing participant have failed, the sponsor of the terminating plan is to provide the missing participant's benefits through the purchase of an irrevocable commitment from an insurance company (annuity), or provide a payment of the benefits to the PBGC along with "such information and certifications" as the PBGC specifies. (3) The amount of the designated benefit forwarded to the PBGC shall be determined under the detailed rules of the regulations. (4)

The sponsor of a terminating plan with one or more missing participants is required to file Schedule MP with the Post-Distribution Certification and pay over to the PBGC the value of benefits payable to all missing participants for whom the plan did not purchase irrevocable commitments from an insurance company.

Schedule MP includes the information necessary for the PBGC to attempt to identify and locate missing participants and to compute and pay their benefits. The PBGC will attempt to locate any participant whose benefits have been transferred to the PBGC or for whom the terminating defined benefit plan has purchased an irrevocable annuity.

Schedule MP must be filed at the same time as the Post-Distribution Certification. (5) Relief from this deadline is permitted for "late discovered" or "recently missing participants."

If the PBGC locates the missing participant, the PBGC will inform the participant of the identity of the insurer and the relevant annuity policy number, or the PBGC will pay the benefits in accordance with the actuarial assumptions established by the PBGC at the time when the benefits were transferred from the terminating plan and in accordance with the methods of payment established in the terminated plan.

An additional $300 must be paid "as an adjustment for expenses, for each missing participant whose designated benefit without such adjustment would be greater than $5,000." (6)

817. What help is available from the PBGC for former participants attempting to locate vested benefits in plans of former employers?

The PBGC has issued an on-line pamphlet entitled "Finding a Lost Pension" that is designed to assist individuals in tracking down information on pension plans of former employers that might still hold vested benefits on their behalf. The booklet is available for viewing on the Internet at: http://www.pbgc.gov/lostpendl.htm.

818. Who has authority to enforce certain plan terminations in a civil action?

ERISA Section 4070(a) provides that "any person who is with respect to a single employer plan a fiduciary, contributing sponsor, member of a contributing sponsor's controlled group, participant, or beneficiary, and is adversely affected by an act or practice of any party" (other than the PBGC) in violation of certain provisions of ERISA, may bring an action: (1) to enjoin such act or

practice; or (2) to obtain other appropriate equitable relief to redress such violation or to enforce such provision. In order to bring such an action, the violation must be a violation of:

1. The voluntary termination provisions of ERISA Section 4041;

2. The reporting provisions of ERISA Section 4042;

3. The distress termination provisions of ERISA Section 4062;

4. The controlled group withdrawal liability provisions of ERISA Section 4063 and

ERISA Section 4064; or

5. The restriction of transactions to evade liability provisions under ERISA Section 4069.

ERISA Section 4070 does not, however, authorize a civil action against the Secretary of the Treasury (the IRS), the Secretary of Labor, or the PBGC. (1) For civil actions against the PBGC, see Q 821.

A single employer plan may be sued as an entity under ERISA Section 4070. Service of summons, subpoena, or other legal process of a court upon a trustee or an administrator of a single employer plan, in his capacity as trustee or administrator, constitutes service upon the plan. If a plan has not designated an agent for the service of process within its summary plan description, service may be made upon any contributing sponsor. (2)

Any money judgment in an ERISA Section 4070 action against a single employer plan shall be enforceable only against the plan as an entity and not against any other person, unless liability against such person is established in that individual's capacity. (3)

A copy of the complaint or notice of appeal in any action under ERISA Section 4070 shall be served upon the PBGC by certified mail. The PBGC has the right to exercise its discretion to intervene in any action filed under ERISA Section 4070. (4)

Practitioner's Pointer: ERISA Section 4041(b)(3)(B) requires that, within 30 days of the final distribution of plan assets, the plan administrator must send notice to the PBGC that the assets of the plan have been distributed in accordance with the standard termination provisions of ERISA. If the actuary has determined that the plan's trust assets are insufficient to satisfy the plan's benefit obligations, the provisions of ERISA Section 4041(b)(3)(B) allow the plan sponsor to execute a standard termination by contributing the plan's shortfall amount prior to the date of final distribution of plan assets.

Practitioner's Pointer: In issuing the most recent regulations regarding standard termination procedures, the PBGC advises that they intend to conduct post-distribution audits to determine whether these calculations are being made properly. The PBGC says that it is common for them to find errors in their post-distribution audits. The revised forms and packages issued to conform to these new regulations include detailed guidance on calculating lump-sum distributions. (3)

(1.) ERISA Sec. 4041(b).

(1.) 29 CFR Part 4041.

(2.) http://www.pbgc.gov/practitioners/Whats-New/whatsnew/page15560.html.

(3.) PBGC Regs. [subsection] 4041.3(b)(1), 4041.21(a).

(4.) PBGC Reg. [section] 4041.21.

(1.) PBGC Reg. [section] 4041.21(d).

(1.) ERISA Sec. 4041(b)(2)(A); PBGC Reg. [section] 4041.22.

(2.) PBGC Reg. [section] 4041.24.

(1.) ERISA Sec. 4041(c)(2)(B).

(2.) ERISA Sec. 4041(a)(2).

(3.) ERISA Sec. 4041(c)(2)(A)(ii).

(4.) ERISA Secs. 4041(c)(2)(A)(iii), 4041(c)(2)(A)(iv).

(1.) ERISA Secs. 4041(c)(2)(D)(iii), 4042(c)(3)(D).

(1.) PBGC Prop. Reg. [section] 4041.51(a)(2).

(2.) PBGC Prop. Reg. [section] 4041.51(b).

(3.) ERISA Sec. 4042(c)(3)(A)(i).

(4.) PBGC Prop. Reg. [section] 4042.4(a)(2).

(5.) PBGC Prop. Reg. [section] 4042.4(a)(2).

(6.) PBGC Prop. Reg. [section] 4042.4(b).

(7.) PBGC Prop. Reg. [section] 4042.5(a).

(8.) PBGC Prop. Reg. [section] 4042.5(b)(1).

(1.) PBGC Prop. Regs. [subsection] 4042.5(b)(2)(ii)(A), 4042.5(b)(2)(ii)(B).

(2.) PBGC Prop. Regs. [subsection] 4042.5(b)(4), 4041.51, 4042.1 et seq.; 72 Fed. Reg. 68542 (12-5-2007).

(3.) PBGC Regs. [subsection] 4041.41, 4041.47.

(4.) ERISA Secs. 4022(a), 4022(b).

(5.) PBGC Reg. [section] 4022.3.

(6.) ERISA Sec. 4022(e).

(1.) PBGC Reg. [section] 4022.23.

(2.) PBGC Reg. [section] 4022.7(b)(1)(i).

(3.) PBGC Reg. [section] 4022.23.

(4.) PBGC Reg. [section] 4022.81(a).

(5.) Preamble to PBGC Reg. [section] 4022.

(6.) Source: http://www.pbgc.gov/media/key-resources-for-the-press/ content/page13542.html.

(1.) See http://www.pbgc.gov/news/press_releases/2003/pr04_11.htm.

(2.) PBGC Technical Update 00-7 (Dec. 26, 2000).

(3.) PBGC Reg. [section] 4022.27.

(1.) PBGC Reg. [section] 4022.2.

(2.) PBGC Reg. [section] 4022.25(c).

(3.) ERISA Sec. 4022(b)(5)(B); PBGC Reg. [section] 4022.25.

(4.) ERISA Sec. 4022(b)(5)(A).

(5.) ERISA Sec. 4001(a)(21); PBGC Reg. [section] 4001.2.

(1.) ERISA Sec. 4048; H.R. Conf. Rep. No. 93-1280, 93rd Cong. 2nd Sess., 323 (1974) (ERISA Conference Report).

(2.) Audio Fidelity Corp. v. PBGC, 624 F.2d 513 (4th Cir. 1980).

(3.) ERISA Sec. 4041(a)(2).

(4.) ERISA Sec. 4002(a).

(5.) PBGC v. LTV Corp., 496 U.S. 633 (1990).

(1.) ERISA Sec. 4041(b)(2)(D).

(2.) ERISA Sec. 4041(b)(2)(C).

(3.) PBGC Reg. [section] 4041.27(e).

(4.) PBGC Reg. [section] 4041.27(f).

(1.) ERISA Sec. 4071.

(2.) PBGC Statement of Policy, 60 Fed. Reg. 36837 (7-18-95).

(3.) The revised forms and packages are available on the PBGC's homepage at: http://www.pbgc.gov.

(4.) ERISA Sec. 4050(b)(1).

(1.) PBGC Reg. [section] 4050.4.

(2.) Rev. Proc. 94-22, 1994-1 CB 608.

(3.) ERISA Sec. 4050(a).

(4.) PBGC Reg. [section] 4050.5.

(5.) PBGC Reg. [section] 4050.6(a).

(6.) PBGC Reg. [section] 4050.2.

(1.) ERISA Sec. 4301(a).

(2.) ERISA Sec. 4070(b).

(3.) ERISA Sec. 4070(b).

(4.) ERISA Sec. 4070(d).
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Title Annotation:CHAPTER XII: CIVIL COMPLIANCE AND ENFORCEMENT ISSUES
Publication:ERISA Facts
Date:Jan 1, 2010
Words:7152
Previous Article:Pension Benefit Guaranty Corporation.
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