Benefits Byte

May 29, 2014
BB 14—44

In this issue:

  • PBGC Update: Premiums, 4062(e), Multiemployer Regulations
  • Executive Branch Agencies Release Regulatory Agendas

PBGC Update: Council Fighting Back on Premiums, 4062(e) Enforcement; Agency Finalizes Multiemployer Plan Valuation Regulations

The Council continues to advocate for employer sponsors of defined benefit pension plans as these plans face ongoing cost and compliance challenges presented by the Pension Benefit Guaranty Corporation (PBGC).

PBGC Premiums
Lawmakers in Congress continue to contemplate new and additional increases in PBGC premiums paid by defined benefit plan sponsors, to be added to other legislative measures as a federal revenue offset. President Obama's Fiscal Year 2014 budget proposal included $20 billion increase in over ten years (beginning in 2017), on top of prior premium hikes, by giving the PBGC Board of Directors the authority to adjust premiums in both single employer and multiemployer programs.

The matter has arisen most recently in the context of reauthorizing funding for the federal Highway Trust Fund. The 2012 highway legislation, the Moving Ahead for Progress in the 21st Century (MAP-21) Act, included $9 billion in PBGC premium increases, followed by an additional $7.8 billion in increases enacted as part of the late-2013 Bipartisan Budget Act. In an environment where revenue offsets are increasingly difficult to find, lawmakers may be inclined to increase premiums to fund a highway bill yet again. This is particularly true because the current-law budget treatment allows a premium increase to offset general revenue spending, even though it nominally goes to offset PBGC costs. Being able to "double-count" the increase makes it very attractive to many lawmakers.

The PBGC itself has suggested that its self-reported deficit is indicative of a precarious financial position requiring additional premium revenue. The Council has held more than 65 meetings with congressional offices to dispute the PBGC's claims and criticize these repeated, unwarranted increases. A new set of talking points detailing our concerns with the PBGC is now available, describing the PBGC's own faulty and misleading policies. The Council is also preparing a thorough financial analysis of the possible effects of new increases, to be released shortly.

4062(e) Enforcement
The Council also recent met with PBGC officials to discuss the agency's ongoing enforcement action under ERISA Section 4062(e).

Under this provision, if an employer with a pension plan shuts down operations at a facility - and, as a result of that shutdown, more than 20 percent of the employer's employees who are plan participants are separated from employment - the employer is required to provide the PBGC with short-term financial guarantees in the form of a bond or escrow amount based on the plan's unfunded termination liability.

PBGC has in the last few years become very aggressive in its enforcement of this ERISA provision in many respects, giving rise to significant compliance challenges and large unexpected liabilities for many companies that have engaged in normal and often de minimis business transactions (such as the sale of a very small business unit or the consolidation of small operations at different facilities). The Council is extremely concerned that the PBGC's approach demonstrates a basic misinterpretation of the ERISA statute itself by radically re-defining what is a 'cessation of operations' and introducing vast new requirements that were not contemplated by Congress.

The Council hosted a Benefits Briefing webinar on April 24 to discuss the matter in greater detail. (Click here for a digital playback of the session.) Two bills have been introduced to address these issues. Most recently, the USA Retirement Funds Act (S. 1979), sponsored by Senate Health, Education, Labor and Pensions (HELP) Committee Chairman Tom Harkin (D-IA), would impose a two-year moratorium on enforcement of Section 4062(e) to provide an opportunity for the issue to be studied. In 2013, Representative Richard Neal (D-MA) introduced the Retirement Plan Simplification and Enhancement Act of 2013 (H.R. 2117), which would have clarified - consistent with Congress' original intent -- that Section 4062(e) only applies to major downsizing transactions, not routine business transactions. The Council worked extensively with both members' offices and will continue to work with members of Congress, the PBGC's board of directors, and the PBGC's plan sponsor advocate to achieve a resolution to this problem.

Final Multiemployer Plan Valuation Regulations
In related news, PBGC released final regulations on May 28 intended to ease valuation and notice requirements for small, terminated multiemployer plans. The rule is intended "to reduce burden on multiemployer plans and sponsors and to facilitate potentially beneficial plan merger transactions."

The final regulations, which are unchanged from the proposed regulations issued in January,

  • reduces the annual actuarial valuations required for certain small terminated but not insolvent plans to once every three years,
  • shortens the advance notice filing requirements from 120 days to 45 days for mergers in situations that do not involve a compliance determination, and
  • eliminates the requirement to annually update the notice of insolvency.

The rule effectively allows valuations for plans that were terminated by mass withdrawal but are not insolvent (still able to pay all benefits payable during the year) and where the value of nonforfeitable benefits is $25 million or less to be performed every three years instead of annually as required under the current regulations. See the January 28 Benefits Byte for additional details.

As we have previously reported, The multiemployer pension funding provisions of the Pension Protection Act of 2006 (PPA) are scheduled to expire after 2014 and a substantial minority of multiemployer plans are reportedly in so-called "critical" condition. According to the PBGC, which insures multiemployer and single-employer defined benefit pensions, the multiemployer insurance fund is projected to be exhausted by 2023.

For more information on the Council's PBGC activity, contact Lynn Dudley, senior vice president, global retirement and compensation policy, Diann Howland, vice president, legislative affairs, or Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.

Executive Branch Agencies Release Regulatory Agendas

Key regulatory agencies with jurisdiction over U.S. employee benefits policy recently updated their semiannual agendas with topics that are expected to be the subject of formal guidance during the next year. These agencies include:

Of particular note, on the health side, the EEOC intends to issue regulations later this year addressing wellness programs under the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act of 2008 (GINA). On the retirement side, included in a packed slate of proposed and final regulatory projects is the DOL's ongoing effort to re-define "fiduciary" in the context of providing individualized investment advice - with the SEC proceeding on a similar project on a separate track.

While agencies are not bound by their agendas, their publication does provide insight regarding the administration's priorities and the amount of activity expected within the next year. As indicated below, the Council has been actively engaged with respect to almost all of the regulatory projects that have direct applicability to employer plan sponsors. This engagement involves formal written comments, testifying at regulatory agency hearings and other informal communications.

The list categorizes regulatory projects according to whether they are in the proposed rule stage or the final rule stage. Generally, those items slated for "long-term action" do not have a specific timetable for proposal. While the description of each project includes a projected timetable for the issuance of rules or guidance, these timelines are estimates and frequently slip.

Below, we highlight the significant items for employer plan sponsors and service providers.

Treasury & IRS
The following health care policy items are listed on the Treasury/IRS agenda:

The following retirement and compensation policy items are listed on the Treasury/IRS agenda:

In addition to the Spring 2014 regulatory agenda, on April 21 the IRS updated its Third Quarter 2013-2014 Priority Guidance Plan. The above items are included among the 343 regulatory projects to be completed through June 2014, including 45 items addressing retirement benefits (Pages 5-8 of the document) and 30 items addressing executive compensation, health care and other benefits, including items related to implementation of the Patient Protection and Affordable Care Act (PPACA) (Pages 9-12). A number of these items have already been completed, as indicated in the priority plan.

Other issues addressed elsewhere in the priority guidance plan include consolidated returns; corporations and their shareholders; excise taxes; exempt organizations; financial institutions and products; gifts, estates and trusts; insurance companies and products; international issues; partnerships; subchapter S corporations; tax accounting; tax administration; tax-exempt bonds and other general tax issues. An appendix also lists additional routine guidance that is published each year.

The following health care policy items are listed on the DOL/EBSA agenda:

The following retirement and compensation policy items are listed on the DOL/EBSA agenda. Most notably, the agency's ongoing project "to more broadly define as fiduciaries, employee benefits plans, and individual retirement accounts (IRAs) those persons who render investment advice to plans and IRAs for a fee" has been given an expected release date of January 2015. This is a delay from the previous estimate of August 2014.

The following health care policy items are listed on the HHS/CMS agenda:

The following health care policy items are listed on the EEOC agenda:

The following retirement policy items are listed on the PBGC agenda:

The following retirement policy items are listed on the SEC agenda: