May 29, 2014
- PBGC Update: Council Fighting Back on Premiums, 4062(e) Enforcement; Agency Finalizes Multiemployer Plan Valuation 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 advocatefor employer sponsors of defined benefit pension plans as these plans face ongoing cost and compliance challenges presented by the Pension Benefit Guaranty Corporation (PBGC).
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.
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:
- U.S. Treasury Department (Treasury) and Internal Revenue Service (IRS)
- U.S. Department of Labor (DOL) and Employee Benefit Security Administration (EBSA)
- Health and Human Services Department (HHS) and Centers for Medicare and Medicaid Services (CMS)
- Equal Employment Opportunity Commission (EEOC)
- Pension Benefit Guaranty Corporation (PBGC)
- Securities and Exchange Commission (SEC)
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.
The following health care policy items are listed on the Treasury/IRS agenda:
- Minimum value of employer sponsored coverage (final rule stage, final action scheduled for December 2014)
- Information reporting relating to affordable insurance exchanges (final rule stage, final action scheduled for December 2014)
- Proposed regulations were issued in July 2013.
- Health insurance premium tax credit rules for determining whether health coverage under an employer-sponsored plan is affordable for individuals (spouses or dependents) who are eligible to enroll in the plan by reason of their relationship to an employee (related individuals) (final rule stage, final regulations scheduled for December 2014)
- Proposed regulations were issued in August 2011.
- Guidance on employer contributions to health savings accounts (HSAs) and the interaction between the section 4980G comparability rules and section 125 nondiscrimination rules in instances where not all of the employer's employees contribute to an HSA through a cafeteria plan. (proposed rule stage, proposed regulations scheduled for December 2014)
- Cafeteria plan rules (including employee welfare benefit plans allowing employees to choose between taxable benefits and nontaxable benefits) (final rule stage, final action scheduled for December 2014)
- Proposed regulations were issued in August 2007.
- Additional permitted election changes for cafeteria plans (proposed rule stage, proposed regulations scheduled for December 2014)
- Guidance under tax code Section 125 regarding the use of contributions or benefits under a health flexible spending account in a subsequent plan year or period of coverage (proposed rule stage, proposed regulations scheduled for December 2014)
- Medical and accident insurance benefits under qualified plans (final rule stage, final action scheduled for July 2014)
- Proposed regulations were issued in August 2007.
- Reporting of minimal essential health insurance coverage (proposed rule stage, proposed regulations scheduled for December 2014)
- Amendments to the regulations regarding excepted benefits to incorporate Employee Assistance Programs and “wraparound coverage,” as directed under HIPAA and the Patient Protection and Affordable Care Act (PPACA) (proposed rule stage, agency currently analyzing comments)
- Enhancements to existing HIPAA portability regulations (tolling the running of certain time periods in certain circumstances, clarifying the procedures for requesting special enrollment, addressing how the HIPAA portability requirements apply to individuals taking leave under the Family and Medical Leave Act and prescribing how to count the number of employees an employer has) (final rule stage, final action scheduled for December 2014)
- Proposed regulations were issued in December 2004.
- Guidance on the application of tax code Section 162(m)(6), which limits the allowable deduction for remuneration for services provided by individuals to certain health insurance providers (final rule stage, final action scheduled for December 2014)
- Proposed regulations were issued in April 2013.
- Clarification of the orientation period permitted under the 90-day waiting period limitation under Section 2708 of the Public Health Service Act, as added by PPACA (final rule stage, final action scheduled for December 2014)
The following retirement and compensation policy items are listed on the Treasury/IRS agenda:
- Employee retirement benefit plan returns required on magnetic media (i.e., electronic disclosure) (final rule stage, final action scheduled for June 2013)
- Removal of rollover allocation rule from designated Roth regulations, possibly addressing the divided distribution issue raised by the safe harbor notice under tax code Section 402(f) (proposed rule stage, proposed regulations scheduled for July 2014)
- The Council has communicated with Treasury and IRS extensively, requesting clarification on the interaction of rollovers divided between more than one IRA under tax code Section 402(c)(2) and the 402(f) notice requirements. This rulemaking project may be an attempt to provide such clarity.
- Transition rules relating to the market rate of return requirements for statutory hybrid plans, permitting a defined benefit plan with an interest crediting rate that is not permitted under the final hybrid plan regulations to change to an allowable rate that does not violate the anti-cutback rules of tax code Section 411(d)(6) (proposed rule stage, proposed regulations scheduled for July 2014)
- Additional rules regarding hybrid retirement plans under the Pension Protection Act (PPA) of 2006 (final rule stage, final action scheduled for December 2014)
- Reporting and notice requirements for deferred vested benefits under tax code Section 6057, formally designating the Form 8955-SSA as the form used to satisfy the relevant reporting requirements of the former "Schedule SSA" (final rule stage, final action scheduled for June 2014)
- Modifications to minimum present value requirements for defined benefit plan distributions, allowing defined benefit plans to simplify the treatment of certain optional forms of benefit that are paid partly in the form of an annuity and partly in a more accelerated form (final rule stage, final action scheduled for June 2014)
- Additional rules regarding the determination of plan assets and benefit liabilities for purposes of pension plan funding and benefit restrictions for certain underfunded defined benefit pension plans (proposed rule stage, proposed regulations scheduled for July 2014)
- Accrual rules for defined benefit plans in cases where plan benefits are determined on the basis of the greater of two or more separate formulas (final rule stage, final action scheduled for December 2014)
- The Council communicated with Treasury/IRS numerous times before the issuance of proposed regulations in June 2008.
- Update to minimum present value requirements for defined benefit plan distributions (proposed rule stage, proposed regulations scheduled for June 2014)
- Application of tax code Section 409A to nonqualified deferred compensation plans (proposed rule stage, proposed regulations scheduled for December 2014) and further guidance on the application of tax code Section 409A to nonqualified deferred compensation plans (final rule stage, final action scheduled for December 2014)
- The Council has worked extensively on this issue and prepared numerous comment letters to supplement our conversations with agency officials.
- Notice to participants of consequences of failing to defer receipt of qualified retirement plan distributions and expansions of applicable election period and period for notices (final rule stage, final action planned for July 2014)
- Certain employee remuneration in excess of $1,000,000 under tax code Section 162(m) (final rule stage, final action scheduled for December 2014)
- Proposed regulations were issued in June 2011.
- Compensation deferred under eligible deferred compensation plans, specifically relating to the definitions of a bona fide severance pay plan (proposed rule stage, proposed regulations scheduled for December 2014)
- Contributions of an employer under a plan that does not meet the requirements of section 401(a) and application of tax code Section 404(a)(5) (proposed rule stage, proposed regulations scheduled for December 2014)
- Guidance relating to “eligible combined plans” under tax code Section 414(x) (proposed rule stage, proposed regulations scheduled for July 2014)
- Guidance on the determination of minimum required contributions for purposes of the funding requirements applicable to single-employer-defined benefit pension plans (final rule stage, final action scheduled for December 2014)
- Proposed regulations were issued in April 2008.
- Reporting and notice requirements for deferred vested benefits under tax code Section 6057, specifically addressing the replacement of the Schedule SSA with Form 8955-SSA (final rule stage, final action scheduled for June 2014)
- Temporary guidance on FATCA coordination (final rule stage, interim final rule scheduled for December 2014) and permanent guidance with respect to FATCA coordination (proposed rule stage, proposed regulations scheduled for December 2014)
- The Council joined with other organizations on a group letter to IRS regarding the exemption for foreign retirement plans under FATCA.
- Guidance on rules applicable to IRAs under tax code Sections 408 and 408A (long-term action stage, future action to be determined)
- Proposed regulations were initially issued in July 1981.
- Guidance on spousal IRAs, SEPs and IRA technical changes (long-term action stage, future action to be determined)
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:
- Updating of model notices associated with COBRA continuation coverage (proposed rule stage, agency currently collecting comments)
- Proposed regulations were issued on May 2. The Council anticipates filing comments for the July 7 submission deadline.
- Amendments to excepted benefits as amended by PPACA and the Health Insurance Portability and Accountability Act (HIPAA) (proposed rule stage, agency currently analyzing comments)
- Guidance on additional issues related to the 90-day waiting period limitation under Section 2708 of the Public Health Service Act, as added by PPACA (proposed rule stage, agency currently analyzing comments)
- Automatic enrollment in health plans under Section 18A of the Fair Labor Standards Act, as added by PPACA, under which employers with more than 200 full-time employees and who offer enrollment in one or more health benefits plans must automatically enroll new full-time employees in one of the plans offered and to continue enrollment of current employees (long-term action stage, future action to be determined)
- Fee disclosure for welfare plans, setting forth the standards under ERISA Section 408(b)(2) designed to ensure that plan fiduciaries of welfare plans have the information necessary to determine whether an arrangement for services is “reasonable” (long-term action stage, future action to be determined)
- Amendments to the claims procedures under Section 503 of ERISA, designed to strengthen, improve and update the current minimum requirements for internal claims and appeals processes (long-term action stage, future action to be determined)
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.
- Conflict of interest rule-investment advice addressing "fiduciary" definition (proposed rule stage, new proposed regulations scheduled for January 2015)
- DOL/EBSA originally issued proposed regulations in October 2010 intended to protect recipients of investment advice from conflicts of interest and self-dealing by clarifying ERISA's fiduciary standards with respect to the providers of such advice. The proposal would have greatly expanded the definition of a fiduciary (see the October 21, 2010, Benefits Byte). However, in the face of bipartisan congressional criticism and concerns expressed by the Council and other plan sponsor groups, DOL subsequently announced that EBSA would withdraw and re-propose the regulations, including a more vigorous cost analysis, amendments to existing prohibited transaction exemptions (PTEs), one new PTE and an update of DOL Interpretive Bulletin 96-1 (which distinguishes investment education from investment advice). The Council has been in frequent contact with DOL and EBSA officials on this matter, including written comments on the proposed rules in February 2011. The SEC currently has a related long-term project underway.
- Pension benefit statements, addressing PPA benefit statement requirements as well as whether and how the individual benefit statement should present a participant's accrued benefits in a defined contribution plan as a lifetime income stream of payments as well as in the form of an individual account balance (proposed rule stage, proposed regulations scheduled for January 2015)
- Guide or similar requirement for section 408(b)(2) disclosures (proposed rule stage, agency currently collecting comments)
- Proposed regulations were issued on March 12. The Council is preparing written comments for the June 10 submission deadline.
- Annual pension plan funding notice, as required under ERISA, as amended by PPA and the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) (final rule stage, final action scheduled for July 2014)
- Final regulations were issued in November 2010.
- Selection of annuity providers – safe harbor for individual account plans (proposed rule stage, proposed regulations scheduled for January 2015)
- Target date disclosure (proposed rule stage, comment period is scheduled to be re-opened soon)
- The Council filed written comments in January 2011 on the proposed regulations and testified at a joint DOL/SEC hearing on target date funds in June 2009. This project was previously listed as being in the final rule stage but the DOL has elected to gather additional comments on the proposed regulations, likely in conjunction with the SEC which also reopened for comments on a rulemaking project regarding target date funds (see below), which has been delayed.
- Standards for brokerage windows in participant-directed individual account retirement plans (pre-rule stage, formal request for information scheduled to be released soon)
- This project follows on DOL's 2012 issuance of Field Assistance Bulletin (FAB) 2012-02R, revised guidance on issues related to participant- and fiduciary-level retirement plan fee disclosure. The FAB resolved a number of concerns expressed by the Council with regard to DOL's original position on the treatment of brokerage window investments as "designated investment alternatives" (DIAs) (known as the "Q&A 30" issue, corresponding to the original issuance). At that time, the Council had met with senior lawmakers and officials from the Office of Management and Budget (OMB) and provided written comments to DOL and a letter to Phyllis Borzi, Assistant Secretary of Labor for the Employee Benefit Security Administration (EBSA), advocating for immediate withdrawal of the original FAB.
- Guidance for longevity annuity contracts, to comply with the required minimum required distribution rules for qualified plans and IRAs under tax code Section 401(a)(9) (final rule stage, final regulations scheduled for June 2014)
- Definition of “highly compensated employee” under tax code Section 414(q) (final rule stage, final regulations scheduled for December 2014)
- Amendment of the abandoned plan program, designed to facilitate the termination of, and distribution of benefits from, individual account pension plans that have been abandoned by their sponsoring employers (final rule stage, final regulations scheduled for October 2014)
- Proposed regulations were issued in December 2012. At least one focus of the amendments will be consideration of expanding the scope of individuals who can be “qualified termination adminis