<nobr>Aug 11, 2010</nobr>

PBGC Releases Proposed Rule on 20% Reduction in Operations

The Pension Benefit Guaranty Corporation on August 10 released a proposed rule on the application and enforcement of employer liabilities and reporting requirements under section 4062(e) of ERISA when a single-employer sponsor of a defined benefit plan "substantially" reduces its operations.

Substantially reducing workforce is defined as when an employer ceases operations at a facility in any location that causes job losses that affect more than 20% of participants in the employer's defined benefit plan. The PBGC announced that it was working on the rule in May 2009.

Under the proposed regulation, the PBGC would relocate the formula for downsizing liability to a new Subpart B in the regulation on Liability for Termination of Single-Employer Plans (section 4062). Section 4062(e) enforcement provisions would include a continuation of its current investigatory activities, rules for notifying PBGC of section 4062(e) events and requirements for preserving records about events that may qualify as section 4062(e) events. Subpart B would provide waivers under certain circumstances.

Section 4062(e)

The proposed regulations define "active participant base" as a baseline number of active participants to use for purposes of the 20% decline in active participants (for the "substantial reduction" test). If an employer has more than one plan, the 4062(e) formula would apply separately to each plan. The proposed regulation would define the terms "operation" and "facility" to permit a facility to be the site of more than one operation. The proposed rule states that section 4062(e) could apply in cases where "some but not all activity at a facility ceased, if the activity that ceased constituted an operation distinct from other activities in the facility."

"Cessation" would be defined as occurring only if the employer discontinued all significant activity at the facility related to that operation. Section 4062(e) would not apply to involuntary cessation of an operation, for example, due to activities beyond the control of the employer including a strike, sickout or natural disaster.

Enforcement of 4062(e)

The proposed regulations would impose deadlines for employers to respond to PBGC information requests and would require employers to update or correct information submitted to the PBGC that was wrong or outdated. Notice of a section 4062(e) event must be filed with the PBGC within 60 days, which would run from "the later of the cessation date or the date when the number of active participant separations resulting from the cessation exceeds 20% of the active participant base."

The PBGC proposal would not require employers to notify participants that were not employed at the facility experiencing the cessation in active participant base. Liability for a section 4062(e) event is based on a computation of termination liability performed as if the plan had been terminated by the PBGC immediately after the cessation date. Employers would be required to keep records related to section 4062(e) events for five years.

Comments are due to the PBGC by October 12, 2010.

Questions or comments on the proposed regulation should be sent to Kathryn Ricard ( kricard@eric.org ).

Websites:

PBGC Proposed Regulation

DRAFT PBGC Notification Requirements

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