For Immediate Release
Washington, DC – The ERISA Industry Committee (ERIC), the D.C.-based trade association representing America’s major employers, yesterday submitted comments to the Pension Benefit Guaranty Corporation (PBGC) urging the agency not to finalize proposed regulations on reportable events requirements, but instead to maintain the existing regulations in their current state.
“ERIC understands that the PBGC believes that the current regulations should be revised. However, ERIC believes that the current regulations are appropriate and sufficient to protect the PBGC,” said Kathryn Ricard, ERIC’s Senior Vice President for Retirement Policy.
The PBGC in April 2013 issued proposed regulations under the Employee Retirement Income Security Act (ERISA) that would change the circumstances under which plan administrators must notify the PBGC of the occurrence of certain “reportable events.” The PBGC in November 2009 had previously proposed to increase the reporting requirements by eliminating most reporting waivers currently permitted under the existing regulations, but withdrew the proposal after objections from ERIC and other organizations.
ERIC’s letter argues, among other things, that the PBGC already has the appropriate tools to identify at-risk plans with the existing reportable events rules, and that the Pension Protection Act of 2006 (PPA) is working as intended in protecting the interests of the PBGC and benefits earned by participants.
“The vast amount of information already available to the PBGC should enable it to identify plans for which it will need to negotiate funding improvements, intervene as a creditor, minimize funding shortfalls via involuntary plan termination, and take other protective action,” ERIC’s letter states.
The letter explains that, since the PPA, plan sponsors have been making required minimum contributions to improve their plans’ ERISA funding levels and some have been contributing more than the required minimum amount. ERIC contends that the proposed regulations would instead require plan sponsors to divert a portion of those contributions to pay service providers to help comply with burdensome regulatory requirements without materially enhancing the financial position of the PBGC.
ERIC also expresses concern that the safe harbors for plans and for companies in the proposed regulations are either unworkable or are not useful in their current form. The proposed regulations include safe harbors for plans that are either fully funded on a termination basis or that are 120 percent funded on a premium basis. ERIC explains that most companies do not regularly calculate their plans’ unfunded benefit liabilities on a plan termination basis. Additionally, ERIC notes that the overwhelming majority of plans will not qualify for the premium safe harbor.
The proposed safe harbor for companies would allow them to avoid notifying the PBGC about certain reportable events only if, on the determination date, they met a lengthy list of criteria. ERIC explains that the safe harbor does not properly identify at-risk plans and would cause unnecessary burdens for plan sponsors.
ERIC urges the PBGC to “recognize that the proposed safe harbor for companies—which relies on commercial credit reporting agencies, the absence of secured debt, and net income—is ill-suited for large companies. It will force companies to expend resources and adjust their business practices related to debt, is too unpredictable and is not a useful proxy for the financial soundness of the company as it relates to the risk to the PBGC,” Ricard wrote.
The letter further argues that the PBGC’s safe harbor for companies, as currently structured, is inconsistent with the objectives of the Obama Administration’s Executive Order 13563 to improve the regulatory rulemaking process and would interfere with the way companies conduct their business.
“A company’s compliance with pension regulations should not directly impact unrelated decisions a company makes with its ongoing business concerns. Although we support the mission of the PBGC to ensure compliance with its regulations, we believe that under a true ‘cost-benefit’ analysis, this proposed safe harbor will not meet the standards set in Executive Order 13563,” Ricard said. “These proposed regulations will necessitate a domino of decision-making normally related to pure business endeavors in order to satisfy compliance with a regulatory safe harbor for pension plan administration,” she added.
The letter concludes by noting that the proposed regulations create significant uncertainty for companies and would only put additional stress on the defined benefit system. “As a result [of the proposed regulations], company officers will need to evaluate whether they want to take the risk of having to file future reportable events, the costs that are involved to do so, and the risks to their lending and investment agreements. Given the other uncertainties that already exist for defined benefit plans, more company officers may decide to freeze or no longer have the company sponsor a defined benefit plan,” ERIC says in urging the PBGC not to finalize the proposed regulations.
To access ERIC’s comment letter, click on the link below: