The ERISA Industry Committee (ERIC), the Washington, D.C.-based trade association representing America’s major employers, earlier today submitted comments to the Pension Benefit Guaranty Corporation (PBGC) on the agency’s proposed rule to eliminate most of its automatic waivers and filing extensions currently permitted under existing reportable events regulations and guidance. The proposed regulations were published in the Federal Register on November 23, 2009.
Under the Employee Retirement Income Security Act (ERISA), a plan administrator must report specific events concerning the funded status of a defined benefit plan. PBGC contends that many of the current automatic waivers are depriving it of early warning signs that would enable the agency to mitigate distress situations, and is proposing to eliminate automatic waivers for most of the reportable events, and to add two new reportable events, neither of which would be subject to an automatic waiver.
ERIC argues, however, that the proposed regulations are likely to undermine the access of plan sponsors to credit and other financial resources, while doing little to augment the PBGC’s ability to predict financial distress.
“In fact, the proposed regulations are likely to hinder rather than enhance the PBGC’s efforts to monitor the financial health of defined benefit plans and plan sponsors, while unduly burdening plan administrators and sponsors,” says ERIC President Mark Ugoretz.
Ugoretz says that, “In particular, the elimination of the automatic waiver for the existing reportable events, is likely to seriously undermine the financial health of plan sponsors and, therefore, indirectly for plan funding levels. It will also make it less, rather than more, likely, that PBGC will be able to predict financial distress in advance and intervene in a timely fashion.”
ERIC’s letter explains that even plans that are well funded, as well as corporate events involving entities that do not participate in or contribute to the plan, would be subject to the reporting requirements.
In addition, many credit agreements between employers and financial lending institutions provide that the occurrence of a reportable event that is not automatically waived results in an automatic loan default with respect to the outstanding loans, or precludes the employer from receiving additional financing under the existing credit agreement. Eliminating most of the automatic waivers would therefore dramatically increase the likelihood of employer defaults on outstanding loans and lines of credit.
Ugoretz said that the PBGC’s proposal is “an unwarranted interference by a government agency in the credit marketplace and, since the PBGC’s action threatens the ability of a sponsoring enterprise to engage in regular and ordinary business activities, as opposed to companies that don’t sponsor pension plans, is a considerable disincentive to maintain a defined benefit plan.”
ERIC’s comment argued that “[e]mployers that sponsor defined benefit plans — unlike employers that sponsor only defined contribution plans or do not sponsor any qualified plan — would have more difficulty obtaining loans and retaining access to lines of credit that might otherwise be used to maintain and expand existing operations, finance new ventures, and maintain and improve the employer’s financial health. The result would be to diminish, rather than enhance, the ability of defined benefit plan sponsors to adequately fund — as well as to continue to maintain — their pension plans, and to put defined benefit plan sponsors at a serious competitive disadvantage.”
ERIC called on the PBGC to withdraw the proposed regulations or leave the current regulations in place until the agency can engage in a negotiated rulemaking process similar to the process that led to the formulation of the regulations in 1996. The negotiated rulemaking process has already been shown to be an effective means of developing a consensus on the reportable event regulations and is likely to result in a satisfactory balancing of the competing considerations of disclosure, financial security and administrative ease for all parties, including the PBGC.
If the PBGC does not wish to withdraw the regulations or engage in a negotiated rulemaking process, then ERIC requests that the PBGC delay the effective date of the proposed regulations to allow employers sufficient time to renegotiate lending arrangements that rely upon the current waiver provisions and to establish special compliance units to monitor events that might trigger the reporting requirements.
