<nobr>Nov 16, 2010</nobr>
ERIC Urges PBGC to Correct Deficiencies in Proposed Regulations on Reduction in Operations
Washington, D.C. -- The ERISA Industry Committee (ERIC) on November 12 submitted comments to the Pension Benefit Guaranty Corporation (PBGC) on proposed regulations under section 4062(e) of the Employee Retirement Income Security Act (ERISA) regarding the consequences of a substantial cessation of operations at a facility in any location.
ERIC's comment letter can be accessed by clicking on the link below:
"ERIC is deeply concerned that the proposed regulation is inconsistent with the text and purpose of [section] 4062(e). The proposed regulation would expand the application of [section] 4062(e) to routine events that are far less significant than 'ceas[ing] operations at a facility in any location,'" says ERIC President Mark Ugoretz.
For example, the proposed regulation would reach operational changes within an ongoing facility, and the relocation or sale of an ongoing operation. ERIC argues that such an expansion would have the effect of overriding the reporting waivers for many events covered by section 4043 of ERISA.
As a result, the proposed regulation sweeps in otherwise routine events that would not in any way impose a threat to the PBGC but would force an employer to increase their plan funding even though their liabilities have not in fact increased or do not impose a risk to the PBGC.
The PBGC on August 10, 2010, released the proposed rules on the application and enforcement of employer liabilities and reporting requirements under section 4062(e) when a single-employer sponsor of a defined benefit plan "substantially" reduces its operations.
ERIC urged the agency to withdraw the current proposed regulation and issue a new proposal that corrects deficiencies outlined in ERIC's comment letter.
"In addition, because the [section] 4062(e) liability is calculated using the PBGC's termination assumptions (rather than ERISA's funding assumptions), expanding the application of [section] 4062(e) would require many employers to make contributions far in excess of what ERISA generally requires; this undermines ERISA's detailed and highly reticulated funding rules," Ugoretz says.
ERIC's letter contends that:
- The proposed definitions of "operations," "facility," and "cessation" are inconsistent with the statute, and should be revised to follow the statutory mandate that section 4062(e) does not apply unless a facility closes.
- By stating that the relocation or sale of an ongoing operation triggers the application of section 4062(e), the proposed regulation departs from 34 years of consistent administrative practice.
- The proposed regulation fails to keep within reasonable bounds the circumstances in which an employee's separation from employment would be deemed to occur "as a result" of a cessation of operations at a facility. It allows all employee separations that can be connected by a virtually limitless daisy chain of events to be deemed to result from a cessation of operations at a facility at the beginning of the chain.
- The proposed regulation fails to address the special but commonplace circumstances of frozen plans.
- The proposed regulation fails to include a reasonable exemption for well-funded plans.
"ERIC appreciates that the PBGC may waive the [section] 4062(e) liability in appropriate circumstances. However, in order to ensure reasonably consistent results and to ease the burden on employers and the PBGC in cases involving insignificant events, the regulation should include safe harbor standards under which waiver or reduced liability is automatic," Ugoretz further urges.
For more information:
The ERISA Industry Committee
1400 L Street, NW, Suite 350
Washington, DC 20005
Phone: (202) 789-1400
Fax: (202) 789-1120
ERIC Comment Letter
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