[Federal Register: December 26, 2000 (Volume 65, Number 248)]
[Proposed Rules]
[Page 81456-81465]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26de00-33]
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PENSION BENEFIT GUARANTY CORPORATION
29 CFR Parts 4022, 4022B, 4044
RIN 1212-AA82
PBGC Benefit Payments
AGENCY: Pension Benefit Guaranty Corporation.
ACTION: Proposed rule.
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SUMMARY: The PBGC proposes to amend its regulations to make various
changes in how it pays benefits, including giving participants more
choices of annuity benefit forms, clarifying what it means to be able
to ``retire'' under plan provisions for certain purposes under Title IV
of ERISA, and adding rules on who will get certain payments the PBGC
owes to a participant at the time of death.
DATES: Comments must be received on or before February 26, 2001.
ADDRESSES: Comments may be mailed to the Office of the General Counsel,
Pension Benefit Guaranty Corporation, 1200 K Street, NW., Washington,
DC 20005-4026, or delivered to Suite 340 at the above address. Comments
also may be sent by Internet e-mail to reg.comments@pbgc.gov. Comments
will be available for public inspection at the PBGC's Communications
and Public Affairs Department, Suite 240.
FOR FURTHER INFORMATION CONTACT: Harold J. Ashner, Assistant General
Counsel, or Catherine B. Klion, Attorney, Office of the General
Counsel, PBGC, 1200 K Street, NW., Washington, DC 20005-4026; 202-326-
4024. (For TTY/TDD users, call the Federal relay service toll-free at
1-800-877-8339 and ask to be connected to 202-326-4024.)
SUPPLEMENTARY INFORMATION: The PBGC proposes to amend its regulations
to address several issues under its regulations on Benefits Payable in
Terminated Single-Employer Plans (part 4022), Aggregate Limits on
Guaranteed Benefits (part 4022B), and Allocation of Assets in Single-
Employer Plans (part 4044).
Form of Payment by PBGC
The PBGC pays benefits to participants when an underfunded single-
employer defined benefit plan terminates under Title IV of ERISA and
the PBGC becomes trustee. If a participant's benefit is already in pay
status, the PBGC continues to pay the benefit (subject to the
limitations in Title IV of ERISA) in the form being paid. But for those
participants whose benefits are not yet in pay status, the PBGC pays
non-de minimis benefits (i.e., benefits with a lump-sum value exceeding
$5,000) in the form the plan would have paid in the absence of an
election, typically a joint-and-50% spousal survivor annuity (for
married participants) or a straight-life annuity (for unmarried
participants and married participants who, with spousal consent, waive
the joint-and-survivor annuity). If a married participant dies before
starting to receive benefits from the PBGC, the PBGC pays a qualified
pre-retirement survivor annuity to the participant's spouse. The PBGC
does not pay benefits in lump-sum form except in limited circumstances
(primarily where it cashes out a de minimis benefit).
Many participants would welcome the PBGC's offering them choices of
other annuity benefit forms and allowing them to designate non-spouse
beneficiaries. With today's technology, it is now feasible for the PBGC
to offer a menu of optional forms.
New Benefit Options
The PBGC proposes to revise its benefit payment regulation (part
4022) to provide participants (and beneficiaries) whose benefits are
not yet in pay status with more choices of annuity benefit forms. Under
new Sec. 4022.8, the PBGC would be able to offer the following optional
annuity forms: straight-life annuity, 5-year certain-and-continuous
annuity, 10-year certain-and-continuous annuity, 15-year certain-and-
continuous annuity, joint-and-50%-survivor annuity, joint-and-75%-
survivor annuity, joint-and-100%-survivor annuity, and joint-and-50%-
survivor-``pop-up'' annuity (i.e., an annuity form under which the
participant's benefit ``pops up'' to the unreduced level if the
beneficiary dies before the participant). The PBGC currently intends to
offer all of the specified forms in all plans, regardless of whether a
particular form is available under a particular plan. The PBGC would
have discretion under the regulation to make available other annuity
options. The PBGC anticipates that it would exercise this discretion
only with respect to all plans or a category of plans, not just with
respect to a particular plan.
A participant who is married on the annuity starting date would
need spousal consent to elect any of the optional forms. Either a
married participant (with spousal consent) or an unmarried participant
could designate a non-spouse beneficiary to receive survivor benefits
under any optional joint-life or other annuity form under which
payments may continue after the participant's death (e.g., a 5-year
certain-and-continuous annuity). In the case of a joint-life annuity, a
participant could designate only a natural person (i.e., a living
individual, not an organization or other entity) as a beneficiary.
If a participant designated a much younger non-spouse beneficiary
to receive survivor benefits under a joint-and-survivor annuity, the
value of the survivor benefit might be so large relative to the value
of the entire benefit that the survivor benefit would not be an
``incidental death benefit'' under Treas. Reg. Sec. 1.401.1(b)(1)(i).
If so, the PBGC would not pay the form elected, but would generally
instead offer a modified version of that form (e.g., offer a 46%
survivor annuity instead of the 50% survivor annuity elected) to ensure
that the death benefit would be an ``incidental death benefit.''
Determination of Benefit Amounts
The PBGC would determine the amount of the benefit in an optional
form elected by a participant by first determining the annuity benefit
that it would pay the participant under Title IV of ERISA in the
following form:
If the participant (regardless of marital status)
elected to receive a joint-and-survivor optional form from the PBGC,
the PBGC would start with the joint-and-survivor form that the plan
would have paid to a married participant in the absence of an
election under the plan. (The PBGC would base this starting benefit
on the ages of the participant and of the participant's designated
beneficiary at the annuity starting date.)
If the participant (regardless of marital status)
elected to receive a single-life optional form from the PBGC, the
PBGC would start with the single-life form that the plan would have
paid to an unmarried participant in the absence of an election under
the plan. (For this purpose, a certain-and-continuous annuity is a
single-life form.)
The PBGC would convert this starting benefit to the optional annuity
form the participant or beneficiary chose, using PBGC factors based on:
(1) the GAM-83 unisex mortality table currently specified for minimum
lump sums
[[Page 81457]]
under IRC section 417(e)(3) and ERISA section 205 (see Rev. Rul. 95-6)
(regardless of whether the mortality assumption is later changed under
IRC section 417(e)(3) and ERISA section 205); and (2) a six percent
interest rate.
Because the starting benefit would depend on whether the
participant chose a joint-and-survivor optional form or a single-life
optional form--rather than on whether the participant is married or
unmarried--an unmarried participant who elected to receive a joint-and-
survivor optional form would receive the same subsidy as a married
participant who received a joint-and-survivor form. (This differs from
the situation under the current regulation, where an unmarried
participant does not receive any subsidy included in the form the plan
would have paid, in the absence of an election, to a married
participant.)
Beneficiaries
For simplicity, this discussion refers to benefits the PBGC would
pay to participants. It applies equally to benefits the PBGC would pay
to beneficiaries of participants who die before entering pay status or
to alternate payees with a separate interest under a qualified domestic
relations order, except that such beneficiaries or alternate payees
could elect only an optional single-life annuity form.
Applicability
The PBGC would make the optional benefit forms available for
benefits that are not yet in pay status as of the effective date of the
amendment.
``Earliest PBGC Retirement Date''
The earliest date a participant could ``retire'' under a plan can
have several consequences under Title IV of ERISA:
It can affect whether the participant's benefit is in
priority category 3 in the asset allocation scheme under ERISA
section 4044. (Priority category 3 gives priority to, among others,
participants who could have ``retired'' three years before the
plan's termination date but did not do so). See Application to
Priority Category 3 Benefits.
It governs when the participant is first eligible to be
placed in pay status by the PBGC. See Application to Time of
Payment.
It is used as part of the methodology for determining
the ``expected retirement age'' assumption the PBGC uses to value a
participant's benefit. See Application to Expected Retirement Age
Assumption.
The PBGC's determination of the earliest date a participant could
``retire'' under a plan can affect not only the participant for whom
the determination is made, but other participants, the employer, and
premium payers. Whether an earlier or later date favors a particular
interest depends on the facts and circumstances of the plan
termination.
The PBGC has been making determinations about the earliest date a
participant could ``retire'' under a plan on a case-by-case basis. In
many cases, the issue is straightforward because the plan provides for
early or normal retirement starting at a point (e.g., early retirement
at age 55) that clearly would qualify as retirement. However, because
plan designs have been evolving in recent years, the PBGC anticipates
that case-by-case decision-making in this area will become increasingly
difficult.
A growing number of plans have been offering consensual lump sums
upon separation regardless of age (e.g., at age 23) and are therefore
required to offer a qualified joint-and-survivor annuity commencing
immediately. See Treas. Reg. Sec. 1.417(e)-1(b). Some plans do not use
the word ``retirement,'' even to describe a separation that commonly
would be viewed as a retirement, while other plans specify ``normal
retirement age'' as the age reached after five years of service.
The PBGC does not believe it would be appropriate to determine the
earliest retirement date for PBGC purposes simply by looking at the
availability of a consensual lump sum or immediate annuity or at plan
labels. Doing so would treat any separation that gives rise to the
availability of a consensual lump sum or immediate annuity as if it
were a retirement. Among other things, this would give priority
category 3 status to many participants who are not close to retirement,
thereby significantly diluting priority category 3 protection for those
persons Congress intended to protect.
On the other hand, where a participant is old enough or has enough
service, the PBGC believes that treating a separation as a retirement
would be consistent with the statutory scheme. Thus, it generally would
be appropriate in a plan, such as a cash balance plan, that pays
benefits upon any separation but never treats a separation before
normal retirement age as a retirement, to treat some separations before
normal retirement age as retirements.
To provide guidance and to reduce the need for case-by-case
decision-making, the PBGC proposes to add rules on what it means to
retire under plan provisions for purposes of the termination insurance
program.
Definition
The proposed regulation introduces the concept of the Earliest PBGC
Retirement Date. The Earliest PBGC Retirement Date for a participant
would be the earliest date on which the participant could ``retire''
for certain purposes under Title IV of ERISA. It would distinguish
between a participant who could receive an immediate annuity simply
because he or she separated from service and a participant whose
benefit is payable on account of retirement.
To help explain the Earliest PBGC Retirement Date, this preamble
uses ``earliest annuity date'' to refer to the earliest date under plan
provisions on which the participant could separate from service with
the right to receive an immediate annuity, including where, as
discussed above, an immediate annuity option is required because the
plan provides a consensual lump sum option.
If the ``earliest annuity date'' is on or after the date the
participant reaches age 55, the Earliest PBGC Retirement Date would be
the ``earliest annuity date.'' For example, if the ``earliest annuity
date'' is age 57, the Earliest PBGC Retirement Date would be the date
the participant reaches age 57. However, if the ``earliest annuity
date'' is before the date the participant reaches age 55, the Earliest
PBGC Retirement Date would be the date the participant reaches age 55,
unless the PBGC determines, under a facts and circumstances test, that
the participant could retire on an earlier date. (The PBGC chose age 55
both because it is a common early retirement age for plans and because
separation at age 55 or later is frequently viewed as retirement.)
Under the facts and circumstances test, the PBGC would consider
whether the participant could retire for purposes of ERISA section
4044(a)(3)(B) (which gives priority in the asset allocation upon plan
termination to the benefits of persons who retired or could have
retired three years before the plan's termination date). In making this
determination, the PBGC would look at plan provisions, the age at which
employees customarily retire (under the particular plan or in the
particular company or industry, as appropriate), and all other relevant
considerations. A participant's ability to receive an immediate annuity
upon separation at a particular age or a plan's reference to a
separation from service at a particular age as a ``retirement'' would
not be controlling. However, in no circumstances could the Earliest
PBGC Retirement Date determined under the facts and circumstances be
earlier than the earliest annuity date.
Examples
A plan's normal retirement age is age 65. The plan does
not offer a consensual lump sum or an immediate annuity upon
[[Page 81458]]
separation before normal retirement age. The Earliest PBGC
Retirement Date for a participant would be the date the participant
reaches age 65.
A plan's normal retirement age is age 65. The plan
specifies an early retirement age of 60 but offers an immediate
annuity upon separation regardless of age. The Earliest PBGC
Retirement Date for a 35-year old participant would be the date the
participant reaches age 55, unless the PBGC determines under the
facts and circumstances that the participant could ``retire'' for
purposes of ERISA section 4044(a)(3)(B) on an earlier date, in which
case the earliest PBGC retirement age would be that earlier date.
A plan's normal retirement age is age 60. The plan
specifies an early retirement age of 50 but offers an immediate
annuity upon separation regardless of age. The Earliest PBGC
Retirement Date for a 35-year-old participant would be the date the
participant reaches age 55, unless the PBGC determines under the
facts and circumstances that the participant could retire for
purposes of ERISA section 4044(a)(3)(B) on an earlier date, in which
case the Earliest PBGC Retirement Date would be that earlier date.
For example, if it were common for participants to retire at age 50,
the PBGC could determine that the Earliest PBGC Retirement Date for
the participant would be the date the participant reaches age 50.
A plan's normal retirement age is age 65. The plan
offers an immediate annuity upon separation regardless of age and a
fully-subsidized annuity upon separation with 30 years of service.
The Earliest PBGC Retirement Date for a 35-year-old participant
would be the date the participant reaches age 55, unless the PBGC
determines under the facts and circumstances that the participant
could retire for purposes of ERISA section 4044(a)(3)(B) on an
earlier date, in which case the Earliest PBGC Retirement Date would
be that earlier date. In this example, the PBGC generally would
determine under the facts and circumstances that a participant could
retire for purposes of ERISA section 4044(a)(3)(B) on the date the
participant becomes eligible for this ``30-and-out'' benefit,
regardless of the participant's age (e.g., the date a 48-year-old
participant who started work at age 18 completes 30 years of
service). If so, that date would be the participant's Earliest PBGC
Retirement Date (if it is before the date the participant reaches
age 55).
Application to Priority Category 3 Benefits
The PBGC would use the Earliest PBGC Retirement Date in determining
what benefits are in priority category 3 of ERISA section 4044. Under
that statutory provision, plan assets available to pay benefits under a
terminated plan are allocated to various priority categories. ERISA
provides that the third priority category, which comes ahead of most
guaranteed benefits, consists of: (1) Annuity benefits that were in pay
status before the beginning of the 3-year period ending on the
termination date, and (2) annuity benefits that would have been in pay
status as of the beginning of the three-year period if the participant
had ``retired'' before the beginning of that 3-year period.
The existing asset allocation regulation (part 4044) describes the
second eligibility test for priority category 3 protection under ERISA
as ``annuity benefits that could have been in pay status for
participants who were eligible to receive annuity benefits'' before the
beginning of the 3-year period. The PBGC's longstanding interpretation
of this language is that it applies only to those annuity benefits that
could have been in pay status before the beginning of the 3-year period
because the participant could have ``retired'' within the usual meaning
of that word. The PBGC proposes to use the Earliest PBGC Retirement
Date for purposes of determining whether a participant could have
retired before the beginning of the 3-year period and thus meets the
second eligibility test for priority category 3 protection.
Applicability: The new definition would apply to benefits in plans
with termination dates on or after the effective date of the amendment.
The PBGC will continue to apply its existing facts and circumstances
test to benefits in plans with termination dates before the effective
date of the amendment.
Application to Time of Payment
Another area where the PBGC proposes to use the Earliest PBGC
Retirement Date would be to determine when participants would first be
able to receive retirement benefits in annuity form from the PBGC.
Under new Sec. 4022.10, the PBGC would make these benefits available
(subject to the PBGC's rules for starting payment of benefits) to a
participant starting on his or her Earliest PBGC Retirement Date or, if
later, on the plan's termination date.
Applicability: The new rules would apply to participants who are
not yet in pay status as of the effective date of the amendment.
Application to Expected Retirement Age Assumption
Finally, the PBGC proposes to use the Earliest PBGC Retirement Date
in determining a participant's ``expected retirement age'' assumption
under the PBGC's valuation regulation (Secs. 4044.55-.57). Under the
current regulation, the expected retirement age assumption and,
therefore, the value of a participant's benefits for purposes of ERISA
section 4044 can depend on the ``earliest age at which the participant
can retire under the terms of the plan'' (see definition of ``earliest
retirement age at valuation date'' in 29 CFR 4044.2). The PBGC proposes
to use the participant's age at his or her Earliest PBGC Retirement
Date as the age at which the participant can retire for this purpose.
Applicability: The new rules would apply to benefits in plans with
termination dates on or after the effective date of the amendment. The
PBGC will continue to apply its existing facts and circumstances test
to benefits in plans with termination dates before the effective date
of the amendment.
Certain Payments Owed Upon Death
When a participant dies, the PBGC occasionally may have paid too
much of the benefit or too little of the benefit that was due the
participant during the participant's life. If the PBGC paid too much,
there is an overpayment owed to the PBGC at the time of the
participant's death. If the PBGC paid too little, there is an
underpayment owed to the participant at the time of the participant's
death. In either case, the PBGC needs to determine not only the amount
of the overpayment or underpayment, but the person(s) it will seek to
collect from or will pay.
For simplicity, this discussion refers to benefits the PBGC owes to
a participant at the time of the participant's death. However, it
applies equally to benefits the PBGC owes to any other person at the
time of that person's death, such as a beneficiary of a deceased
participant or an alternate payee.
Where There Is a Surviving Designated Beneficiary To Receive Future
Annuity Payments
The proposed amendment clarifies that, under the PBGC's recoupment
and reimbursement regulation (subpart E of part 4022), the PBGC will
recoup any overpayment to the participant from the person who is
receiving survivor benefits under any joint-and-survivor or other
annuity form under which payments may continue after the participant's
death. It similarly clarifies that the PBGC will pay any underpayment
due the participant to that same person.
Where There Is No Surviving Designated Beneficiary To Receive
Future Annuity Payments
Under the PBGC's current policy, if the PBGC owes benefits to a
participant at the time of the participant's death and the benefit is
not in the form of a joint-and-survivor or other annuity under which
payments may continue after the participant's death or, although the
benefit is in such a form, the person
[[Page 81459]]
designated to receive survivor benefits predeceased the participant,
the PBGC pays the person(s) designated with the PBGC or by or under the
plan to receive benefits owed to a participant at the time of the
participant's death. If there is no such designation, the PBGC
generally pays those benefits to the participant's estate.
Issuing checks to estates has created difficulties for families of
deceased participants and has complicated the PBGC's efforts to
distribute benefits owed to a deceased participant. The PBGC has found
that, in most cases, the participant has no open estate, usually
because no estate was probated but occasionally because the estate was
closed by the time the PBGC learns of the death and determines the
amount of the underpayment.
To address these difficulties, the PBGC is proposing to add new
rules to its benefit payment regulation (Part 4022) to govern who will
receive benefits owed to a deceased participant where the benefit is
not in the form of a joint-and-survivor or other annuity under which
payments may continue after the participant's death or, although the
benefit is in such a form, the person the participant designated as a
beneficiary to receive survivor benefits predeceased the participant.
The new rules would apply to participant deaths on or after the date
the PBGC becomes trustee of the participant's plan. They would also
apply to benefits owed to participants who die before the trusteeship
date if the plan administrator has not yet paid those benefits.
Under new Subpart F, the PBGC would pay those benefits to the
person(s) the participant designates with the PBGC to receive those
benefits or--if the participant dies within 180 days after the PBGC
becomes trustee of the participant's plan and has not made a
designation with the PBGC--the person(s) designated by or under the
plan. In all other cases, the PBGC would pay those benefits to the
person(s) surviving the participant in the following order: spouse,
children, parents, estate, and next of kin.
The proposed order of payment generally follows the order of
payment for death benefits used by the Thrift Savings Plan (TSP), the
retirement savings plan for federal employees (see 5 USC 8433(e) and
8424(d) and 5 CFR part 1651). However, the PBGC would not be adopting
the TSP rules; rather it would be establishing its own order-of-payment
rules and therefore would be making its own interpretations of those
rules. The PBGC notes that the proposed order of payment generally
conforms to state intestate law and believes, based on its experience,
that it is also generally consistent with typical participant
designations under a plan or will. The PBGC also expects that the
benefit amounts that would be subject to the proposed order of payment
will in most cases be relatively small.
The PBGC intends to provide a form that a participant could use to
designate the person(s) to receive benefits owed to the participant at
the time of the participant's death. A participant would be able to
designate with the PBGC at any time on or after the date of
trusteeship. The PBGC intends to provide the form as soon as
practicable after trusteeship and make information about it available
in newsletters to participants.
Certain-and-Continuous and Similar Benefits
The proposed amendment also addresses situations involving annuity
forms that promise that, regardless of a participant's death, there
will be payments for a certain period of time (e.g., a certain-and-
continuous annuity) or until a certain amount is paid (e.g., a cash-
refund annuity or installment-refund annuity). If a person dies before
receiving all required payments and there is no surviving beneficiary
designated to receive those payments, the PBGC would follow the same
order-of-payment rules as for a deceased participant to whom the PBGC
owes benefits at the time of death.
Under its existing regulation, the PBGC may pay any annuity
benefits payable to an estate in a single installment if the estate so
elects; the PBGC discounts the annuity payments using the immediate
interest rate it uses to calculate lump sums. The PBGC proposes instead
to use the federal mid-term rate. This change is consistent with the
PBGC's change from the immediate interest rate to the federal mid-term
rate for crediting interest for future periods on net underpayments of
benefits under its recoupment and reimbursement regulation (63 Fed.
Reg. 29,353 (May 29, 1998)).
Applicability
The new rules would apply in the case of any death on or after the
effective date of the amendment. For deaths before the effective date
of the amendment, the PBGC would continue to follow its current rules.
Entitlement Conditions Met on Termination Date
Under the existing benefit payment regulation (part 4022),
entitlement to benefits often depends on whether certain conditions
have been met before the plan's termination date. The PBGC proposes to
amend the regulation to provide for entitlement also where plan
conditions relating to age, length of service, disability, or death are
met on the plan's termination date. Under the existing regulation, the
PBGC may find entitlement in such circumstances by exercising its
discretion under Sec. 4022.4(b) and has done so in a number of cases.
Because there is virtually no risk of abuse resulting from manipulation
of these events, the PBGC is amending the regulation to provide for
entitlement in all such cases.
The PBGC also proposes to make several related changes so that
other determinations affecting guaranteed benefits take into account
conditions through and including a plan's termination date: (1) An
annuity payable under the terms of the plan on account of the total and
permanent disability of a participant will be considered to be a
``pension benefit'' (and thus eligible to be guaranteed) in the case of
a disability that began on or before the plan's termination date; (2)
in applying the ``accrued-at-normal'' limitation (i.e., the limitation
on guaranteed benefits to the dollar amount payable as a straight-life
annuity commencing at normal retirement age), the PBGC will take into
account a participant's credited service through and including the
plan's termination date; and (3) the accrued-at-normal limitation will
not apply to a survivor benefit payable as an annuity on account of the
death of a participant that occurred before the participant retired and
on or before the plan's termination date.
Applicability
The new rules would apply to benefits in any plan with a
termination date on or after the effective date of the amendment. For
benefits in plans with termination dates before the effective date of
the amendment, the PBGC would continue to follow its current rules.
Aggregate Limits on Guaranteed Benefits
The PBGC proposes to amend its regulation on Aggregate Limits on
Guaranteed Benefits (part 4022B). Under the current regulation, the
PBGC aggregates benefits when applying the limitation on guaranteed
benefits in Sec. 4022.22(b) in three ways: (1) It aggregates a person's
benefits under two or more plans, (2) it aggregates a person's benefits
with respect to two or more participants, and (3) it aggregates
benefits with respect to one participant
[[Page 81460]]
when more than one person is entitled to receive a benefit with respect
to that participant.
Under this amendment the PBGC would not aggregate benefits with
respect to two or more participants (the second type of aggregation in
the previous paragraph) when applying this limitation. For example,
suppose a participant is entitled to a $2,500 monthly benefit in her
own right and another $1,000 survivor benefit with respect to her
deceased husband who was covered under the same plan (or another PBGC-
trusteed plan). Assume for simplicity the maximum guaranteeable monthly
benefit is $3,000. Under the current rule, the participant's total
benefit would be limited to a monthly benefit of $3,000. Under the
amendment, the participant would be entitled to the full $3,500
benefit.
(Under Sec. 4022.22 of this chapter, the PBGC will continue to
aggregate benefits with respect to one participant when more than one
person is entitled to receive a benefit with respect to that
participant.)
Applicability
The new rules would apply to benefit determinations that become
effective on or after the effective date of the final rule.
Miscellaneous
The amendment also makes conforming, clarifying, and editorial
changes to the existing regulations. For example, the amendment
clarifies that:
For purposes of phasing in the guarantee of benefit
increases, each complete 12-month period ending on or before the
termination date during which such benefit increase was in effect
constitutes a year. The amendment makes similar conforming changes
to the rules governing what benefits are in priority category 3.
In determining whether it may pay a benefit in a lump
sum, the PBGC may apply the $5,000 threshold to an estimated benefit
and, in certain circumstances, to a portion of a benefit that
remains to be paid.
Paperwork Reduction Act
The PBGC is submitting the information requirements contained in
this proposed rule to the Office of Management and Budget for review
and approval under the Paperwork Reduction Act of 1995. Persons may
obtain copies of the PBGC's request free of charge by contacting the
PBGC Communications and Public Affairs Department, suite 240, 1200 K
Street, NW., Washington, DC 20005, 202-326-4020.
The proposed rule makes clear that the PBGC is not required to
accept any application for benefits not made in accordance with its
forms and instructions. The existing benefit application forms and
instructions were approved through November 30, 2002, under control
number 1212-0055 (Locating and Paying Participants). The PBGC has made
changes (related to the proposed rule) in the existing forms and
instructions.
The PBGC needs the information required to be submitted to enable
it to pay benefits to participants and beneficiaries in plans covered
by the PBGC insurance program.
The PBGC estimates that 71,250 benefit application or information
forms will be filed annually by individuals entitled to benefits from
the PBGC and that the associated burden is 46,250 hours (an average of
slightly less than 40 minutes per individual) and $24,225. The PBGC
further estimates that 5,500 individuals annually will provide the PBGC
with identifying information as part of an initial contact under the
PBGC's Pension Search program and that the associated burden is 1,500
hours (an average of about 15 minutes per individual) and $1,020. Thus,
the total estimated annual burden associated with this collection of
information is 47,750 hours and $25,245.
Comments on the paperwork provisions under this proposed rule
should be mailed to the Office of Information and Regulatory Affairs,
Office of Management and Budget, Attention: Desk Officer for the
Pension Benefit Guaranty Corporation, Washington, DC 20503. Comments
may address (among other things)--
Whether the proposed collection of information is
needed for the proper performance of the PBGC's functions and will
have practical utility;
The accuracy of the PBGC's estimate of the burden of
the proposed collection of information, including the validity of
the methodology and assumptions used;
Enhancement of the quality, utility, and clarity of the
information to be collected; and
Minimizing the burden of the collection of information
on those who are to respond, including through the use of
appropriate automated, electronic, mechanical, or other
technological collection techniques or other forms of information
technology, e.g., permitting electronic submission of responses.
Compliance With Rulemaking Guidelines
The PBGC has determined that this action is not a ``significant
regulatory action'' under the criteria set forth in Executive Order
12866.
The PBGC certifies under section 605(b) of the Regulatory
Flexibility Act that this proposed rule would not have a significant
economic impact on a substantial number of small entities. Virtually
all of the changes in the proposed rule would affect only the PBGC and
persons who receive benefits from the PBGC. The only change that could
affect small entities is the proposed application of the Earliest PBGC
Retirement Date to the ``expected retirement age'' assumption under the
PBGC's valuation regulation. Although this change potentially could
affect employer liability, in most cases, the results of a valuation
would match the results under the PBGC's current regulation. In those
cases where the valuation results would not match, the differences
generally would not be significant. Thus, the change would not have a
significant economic impact on a substantial number of entities of any
size. Accordingly, sections 603 and 604 of the Regulatory Flexibility
Act do not apply.
List of Subjects in 29 CFR Parts 4022, 4022B, and 4044
Pension insurance, Pensions.
For the reasons set forth above, the PBGC proposes to amend parts
4022, 4022B, and 4044 of 29 CFR chapter LX as follows:
PART 4022--BENEFITS PAYABLE IN TERMINATED SINGLE-EMPLOYER PLANS
1. The authority citation for Part 4022 continues to read as
follows:
Authority: 29 U.S.C. 1302, 1322, 1322b, 1341(c)(3)(D), and 1344.
Sec. 4022.4 [Amended]
2. Amend paragraph (a)(3) of Sec. 4022.4 by adding the words ``(or,
in the case of a requirement that a participant attain a particular
age, earn a particular amount of service, become disabled, or die, on
or before the termination date)'' after the words ``Except for a
benefit described in paragraph (a)(2) of this section, before the
termination date'', and the words ``(or, in the case of a requirement
that a participant attain a particular age, earn a particular amount of
service, become disabled, or die, prior to or on such date)'' after the
words ``the right to receive the benefit prior to such date''.
Sec. 4022.6 [Amended]
3. Amend paragraph (a) of Sec. 4022.6 by adding the words ``on or''
before the words ``before the termination date''.
Sec. 4022.7 [Amended]
4. Amend Sec. 4022.7 by revising paragraphs (b)(1)(i), (b)(1)(ii),
(b)(1)(iv), and (d), and republishing the introductory text of
paragraph (b)(1) to read as follows:
[[Page 81461]]
(b)(1) Payment in lump sum. Notwithstanding paragraph (a) of this
section:
(i) In general. If the lump sum value of a benefit (or of an
estimated benefit) payable by the PBGC is $5,000 or less and the
benefit is not yet in pay status, the benefit (or estimated benefit)
may be paid in a lump sum.
(ii) Annuity option. If the PBGC would otherwise make a lump sum
payment in accordance with paragraphs (b)(1)(i) and the monthly benefit
(or the estimated monthly benefit) is equal to or greater than $25 (at
normal retirement age and in the normal form for an unmarried
participant), the PBGC will provide the option to receive the benefit
in the form of an annuity.
(iii) Election of QPSA lump sum. If the lump sum value of a
qualified preretirement survivor annuity (or of an estimated qualified
preretirement survivor annuity) is $5,000 or less, the benefit is not
yet in pay status, and the participant dies after the termination date,
the benefit (or estimated benefit) may be paid in a lump sum if so
elected by the surviving spouse.
(iv) Payments to estates. The PBGC may pay any annuity payments
payable to an estate in a single installment without regard to the
threshold in paragraph (b)(1)(i) of this section if so elected by the
estate. The PBGC will discount the annuity payments using the federal
mid-term rate (as determined by the Secretary of the Treasury pursuant
to section 1274(d)(1)(C)(ii) of the Code) applicable for the month the
participant died based on monthly compounding.
* * * * *
(d) Determination of lump sum amount. For purposes of paragraph
(b)(1) of this section--
(1) Benefits disregarded. In determining whether the lump-sum value
of a benefit is $5,000 or less, the PBGC may disregard the value of any
benefits the plan or the PBGC previously paid in lump-sum form or the
plan paid by purchasing an annuity contract, the value of any benefits
returned under paragraph (b)(2) of this section, and the value of any
benefits the PBGC has not yet determined under section 4022(c) of
ERISA.
(2) Actuarial assumptions. The PBGC will calculate the lump sum
value of a benefit by valuing the monthly annuity benefits payable in
the form determined under Sec. 4044.51(a) of this chapter and
commencing at the time determined under Sec. 4044.51(b) of this
chapter. The actuarial assumptions used will be those described in
Sec. 4044.52, except that--
(i) Loading for expenses. There will be no adjustment to reflect
the loading for expenses;
(ii) Mortality rates and interest assumptions. The mortality rates
in appendix A to this part and the interest assumptions in appendix B
to this part will apply; and
(iii) Date for determining lump sum value. The date as of which a
lump sum value is calculated is the termination date, except that in
the case of a subsequent insufficiency it is the date described in
section 4062(b)(1)(B) of ERISA.
5. Add Sec. 4022.8 to read as follows:
Sec. 4022.8 Form of payment.
(a) In general. This section applies where benefits are not already
in pay status. Except as provided in Sec. 4022.7 (relating to the
payment of lump sums), the PBGC will pay benefits--
(1) In the automatic PBGC form described in paragraph (b) of this
section; or
(2) If an optional PBGC form described in paragraph (c) of this
section is elected, in that optional form.
(b) Automatic PBGC form.
(1) Married participants. The automatic PBGC form with respect to a
participant who is married at the time the benefit enters pay status is
the form a married participant would be entitled to receive from the
plan in the absence of an election.
(2) Unmarried participants. The automatic PBGC form with respect to
a participant who is unmarried at the time the benefit enters pay
status is the form an unmarried person would be entitled to receive
from the plan in the absence of an election.
(3) QPSA beneficiaries. The automatic PBGC form with respect to the
spouse of a married participant in a plan with a termination date on or
after August 23, 1984, who dies before beginning to receive benefits
from the PBGC is the qualified preretirement survivor annuity such a
spouse would be entitled to receive from the plan in the absence of an
election. The PBGC will not charge the participant or beneficiary for
this survivor benefit coverage for the time period beginning on the
plan's termination date (regardless of whether the plan would have
charged).
(4) Alternate payees. The automatic PBGC form with respect to an
alternate payee with a separate interest under a qualified domestic
relations order is the form an unmarried participant would be entitled
to receive from the plan in the absence of an election.
(c) PBGC optional forms.
(1) Participant and beneficiary elections. A participant may elect
any optional form described in paragraph (c)(4) or (c)(5) of this
section. A beneficiary of a participant who dies before entering pay
status or an alternate payee with a separate interest under a qualified
domestic relations order may elect any optional form described in
paragraph (c)(4) of this section. Once a benefit is in pay status, the
benefit form cannot be changed.
(2) Permitted designees. A participant or beneficiary, whether
married or unmarried, who elects an optional form with a survivor
feature (e.g., a 5-year certain-and-continuous annuity or a joint-and-
50%-survivor annuity) may designate a non-spouse beneficiary to receive
survivor benefits. A non-spouse beneficiary under an optional joint-
life form must be a natural person.
(3) Spousal consent. In the case of a participant who is married at
the time he or she enters pay status, the election of an optional form
or designation of a non-spouse beneficiary is valid only if the
participant's spouse consents in writing.
(4) Permitted optional single-life forms. The PBGC may offer
benefits in the following single-life forms:
(i) A straight-life annuity;
(ii) A 5-year certain-and-continuous annuity;
(iii) A 10-year certain-and-continuous annuity; and
(iv) A 15-year certain-and-continuous annuity.
(5) Permitted joint-life forms. The PBGC may offer benefits in the
following joint-life forms:
(i) A joint-and-50%-survivor annuity;
(ii) A joint-and-50%-survivor-``pop-up'' annuity (i.e., where the
participant's benefit ``pops up'' to the unreduced level if the
beneficiary dies first);
(iii) A joint-and-75%-survivor annuity; and
(iv) A joint-and-100%-survivor annuity.
(6) Determination of benefit amount; starting benefit. To determine
the amount of the benefit in a PBGC optional form--
(i) Single-life forms. In the case of a PBGC optional form under
paragraph (c)(4) of this section, the PBGC will first determine the
amount of the benefit in the form the plan would pay to an unmarried
participant in the absence of an election; and
(ii) Joint-life forms. In the case of a PBGC optional form under
paragraph (c)(5) of this section, the PBGC will first determine the
amount of the benefit in the form the plan would pay to a married
participant in the absence of an election. For this purpose, the PBGC
will treat a participant who designates
[[Page 81462]]
a non-spouse beneficiary as being married to a person who is the same
age as that non-spouse beneficiary.
(7) Determination of benefit amount; conversion factors. The PBGC
will convert the benefit amount determined under paragraph (c)(6) of
this section to the optional form elected, using PBGC factors based
on--
(i) Mortality. Unisex mortality rates that are a fixed blend of 50
percent of the male mortality rates and 50 percent of the female
mortality rates from the 1983 Group Annuity Mortality Table as
prescribed in Rev. Rul. 95-6, 1995-1 C.B. 80 (Internal Revenue Service
Cumulative Bulletins are available from the Superintendent of
Documents, Government Printing Office, Washington DC 20402); and
(ii) Interest. An interest rate of six percent.
(8) Incidental benefits. The PBGC will not pay a PBGC optional form
with a death benefit (e.g., a joint-and-50%-survivor annuity) unless
the death benefit would be an ``incidental death benefit'' under 26 CFR
1.401-1(b)(1)(i). If the death benefit would not be an ``incidental
death benefit,'' the PBGC may instead offer a modified version of the
optional form under which the death benefit would be an ``incidental
death benefit.''
(d) PBGC discretion. The PBGC may make other optional annuity forms
available subject to the rules in paragraph (c) of this section.
6. Add Sec. 4022.9 to read as follows:
Sec. 4022.9 Time of payment; benefit applications.
(a) Time of payment. A participant may start receiving an annuity
benefit from the PBGC (subject to the PBGC's rules for starting benefit
payments) on his or her Earliest PBGC Retirement Date as determined
under Sec. 4044.13(b) or, if later, the plan's termination date.
(b) Benefit applications. The PBGC is not required to accept any
application for benefits not made in accordance with its forms and
instructions.
Sec. 4022.21 [Amended]
7. Amend Sec. 4022.21 as follows:
a. In paragraph (a)(2)(i), remove the words ``before the plan
terminates and before the participant retired'' and add in their place
the words ``on or before the plan's termination date and before the
participant retired'';
b. Amend paragraph (d) by removing the words ``benefit payable to
other than natural persons, or a trust or estate'' and adding in their
place the words ``joint life annuity benefit except if it is payable to
or''
Sec. 4022.25 Five-year phase-in of benefit guarantee for participants
other than substantial owners.
8. Amend Sec. 4022.25 by revising paragraphs (c) and (d) as
follows:
* * * * *
(c) Computation of years. In computing the number of years a
benefit increase has been in effect, each complete 12-month period
ending on or before the termination date during which such benefit
increase was in effect constitutes one year.
(d) Multiple benefit increases. In applying the formula contained
in paragraph (b) of this section, multiple benefit increases within any
12-month period ending on or before the termination date and calculated
from that date are aggregated and treated as one benefit increase.
* * * * *
9. Add paragraph (d) to Sec. 4022.81 to read as follows:
Sec. 4022.81 General rules.
* * * * *
(d) Death of participant.
(1) Benefit overpayments. If the PBGC determines that, at the time
of a participant's death, there was a net overpayment to the
participant, and the benefit is in the form of a joint-and-survivor or
other annuity under which payments may continue after the participant's
death, the PBGC, in accordance with paragraph (a) of this section, will
recoup the overpayment from the person who is receiving survivor
benefits.
(2) Benefit underpayments. If the PBGC determines that, at the time
of a participant's death, there was a net underpayment to the
participant--
(i) Surviving designated beneficiary to receive future annuity
payments. If the benefit is in the form of a joint-and-survivor or
other annuity under which payments may continue after the participant's
death, the PBGC will pay the underpayment to the person who is
receiving survivor benefits.
(ii) No surviving designated beneficiary to receive future annuity
payments. If the benefit is not in the form of a joint-and-survivor or
other annuity under which payments may continue after the participant's
death or, although the benefit is in such a form, there is no person
designated to receive survivor benefits or the person designated to
receive survivor benefits predeceased the participant, the PBGC will
pay the underpayment to the person determined under the rules in
subpart F of this part.
10. Add subpart F to part 4022 to read as follows:
Subpart F--Certain Payments Due Upon Death
Sec.
4022.91 When do these rules apply?
4022.92 What definitions do I need to know for these rules?
4022.93 Who will get benefits the PBGC may owe me at the time of my
death?
4022.94 What are the PBGC's rules on designating a person to get
benefits the PBGC may owe me at the time of my death?
4022.95 Whom does the PBGC pay when payments under certain-and-
continuous and similar annuities are owed upon a person's death?
Sec. 4022.91 When do these rules apply?
(a) Benefits we may owe you at the time of your death.
(1) Timing. These rules apply if you die--
(i) On or after the date we take over your plan (as trustee); or
(ii) Before the date we take over your plan, to the extent that, by
that date, the plan administrator has not paid all benefits owed to you
at the time of your death.
(2) Types of benefits. These rules apply to any benefits we may owe
you at the time of your death, such as a payment of a lump-sum benefit
that we calculated as of your plan's termination date but had not yet
paid you or a correction for monthly underpayments.
(3) Benefit form. These rules apply if your benefit is not in the
form of a joint-and-survivor or other annuity under which payments may
continue after your death or, although your benefit is in that form,
the person you designated to receive those payments died before you.
(If any part of your benefit is in that form, and the person you
designated to receive those payments survives you, we will make up any
underpayment to you at the time of your death by paying it to that
person, under the rule in Sec. 4022.81(d)(2)(i) of this part.)
(4) Effect of plan or will. These rules apply regardless of any
contrary provision in a plan or will.
(b) Certain-and-continuous and similar payments. These rules also
apply in certain circumstances to payments we owe when a person dies
without having received all required payments under a ``certain-and-
continuous'' or similar form of annuity. See Sec. 4022.95.
Sec. 4022.92 What definitions do I need to know for these rules?
You need to know three definitions from Sec. 4001.2 of this chapter
(PBGC, person, and plan) and the following definitions:
``We'' means the PBGC.
[[Page 81463]]
``You'' means the person to whom we may owe benefits at the time of
death.
Sec. 4022.93 Who will get benefits the PBGC may owe me at the time of
my death?
(a) In general. Except as provided in paragraphs (b) and (c) of
this section (which explain what happens if you die before the date we
take over your plan or within 180 days after the date we take over your
plan), we will pay any benefits we owe you at the time of your death to
the person(s) surviving you in the following order--
(1) Designee with the PBGC. The person(s) you designated with us to
get any benefits we may owe you at the time of your death. See
Sec. 4022.94 for information on designating with us.
(2) Spouse. Your spouse. We will consider a person to whom you are
married to be your spouse even if you and that person are separated,
unless a decree of divorce or annulment has been entered in a court.
(3) Children. Your children and descendants of your deceased
children. A child includes an adopted child. If one of your children
dies before you, any descendants of that deceased child at the same
level will equally divide that deceased child's share.
(4) Parents. Your parents. A parent includes an adoptive parent.
(5) Estate. Your estate, provided your estate is open and there is
an executor or administrator of your estate at the time we pay those
benefits.
(6) Next of kin. Your next of kin.
(b) Pre-trusteeship deaths. If you die before the date we take over
your plan and, by that date, the plan administrator has not paid all
benefits owed to you at the time of your death, we will pay any
benefits we owe you at the time of your death to the person(s)
designated by or under the plan to get those benefits (provided the
designation clearly applies to those benefits). If there is no such
designation, we will pay those benefits to your spouse, children,
parents, estate, or next of kin under the rules in paragraphs (a)(2)
through (a)(6) of this section.
(c) Deaths shortly after trusteeship. If you die within 180 days
after the date we take over your plan and you have not designated
anyone with the PBGC under paragraph (a)(1) of this section, we will
pay any benefits we owe you at the time of your death to the person(s)
designated by or under the plan to get those benefits (provided the
designation clearly applies to those benefits) before paying those
benefits to your spouse, children, parents, estate, or next of kin
under the rules in paragraphs (a)(2) through (a)(6) of this section.
Sec. 4022.94 What are the PBGC's rules on designating a person to get
benefits the PBGC may owe me at the time of my death?
(a) When you may designate. At any time on or after the date we
take over your plan, you may designate with us who will get any
benefits we owe you at the time of your death.
(b) Information on how you may designate. Shortly after the date we
take over your plan, we will provide you with information on how you
can designate with us. If you want this information earlier, you should
contact us at the PBGC customer service center. You may also want to
contact us for this information if--
(1) We took over your plan before [INSERT FIRST DAY OF MONTH
PRECEDING MONTH OF PUBLICATION OF FINAL RULE IN Federal Register]; or
(2) You believe we might owe you benefits as a designee or payee
under these rules.
(c) Change of designee. If you want to change the person(s) you
designate with us, you must submit another designation to us.
(d) If your designee dies before you.
(1) In general. If the person(s) you designate with us dies before
you or at the same time as you, we will treat you as not having
designated anyone with us (unless you named an alternate designee who
survives you). Therefore, you should keep your designation with us
current.
(2) Simultaneous deaths. If you and a person you designated die as
a result of the same event, we will treat you and that person as having
died at the same time, provided you and that person die within 30 days
of each other.
Sec. 4022.95 Whom does the PBGC pay when payments under certain-and-
continuous and similar annuities are owed upon a person's death?
If a person dies without having received all required payments
under a form of annuity that promises that, regardless of a
participant's death, there will be annuity payments for a certain
period of time (e.g., a certain-and-continuous annuity) or until a
certain amount is paid (e.g., a cash-refund annuity or installment-
refund annuity), and there is no surviving beneficiary designated to
receive such payments, we will pay the remaining benefits to the person
determined under the rules in Secs. 4022.91 through 4022.94.
PART 4022B--AGGREGATE LIMITS ON GUARANTEED BENEFITS
11. The authority citation for part 4022B is added to read as
follows:
Authority: 29 U.S.C. 1302(b)(3), 1322B.
12. Revise Sec. 4022B.1 to read as follows:
Sec. 4022B.1 Aggregate payments limitation.
(a) Benefits with respect to two or more plans. If a person (or
persons) is entitled to benefits payable with respect to one
participant in two or more plans, the aggregate benefits payable by
PBGC from its funds is limited by Sec. 4022.22 of this chapter (without
regard to Sec. 4022.22(a)). The PBGC will determine the limitation as
of the date of the last plan termination.
(b) Benefits with respect to two or more participants. The PBGC
will not aggregate the benefits payable with respect to one participant
with the benefits payable with respect to any other participant (e.g.,
if an individual is entitled to benefits both as a participant and as
the spouse of a deceased participant).
PART 4044--ALLOCATION OF ASSETS IN SINGLE-EMPLOYER PLANS
15. The authority citation for Part 4044 continues to read as
follows:
Authority: 29 U.S.C. 1301(a), 1302(b)(3), 1341, 1344, 1362.
Sec. 4044.2 [Amended]
14. In Sec. 4044.2(b), amend the definition of Earliest retirement
age at valuation date by removing the words ``earliest age at which the
participant can retire under the terms of the plan'' and adding in
their place the words ``participant's attained age as of his or her
Earliest PBGC Retirement Date (as determined under Sec. 4044.13(b) of
this chapter)''.
15. Revise Sec. 4044.13 to read as follows:
Sec. 4044.13 Priority category 3 benefits.
(a) Definition. The benefits in priority category 3 are those
annuity benefits that were in pay status before the beginning of the 3-
year period ending on the termination date, and those annuity benefits
that could have been in pay status for participants who, before the
beginning of the 3-year period ending on the termination date, were
eligible to receive annuity benefits and had reached their Earliest
PBGC Retirement Date (as determined in paragraph (b) of this section
based on plan provisions in effect on the day before the beginning of
the 3-year period ending on the termination date). Benefit increases
that were effective throughout the 5-year period ending on the
termination date, including automatic benefit increases during that
period to the extent provided in paragraph (c)(5)
[[Page 81464]]
of this section, shall be included in determining the priority category
3 benefit. Benefits are primarily basic-type benefits, although
nonbasic-type benefits will be included if any portion of a
participant's priority category 3 benefit is not guaranteeable under
the provisions of subpart A of part 4022 of this chapter.
(b) Earliest PBGC Retirement Date. The Earliest PBGC Retirement
Date for a participant is the earliest date on which the participant
could retire under plan provisions for purposes of section
4044(a)(3)(B) of ERISA. The Earliest PBGC Retirement Date is determined
in accordance with this paragraph (b). For purposes of this paragraph
(b), ``age'' means the participant's age as of his or her last birthday
(unless otherwise required by the context).
(1) Immediate annuity at or after age 55. If the earliest date on
which a participant could separate from service with the right to
receive an immediate annuity is on or after the date the participant
reaches age 55, the Earliest PBGC Retirement Date for the participant
is the earliest date on which the participant could separate from
service with the right to receive an immediate annuity.
(2) Immediate annuity before age 55. If the earliest date on which
a participant could separate from service with the right to receive an
immediate annuity is before the date the participant reaches age 55,
the Earliest PBGC Retirement Date for the participant is the date the
participant reaches age 55 (except as provided in paragraph (b) (3) of
this section).
(3) Facts and circumstances. If a participant could separate from
service with the right to receive an immediate annuity before the date
the participant reaches age 55, the PBGC may determine, under the facts
and circumstances, that the participant could retire under plan
provisions for purposes of section 4044(a)(3)(B) of ERISA on an earlier
date, in which case that earlier date is the Earliest PBGC Retirement
Date for the participant. In making this determination, the PBGC will
take into account plan provisions (e.g., the general structure of the
provisions, the extent to which the benefit is subsidized, and whether
eligibility for the benefit is based on a substantial service or age-
and-service requirement), the age at which employees customarily retire
(under the particular plan or in the particular company or industry, as
appropriate), and all other relevant considerations. Neither a plan's
reference to a separation from service at a particular age as a
``retirement'' nor the ability of a participant to receive an immediate
annuity at a particular age necessarily makes the date the participant
reaches that age the Earliest PBGC Retirement Date for the participant.
The Earliest PBGC Retirement Date determined by the PBGC under this
paragraph (b)(3) will never be earlier than the earliest date the
participant could separate from service and with the right to receive
an immediate annuity.
(4) Special rule for ``window'' provisions. For purposes of this
paragraph (b), the PBGC will treat a participant as having been able,
under plan provisions, to separate from service with the right to
receive an immediate annuity on a date before the plan's termination
date only if eligibility for that immediate annuity continues through
the plan's termination date.
(c) Assigning benefits. The annuity benefit that is assigned to
priority category 3 with respect to each participant is the lowest
annuity that was paid or payable under the rules in paragraphs (c)(2)
through (c)(6) of this section.
(1) Eligibility of participants and beneficiaries. A participant or
beneficiary is eligible for a priority category 3 benefit if either of
the following applies:
(i) The participant's (or beneficiary's) benefit was in pay status
before the beginning of the 3-year period ending on the termination
date.
(ii) Before the beginning of the 3-year period ending on the
termination date, the participant was eligible for an annuity benefit
that could have been in pay status and had reached his or her Earliest
PBGC Retirement Date (as determined in paragraph (b) of this section,
based on plan provisions in effect on the day before the beginning of
the 3-year period ending on the termination date). Whether a
participant was eligible to receive an annuity before the beginning of
the 3-year period shall be determined using the plan provisions in
effect on the day before the beginning of the 3-year period.
(iii) If a participant described in either of the preceding two
paragraphs died during the 3-year period ending on the date of the plan
termination and his or her beneficiary is entitled to an annuity, the
beneficiary is eligible for a priority category 3 benefit.
(2) Plan provisions governing determination of benefit. In
determining the amount of the priority category 3 annuity with respect
to a participant, the plan administrator shall use the participant's
age, service, actual or expected retirement age, and other relevant
facts as of the following dates:
(i) Except as provided in the next sentence, for a participant or
beneficiary whose benefit was in pay status before the beginning of the
3-year period ending on the termination date, the priority category 3
benefit shall be determined according to plan provisions in effect on
the date the benefit commenced. Benefit increases that were effective
throughout the 5-year period ending on the termination date, including
automatic benefit increases during that period to the extent provided
in paragraph (c)(5) of this section, shall be included in determining
the priority category 3 benefit. The form of annuity elected by a
retiree is considered the normal form of annuity for that participant.
(ii) For a participant who was eligible to receive an annuity
before the beginning of the 3-year period ending on the termination
date but whose benefit was not in pay status, the priority category 3
benefit and the normal form of annuity shall be determined according to
plan provisions in effect on the day before the beginning of the 3-year
period ending on the termination date as if the benefit had commenced
at that time.
(3) General benefit limitations. The general benefit limitation is
determined as follows:
(i) If a participant's benefit was in pay status before the
beginning of the 3-year period, the benefit assigned to priority
category 3 with respect to that participant is limited to the lesser of
the lowest annuity benefit in pay status during the 3-year period
ending on the termination date and the lowest annuity benefit payable
under the plan provisions at any time during the 5-year period ending
on the termination date.
(ii) Unless a benefit was in pay status before the beginning of the
3-year period ending on the termination date, the benefit assigned to
priority category 3 with respect to a participant is limited to the
lowest annuity benefit payable under the plan provisions, including any
reduction for early retirement, at any time during the 5-year period
ending on the termination date. If the annuity form of benefit under a
formula that appears to produce the lowest benefit differs from the
normal annuity form for the participant under paragraph (c)(2)(ii) of
this section, the benefits shall be compared after the differing form
is converted to the normal annuity form, using plan factors. In the
absence of plan factors, the factors in subpart B of part 4022 of this
chapter shall be used.
(iii) For purposes of this paragraph, if a terminating plan has
been in effect less than five years on the termination
[[Page 81465]]
date, computed in accordance with paragraph (c)(6) of this section, the
lowest annuity benefit under the plan during the 5-year period ending
on the termination date is zero. If the plan is a successor to a
previously established defined benefit plan within the meaning of
section 4021(a) of ERISA, the time it has been in effect will include
the time the predecessor plan was in effect.
(4) Determination of beneficiary's benefit. If a beneficiary is
eligible for a priority category 3 benefit because of the death of a
participant during the 3-year period ending on the termination date,
the benefit assigned to priority category 3 for the beneficiary shall
be determined as if the participant had died the day before the 3-year
period began.
(5) Automatic benefit increases. If plan provisions adopted and
effective on or before the first day of the 5-year period ending on the
termination date provided for automatic increases in the benefit
formula for both active participants and those in pay status or for
participants in pay status only, the lowest annuity benefit payable
during the 5-year period ending on the termination date determined
under paragraph (c)(3) of this section includes the automatic increases
scheduled during the fourth and fifth years preceding termination,
subject to the restriction that benefit increases for active
participants in excess of the increases for retirees shall not be taken
into account.
(6) Computation of time periods. For purposes of this section, a
plan or amendment is ``in effect'' on the later of the date on which it
is adopted or the date it becomes effective.
Issued in Washington, DC, this day of December, 2000.
David M. Strauss,
Executive Director, Pension Benefit Guaranty Corporation.
[FR Doc. 00-32706 Filed 12-22-00; 8:45 am]
BILLING CODE 7708-01-P