[Federal Register: April 8, 2002 (Volume 67, Number 67)]
[Rules and Regulations]
[Page 16949-16959]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08ap02-13]
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Part III
Pension Benefit Guaranty Corporation
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29 CFR Part 4022 et al.
PBGC Benefit Payments; Final Rule
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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: Final rule.
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SUMMARY: The PBGC is amending its regulations to make several changes
in how it pays benefits, including giving participants more choices of
annuity benefit forms, clarifying (for certain purposes under Title IV
of ERISA) what it means to be able to ``retire'' under plan provisions,
and adding rules on who will get certain payments the PBGC owes to a
participant at the time of death.
EFFECTIVE DATE: June 1, 2002. For a detailed discussion of
applicability of the amendments, see the various Applicability sections
in SUPPLEMENTARY INFORMATION.
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. (TTY/TDD users may call the Federal relay service toll-free at 1-
800-877-8339 and ask to be connected to 202-326-4024.)
SUPPLEMENTARY INFORMATION: On December 26, 2000 (at 65 FR 81456), the
PBGC published a proposed rule 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).
The PBGC received two comments on the proposed rule and is issuing
the final regulation substantially as proposed.
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 a participant's benefit is in
priority category 3 in the asset allocation scheme under ERISA section
4044 (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).
It governs when a participant is first eligible to be
placed in pay status by the PBGC.
It is used as part of the methodology for determining the
``expected retirement age'' assumption the PBGC uses to value a
participant's benefit. Determination of this date 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 based
on all the facts and circumstances. In many cases, the analysis 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, such as
cash balance 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.
To provide guidance and to reduce the need for case-by-case
decision-making, the PBGC is introducing the concept of an ``Earliest
PBGC Retirement Date.'' The Earliest PBGC Retirement Date for a
participant will be the earliest date on which the participant could
``retire'' for certain purposes under Title IV of ERISA. If the
participant's ``earliest annuity date'' (the earliest date under plan
provisions on which the 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 will be
the ``earliest annuity date.'' However, if the participant's ``earliest
annuity date'' is before the date the participant reaches age 55, the
Earliest PBGC Retirement Date will 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. Under the
facts-and-circumstances test, the PBGC will consider whether the
participant could retire for purposes of ERISA section 4044(a)(3)(B).
The proposed regulation provided that 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.
Both commenters expressed concern about the application of the
Earliest PBGC Retirement Date concept in plans where participants can
separate from service with the right to receive an immediate annuity
before reaching age 55.
One commenter stated that the Earliest PBGC Retirement Date
``should not be used to restrict protections that workers enjoy under
current rules.'' The commenter went on to point out that many defined
benefit plans permit benefit eligibility at a point earlier than age 55
that ``clearly would qualify as a retirement for purposes of the
statute.'' The commenter suggested that the ``PBGC should continue to
permit the receipt of annuity benefits before age 55 when a plan
provides for retirement earlier than age 55 and recognize pre-55
retirement eligibility in its determination of priority category 3
benefits.''
The PBGC intended the adoption of the ``Earliest PBGC Retirement
Date'' concept as a way to simplify administration for the PBGC and
clarify the rules for participants--not as a way to ``restrict'' the
earliest date on which a participant would be considered to be eligible
to ``retire.'' Indeed, this new concept will have no effect on the
PBGC's existing facts-and-circumstances approach for determining pre-
age 55 retirement dates; rather it merely clarifies and codifies that
approach. Therefore, the date a participant could first ``retire''
should never be later under the new regulation than under the PBGC's
existing facts-and-circumstances approach (although, for post-age 55
[[Page 16951]]
retirement dates, it may be earlier under the new concept).
The other commenter, expressing particular concern about airline
pilots' plans, urged the PBGC ``to adopt a special rule for plans
covering participants who are legally required to retire before age
65.'' That commenter urged the PBGC to adopt a rule that the Earliest
PBGC Retirement Date for a participant in such a plan will never be
later than the date the participant reaches age 50, while retaining
discretion to determine pre-age 50 Earliest PBGC Retirement Dates based
on the facts and circumstances.
The PBGC recognizes the commenter's concern about airline pilots'
plans but believes this concern can be addressed without changing the
Earliest PBGC Retirement Date definition. The regulation provides for
Earliest PBGC Retirement Dates before age 55 based on the PBGC's facts-
and-circumstances analysis, taking into account (among other things)
plan provisions and the age at which participants customarily retire.
The PBGC recognizes that plans covering airline pilots generally
provide for early retirement before age 55 (often subject to
substantial service or age-and-service requirements and with subsidized
benefits) and that airline pilots customarily retire at relatively
early ages. In the case of a typical airline pilots' plan that provides
for a normal retirement age of 60 and an early retirement age of 50
with 5 years of service, the PBGC generally would determine--under its
facts-and-circumstances analysis--that a participant who has completed
5 years of service reaches his or her Earliest PBGC Retirement Date
upon attaining age 50. If the plan instead had provided for early
retirement before age 50, the PBGC would consider all the facts and
circumstances (including the plan's normal retirement age and the age
at which employees customarily retire in the airline industry) in
determining whether to treat the date the participant reaches the
plan's early retirement age as the participant's Earliest PBGC
Retirement Date. The PBGC is adding a specific example to the final
rule to illustrate its treatment of a typical airline pilots' plan.
The preamble to the proposed rule contained examples of Earliest
PBGC Retirement Dates. For the convenience of the public, the PBGC is
moving those examples to the regulatory language and is adding, along
with the new example dealing with a typical airline pilots' plan, an
example dealing with plans that specify early retirement requirements
and do not offer a consensual lump sum or immediate annuity upon
separation before those requirements are met.
The final rule also clarifies the following:
``Window'' periods. For purposes of determining a
participant's Earliest PBGC Retirement Date, the PBGC will treat the
participant as being 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 earlier of the plan's
termination date or the date the participant actually separates from
service with the right to receive an immediate annuity and the
participant satisfies the conditions for eligibility for that
immediate annuity on or before the plan's termination date.
Benefit start dates. For participants who had reached
their Earliest PBGC Retirement Date before the beginning of the 3-
year period ending on the plan's termination date, the PBGC will not
exclude annuity benefits from priority category 3 protection merely
because, under the plan's rules for starting benefit payments, the
payments do not start until the next payment date (e.g., the first
day of the first month following the date of separation).
Aside from these clarifications, the PBGC is issuing the final
rules in this area with only structural and other editorial changes
from the proposed regulation. For example, the PBGC is moving the
definition of Earliest PBGC Retirement Date from part 4044 (where it
was in the proposed regulation) to part 4022.
Applicability
The new definition will apply to benefits in plans with termination
dates on or after June 1, 2002.
The new definition will also apply, for the purpose of determining
when participants will first be able to receive retirement benefits in
annuity form from the PBGC, to benefits not yet in pay status as of
June 1, 2002, except that the new age-55 rule will not apply to any
plan trusteed by the PBGC before October 1, 1998. In plans trusteed by
the PBGC before October 1, 1998, the PBGC will continue to apply its
facts-and-circumstances analysis (as clarified and codified in the new
regulation), regardless of whether the participant is younger than age
55 or is age 55 or older. The PBGC is not applying the new age-55 rule
to plans trusteed by the PBGC before October 1, 1998, because doing so
would require the PBGC to reopen determinations in thousands of plans
(with little or no impact for the vast majority of participants), and
therefore could significantly delay the PBGC's processing of new plans
(i.e., those trusteed on or after October 1, 1998).
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
generally 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 entering pay status, 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.
The PBGC intends to provide participants (and beneficiaries) whose
benefits are not yet in pay status with more choices of annuity benefit
forms, including a straight-life annuity, certain-and-continuous
annuities with various periods certain, joint-and-survivor annuities
with various survivor percentages, and a joint-and-survivor-'pop-up''
annuity. A participant who is married on the annuity starting date will
need spousal consent to elect any of the optional forms. Either a
married participant (with spousal consent) or an unmarried participant
will be able to 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.
The PBGC will 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. If the
participant (regardless of marital status) elects to receive a joint-
and-survivor optional form from the PBGC, the PBGC will start with the
joint-and-survivor form that the plan would have paid to a married
[[Page 16952]]
participant in the absence of an election under the plan. If the
participant (regardless of marital status) elects to receive a single-
life optional form from the PBGC, the PBGC will 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. The PBGC will convert this
starting benefit to the optional annuity form the participant or
beneficiary chooses, using specified PBGC factors.
Both commenters commended the PBGC for proposing to offer a choice
of optional annuity forms, and the PBGC is issuing the new rules in
this area substantially as proposed.
The final regulation clarifies that the form under the plan that an
unmarried person would be entitled to receive in the absence of an
election is available not only to an unmarried participant but also to
a married participant. It also clarifies that the PBGC may prescribe
the time and manner for benefit elections to be made and spousal
consents to be provided. It also clarifies that benefit forms cannot be
changed once payment starts and simplifies and clarifies the rules
governing permitted designees.
The final regulation also clarifies one technical issue that could
arise in rare circumstances, e.g., where the form the plan would have
paid to a married participant in the absence of an election is highly
subsidized and the participant (whether married or unmarried) elects an
optional PBGC form with a smaller survivor annuity percentage. In these
circumstances, the proposed regulation could have been read as
requiring the PBGC to pay a greater monthly benefit to a participant in
the form of a joint-and-survivor benefit than it would have paid the
participant in the form of a straight life annuity. The final
regulation clarifies that the PBGC will limit its payment to avoid this
result. For example, assume the amount of a participant's benefit is
$1,000 a month in the form of a straight life annuity or $980 a month
in the form of a highly-subsidized joint-and-100% survivor annuity.
Assume the participant elects a joint-and-50% survivor annuity. Using
the specified conversion factors, the amount of the benefit in the form
elected would be $1,060 a month. The final rule clarifies that the PBGC
would pay $1,000 a month in such circumstances.
Applicability
The PBGC will make the optional benefit forms available where the
first benefit payment is made on or after June 1, 2002.
Where the first benefit payment is made on or after May 1, 2002,
and the participant or beneficiary has filed an application that does
not include the new optional benefit forms, the PBGC may make the
optional benefit forms available to that participant or beneficiary on
or after June 1, 2002, by providing an opportunity to change the
election within a reasonable time period. Until the end of that time
period, the PBGC will not apply to that participant or beneficiary the
new rule that once payment of a benefit starts, the benefit form cannot
be changed. If the benefit form changes, the PBGC will make appropriate
adjustments to the benefit amount.
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 pay.
The PBGC recoups any overpayment made to a 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. The PBGC pays any underpayment due the participant
to that same person.
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 payments do not continue after the
participant's death, the PBGC pays the person(s) designated with the
PBGC or by or under the plan to receive benefits owed to the
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. However, 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 problems, the PBGC is adding new subpart F of part
4022, which governs 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 payments
do not continue after the participant's death. Under these new rules,
the PBGC will 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
will pay those benefits to the person(s) surviving the participant in
the following order: spouse, children, parents, estate, and next of
kin.
This 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. However, the PBGC is not adopting
the TSP rules; rather it is establishing its own order-of-payment rules
and therefore will be making its own interpretations of those rules.
The PBGC notes that the 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 will be
subject to the order-of-payment rules will in most cases be relatively
small.
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 is amending the regulation to provide that, for
purposes of discounting such annuity payments, it will use the federal
mid-term rate (the same rate used for crediting interest for future
periods on net underpayments of benefits).
The PBGC received no comments on its proposal relating to certain
payments owed upon death and is issuing the new rules in this area with
only clarifying and editorial changes from the proposed regulation. The
final regulation clarifies that the new rules will apply to benefits
the PBGC owes to any individual at the time of the individual's death
(including benefits the PBGC owes because the plan owed them). Thus,
the rules will apply not only to benefits the PBGC owes to a
participant in a terminated
[[Page 16953]]
plan, but also to benefits the PBGC owes to a beneficiary (including an
alternate payee) at the time of the beneficiary's death or to a
designee or other payee under subpart F (e.g., a participant's next of
kin) at the time of the designee or other payee's death.
The final regulation also clarifies that (1) in the case of an
overpayment to a participant at the time of the participant's death, if
the participant is not entitled to future annuity benefits as of the
plan's termination date, the PBGC may seek repayment of the overpayment
to the participant from the participant's estate, and (2) in the case
of an underpayment to a participant at the time of the participant's
death, if the person receiving survivor benefits is an alternate payee
under a qualified domestic relations order, the PBGC will treat the
benefit as if payments do not continue after the participant's death
(i.e., the PBGC will pay the underpayment to the person determined
under the rules in new subpart F).
The final regulation includes structural and other editorial
changes from the proposed regulation designed to make the new rules
easier to understand. For example, in the proposed regulation, subpart
F covers situations in which a person dies without having received all
required payments for future periods under a form of annuity promising
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. In the final regulation, these
situations are covered in new subpart G. The final regulation includes
examples that show how the rules in subparts F and G will apply in
various situations.
Applicability
The new rules will apply in the case of any death on or after June
1, 2002.
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 is amending
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 is also making 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.
The PBGC received no comments on its proposal relating to
entitlement conditions being met on the termination date and is issuing
the new rules in this area without change from the proposed regulation.
Applicability
The new rules will apply to benefits in any plan with a termination
date on or after June 1, 2002.
Aggregate Limits on Guaranteed Benefits
The PBGC is amending its regulation on Aggregate Limits on
Guaranteed Benefits (part 4022B). Under the current regulation, when
applying the limitation on guaranteed benefits in Sec. 4022.22(b), the
PBGC aggregates: (1) A person's benefits under two or more plans, (2) a
person's benefits with respect to two or more participants, and (3)
benefits with respect to one participant when more than one person is
entitled to receive a benefit with respect to that participant).
Under this amendment the PBGC will not aggregate benefits with
respect to two or more participants (the second type of aggregation
above) 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 is
limited to a monthly benefit of $3,000. Under the amendment, the
participant will be entitled to the full $3,500 benefit.
The PBGC is removing from part 4022B, as unnecessary, the language
relating to the aggregation of benefits with respect to one participant
when more than one person is entitled to receive a benefit with respect
to that participant (the third type of aggregation above). (This is a
nonsubstantive change; under Sec. 4022.22, the PBGC will continue to
aggregate such benefits.)
The PBGC received no comments on its proposal relating to the
aggregate limits on guaranteed benefits and is issuing the new rules in
this area without change from the proposed regulation.
Applicability
The new rules will apply to benefit determinations that become
effective on or after June 1, 2002.
Compliance With Rulemaking and Paperwork Reduction Act Guidelines
The Office of Management and Budget has determined that this final
rule is a ``significant regulatory action'' and has therefore reviewed
the final rule under Executive Order 12866.
The PBGC certifies under section 605(b) of the Regulatory
Flexibility Act that this final rule will not have a significant
economic impact on a substantial number of small entities. Virtually
all of the changes in the final rule will affect only the PBGC and
persons who receive benefits from the PBGC. The only change that could
affect small entities is the 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
will match the results under the PBGC's current regulation. In those
cases where the valuation results do not match, the differences
generally will not be significant. Thus, the change will 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.
This rule contains information collection requirements. The Office
of Management and Budget has approved this information collection,
including the implementing forms and
[[Page 16954]]
instructions, under the Paperwork Reduction Act of 1995. An agency may
not conduct or sponsor, and a person is not required to respond to, a
collection of information unless it displays a currently valid OMB
control number.
List of Subjects in 29 CFR Parts 4022, 4022B, and 4044
Pension insurance, Pensions.
For the reasons set forth above, the PBGC is amending 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
on or before the termination date, in the case of a requirement that a
participant attain a particular age, earn a particular amount of
service, become disabled, or die)'' after the words ``Except for a
benefit described in paragraph (a)(2) of this section, before the
termination date'', and the words ``(prior to or on such date, in the
case of a requirement that a participant attain a particular age, earn
a particular amount of service, become disabled, or die)'' 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''.
* * * * *
4. Amend Sec. 4022.7 by revising paragraphs (b)(1) and (d) to read
as follows:
Sec. 4022.7 Benefits payable in a single installment.
(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 paragraph (b)(1)(i) of this section 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 annuity
payments under a qualified preretirement survivor annuity (or under 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 subpart A 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) Participants.
(i) 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.
(ii) 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.
(2) Beneficiaries.
(i) 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 his or her benefit enters pay
status 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).
(ii) 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) Optional PBGC forms.
(1) Participant and beneficiary elections. A participant may elect
any optional form described in paragraphs (c)(4) or (c)(5) of this
section. A beneficiary described in paragraph (b)(2) of this section (a
QPSA beneficiary or an alternate payee) may elect any optional form
described in paragraphs (c)(4)(i) through (c)(4)(iv) of this section.
(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, in
[[Page 16955]]
the case of a participant, a joint-and-50%-survivor annuity) may
designate either a spouse or a non-spouse beneficiary to receive
survivor benefits. An optional joint-life form must be payable to a
natural person or (with the consent of the PBGC) to a trust for the
benefit of one or more natural persons.
(3) Spousal consent. In the case of a participant who is married at
the time the benefit enters pay status, the election of an optional
form or the designation of a non-spouse beneficiary is valid only if
the participant's spouse consents.
(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;
(iv) A 15-year certain-and-continuous annuity; and
(v) The form an unmarried person would be entitled to receive from
the plan in the absence of an election.
(5) Permitted optional 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 an optional PBGC form--
(i) Single-life forms. In the case of an optional PBGC 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.
(ii) Joint-life forms. In the case of an optional PBGC 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 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) Determination of benefit amount; limitation. The PBGC will
limit the benefit amount determined under paragraph (c)(7) of this
section to the amount of the benefit it would pay in the form of a
straight life annuity under paragraph (c)(4)(i) of this section.
(9) Incidental benefits. The PBGC will not pay an optional PBGC
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) Change in benefit form. Once payment of a benefit starts, the
benefit form cannot be changed.
(e) 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 subpart A 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. 4022.10 of this subchapter or, if later, the plan's
termination date.
(b) Elections and consents. The PBGC may prescribe the time and
manner for benefit elections to be made and spousal consents to be
provided.
(c) Benefit applications. The PBGC is not required to accept any
application for benefits not made in accordance with its forms and
instructions.
7. Add Sec. 4022.10 to subpart A to read as follows:
Sec. 4022.10 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 Sec. 4022.10. For
purposes of this Sec. 4022.10, ``age'' means the participant's age as
of his or her last birthday (unless otherwise required by the context).
(a) 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.
(b) 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 (c) of this
section).
(c) 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 will make a determination,
under the facts and circumstances, as to whether the participant could
retire under plan provisions for purposes of section 4044(a)(3)(B) of
ERISA on an earlier date. If the PBGC determines, under the facts and
circumstances, that the participant could retire under plan provisions
for those purposes on an earlier date, 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 (c) will
never be earlier than the earliest date the participant could separate
from
[[Page 16956]]
service with the right to receive an immediate annuity.
(d) Examples. The following examples illustrate the operation of
the rules in paragraphs (a) through (c) of this section.
(1) Normal retirement age. A plan's normal retirement age is age
65. The plan does not offer a consensual lump sum or an immediate
annuity upon separation before normal retirement age. The Earliest PBGC
Retirement Date for a participant who, as of the plan's termination
date, is age 50 is the date the participant reaches age 65.
(2) Early retirement age. A plan's normal retirement age is age 65.
The plan specifies an early retirement age of 60 with 10 years of
service. The plan does not offer a consensual lump sum or an immediate
annuity upon separation before early retirement age. The Earliest PBGC
Retirement Date for a participant who, as of the plan's termination
date, is age 55 and has completed 10 years of service is the date the
participant reaches age 60.
(3) Separation at any age. 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 participant who, as of the plan's termination
date, is age 35 is 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 participant's Earliest PBGC Retirement
Date would be that earlier date.
(4) Age 50 retirement common. 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 participant who, as of the plan's termination
date, is age 35 is 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 participant's Earliest
PBGC Retirement Date would be the date the participant reached age 50.
(5) ``30-and-out'' benefit. 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 participant who, as of
the plan's termination date, is age 48 and has completed 30 years of
service is 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 participant's Earliest PBGC Retirement Date would be
that earlier date. In this example, the PBGC generally would determine
under the facts and circumstances that the participant's Earliest PBGC
Retirement Date is the date the participant completed 30 years of
service.
(6) Typical airline pilots' plan. An airline pilots' plan has a
normal retirement age of 60. The plan specifies an early retirement age
of 50 (with 5 years of service). The Earliest PBGC Retirement Date for
a participant who, as of the plan's termination date, is age 48 and has
completed five years of service 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
participant's Earliest PBGC Retirement Date would be that earlier date.
In this example, the PBGC generally would determine under the facts and
circumstances that the participant's Earliest PBGC Retirement Date is
the date the participant reaches age 50. If the plan instead had
provided for early retirement before age 50, the PBGC would consider
all the facts and circumstances (including the plan's normal retirement
age and the age at which employees customarily retire in the airline
industry) in determining whether to treat the date the participant
reaches the plan's early retirement age as the participant's Earliest
PBGC Retirement Date.
(e) Special rule for ``window'' provisions. For purposes of
paragraphs (a), (b), and (c) of this section, the PBGC will treat a
participant as being 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--
(1) Eligibility for that immediate annuity continues through the
earlier of--
(i) The plan's termination date; or
(ii) The date the participant actually separates from service with
the right to receive an immediate annuity; and
(2) The participant satisfies the conditions for eligibility for
that immediate annuity on or before the plan's termination date.
8. 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. Revise paragraph (d) to read as follows:
Sec. 4022.21 Limitations; in general.
* * * * *
(d) The PBGC will not guarantee a joint-life annuity benefit
payable to other than--
(1) Natural persons; or
(2) A trust or estate for the benefit of one or more natural
persons.
9. Amend Sec. 4022.25 by revising paragraphs (c) and (d) as
follows:
Sec. 4022.25 Five-year phase-in of benefit guranteee for participants
other than substantial owners.
* * * * *
(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.
* * * * *
10. 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--
(i) Future annuity payments. If the participant was entitled to
future annuity payments as of the plan's termination date, the PBGC
will (except as provided in paragraph (a) of this section) recoup the
overpayment from the person (if any) who is receiving survivor benefits
under the annuity.
(ii) No future annuity payments. If the participant was not
entitled to future annuity benefits as of the plan's termination date,
the PBGC may seek repayment of the overpayment from the participant's
estate.
(2) Benefit underpayments. If the PBGC determines that, at the time
of a participant's death, there was a net underpayment to the
participant--
[[Page 16957]]
(i) 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; for this purpose, if the
person receiving survivor benefits is an alternate payee under a
qualified domestic relations order, the PBGC will treat the benefit as
if payments do not continue after the participant's death (see
paragraph (d)(2)(ii) of this section).
(ii) No future annuity payments. If the benefit is not in the form
of a joint-and-survivor or other annuity (e.g., a certain-and-
continuous annuity) under which payments may continue after the
participant's death or although the benefit is in such a form payments
do not continue after the participant's death (i.e., in the case of a
joint-and-survivor annuity, the person designated to receive survivor
benefits predeceased the participant or, in the case of another annuity
under which payments may continue after the participant's death the
participant died with no payments owed for future periods), the PBGC
will pay the underpayment to the person determined under the rules in
Secs. 4022.91 through 4022.95.
11. Add subpart F to part 4022 to read as follows:
Subpart F--Certain Payments Owed 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 Examples.
Sec. 4022.91 When do these rules apply?
(a) Types of benefits. Provided the conditions in paragraphs (b)
and (c) of this section are satisfied, these rules (Secs. 4022.91
through 4022.95) apply to any benefits we may owe you (including
benefits we owe you because your plan owed them) 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 have not yet paid you or a back
payment to reimburse you for monthly underpayments. We may owe you
benefits at the time of your death if--
(1) You are a participant in a terminated plan;
(2) You are a beneficiary (including an alternate payee) of a
participant; or
(3) You are a designee or other payee (e.g., a participant's next
of kin) under these rules, as explained in Sec. 4022.93.
(b) Payments do not continue after death. These rules apply only if
payments do not continue after your death. (If payments continue after
your death, we will make up any underpayment to you at the time of your
death under the rule in Sec. 4022.81(d)(2)(i) by paying it to the
person who is entitled to receive those continuing payments.) Payments
do not continue after your death if--
(1) Your benefit is not in the form of a joint-and-survivor or
other annuity under which payments may continue after your death (e.g.,
a certain-and-continuous annuity);
(2) Your benefit is in the form of a joint-and-survivor annuity and
the person designated to receive survivor benefits died before you; or
(3) Your benefit is in the form of another type of annuity under
which payments may continue after your death (e.g., a certain-and-
continuous annuity) but you die with no payments owed for future
periods.
(c) Time of death. These rules apply only if you die--
(1) On or after the date we take over your plan (as trustee); or
(2) 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.
(d) Effect of plan or will. These rules apply even if there is a
contrary provision in a plan or will.
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.
``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.
(i) Adopted children. In determining who is a child or descendant,
an adopted child is treated the same way as a natural child.
(ii) Child dies before parent. If one of your children dies before
you, any of your grandchildren through that deceased child will equally
divide that deceased child's share; if one of your grandchildren
through that deceased child dies before that deceased child, any of
your great-grandchildren through that deceased grandchild will equally
divide that deceased grandchild's share; and so on.
(4) Parents. Your parents. A parent includes an adoptive parent.
(5) Estate. Your estate, provided your estate is open.
(6) Next of kin. Your next of kin in accordance with applicable
state law.
(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) Change of designee. If you want to change the person(s) you
designate with us, you must submit another designation to us.
[[Page 16958]]
(c) 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 Examples.
The following examples show how the rules in Secs. 4022.91 through
4022.94 apply. For examples on how these rules apply in the case of a
certain-and-continuous annuity, see Sec. 4022.104.
At the time of his death, Charlie was receiving payments under a
joint-and-survivor annuity. Charlie designated Ellen to receive
survivor benefits under his joint-and-survivor annuity. We underpaid
Charlie for periods before his death. At the time of his death, we owed
Charlie a back payment to reimburse him for those underpayments.
(a) Example 1: where surviving beneficiary is alive at
participant's death. Ellen survived Charlie. As explained in
Sec. 4022.91(b), because Ellen is entitled to survivor benefits under
the joint-and-survivor annuity, we would pay Ellen the back payment.
(b) Example 2: where surviving beneficiary predeceases participant.
Ellen died before Charlie. As explained in Secs. 4022.91(b) and
4022.93, because benefits do not continue after Charlie's death under
the joint-and-survivor annuity, we would pay the back payment to the
person(s) Charlie designated to receive any payments we might owe him
at the time of his death. If Charlie did not designate anyone to
receive those payments or his designee died before him, we would pay
the back payment to the person(s) surviving Charlie in the following
order: spouse, children, parents, estate and next of kin.
12. Add subpart G to part 4022 to read as follows:
Subpart G--Certain-and-Continuous and Similar Annuity Payments Owed
for Future Periods After Death
Sec.
4022.101 When do these rules apply?
4022.102 What definitions do I need to know for these rules?
4022.103 Who will get benefits if I die when payments for future
periods under a certain-and-continuous or similar annuity are owed
upon my death?
4022.104 Examples.
Sec. 4022.101 When do these rules apply?
(a) In general. These rules (Secs. 4022.101 through 4022.104) apply
only if you die--
(1) Required payments for future periods. Without having received
all required payments for future periods under a form of annuity
promising 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);
(2) No surviving beneficiary. Without a surviving beneficiary
designated to receive the payments described in paragraph (a)(1) of
this section; and
(3) Time of death.
(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 any required payments
for future periods.
(b) Effect of plan or will. These rules apply even if there is a
contrary provision in a plan or will.
(c) Payments owed at time of death. See Secs. 4022.91 through
4022.95 for rules that apply to benefits we may owe you at the time of
your death, such as a correction for monthly underpayments.
Sec. 4022.102 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.
``You'' means the person who might die--
(1) Without having received all required payments for future
periods under a form of annuity promising 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
(2) Without a surviving beneficiary designated to receive the
payments described in paragraph (1) of this definition.
Sec. 4022.103 Who will get benefits if I die when payments for future
periods under a certain-and-continuous or similar annuity are owed upon
my death?
If you die at a time when payments are owed for future periods
under a form of annuity promising 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 payments to the person determined under the
rules in Sec. 4022.93.
Sec. 4022.104 Examples.
The following examples show how the rules in Secs. 4022.101 through
4022.103 and 4022.91 through 4022.94 apply in the case of a certain-
and-continuous annuity.
(a) C&C annuity with no underpayment. At the time of his death,
Charlie was receiving payments (in the correct amount) under a 5-
year certain-and-continuous annuity. Charlie designated Ellen to
receive any payments we might owe for periods after his death (but
did not designate an alternate beneficiary to receive those payments
in case Ellen died before him). Charlie died with three years of
payments remaining.
(1) Example 1: where surviving beneficiary predeceases
participant. Ellen died before Charlie. As explained in
Secs. 4022.103 and 4022.93, we would pay the remaining three years
of payments to the person(s) surviving Charlie in the following
order: spouse, children, parents, estate and next of kin.
(2) Example 2: where surviving beneficiary dies during certain
period. Ellen survived Charlie and lived another year. We pay Ellen
one year of payments. As explained in Secs. 4022.103 and 4022.93, we
would pay the remaining two years of payments to the person Ellen
designated to receive any payments we might owe for periods after
Ellen's death. If Ellen did not designate anyone to receive those
payments or her designee died before her, we would pay the remaining
year of payments to the person(s) surviving Ellen in the following
order: spouse, children, parents, estate, next of kin.
(b) C&C annuity with underpayment. At the time of his death,
Charlie was receiving payments under a 5-year certain-and-continuous
annuity. Charlie designated Ellen to receive any payments we might
owe for periods after his death. We underpaid Charlie for periods
before his death. At the time of his death, we owed Charlie a back
payment to reimburse him for those underpayments.
(1) Example 3: where participant dies during certain period.
Charlie died with three years of payments remaining. Ellen survived
Charlie and lived at least another three years. We pay Ellen the
remaining three years of payments. As explained in Sec. 4022.91(b),
because Ellen is entitled to survivor benefits under the certain-
and-continuous annuity, we would pay Ellen the back payment for the
underpayments to Charlie (and for any underpayments to Ellen).
(2) Example 4: where participant and surviving beneficiary die
during certain period. Charlie died with three years of payments
remaining. Ellen survived Charlie and lived another year. We paid
Ellen one year of payments. Ellen designated Jean to receive any
payments we might owe for periods after Ellen's death. Jean survived
Ellen and lives at least another two years. We
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pay Jean the remaining two years of payments. As explained in
Sec. 4022.91(b), because Jean is entitled to survivor benefits under
the certain-and-continuous annuity, we would pay Jean the back
payment for the underpayments to Charlie (and for any underpayments
to Ellen).
(3) Example 5: where participant dies after certain period.
Charlie died after receiving seven years of payments. As explained
in Secs. 4022.91(b) and 4022.93, because benefits do not continue
after Charlie's death under the certain-and-continuous annuity, we
would pay the back payment to the person(s) Charlie designated to
receive any payments we might owe him at the time of his death in
case he died after the end of certain period. If Charlie did not
designate anyone to receive those payments or his designee died
before him, we would pay the back payment to the person(s) surviving
Charlie in the following order: spouse, children, parents, estate
and next of kin.
PART 4022B--AGGREGATE LIMITS ON GUARANTEED BENEFITS
13. The authority citation for part 4022B is added to read as
follows:
Authority: 29 U.S.C. 1302(b)(3), 1322B.
14. 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]
16. 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. 4022.10 of this
chapter)''.
17. 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 (then or as of the next payment date
under the plan's rules for starting benefit payments) for participants
who, before the beginning of the 3-year period ending on the
termination date, had reached their Earliest PBGC Retirement Date (as
determined under Sec. 4022.10 of this chapter 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 (b)(5) 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 and
Sec. 4022.21 of this chapter.
(b) 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 (b)(2)
through (b)(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 Sec. 4022.10 of this chapter,
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.
Issued in Washington, DC, this 2nd day of April, 2002.
Elaine L. Chao,
Chairman, Board of Directors, Pension Benefit Guaranty Corporation.
Issued on the date set forth above pursuant to a resolution of
the Board of Directors authorizing its Chairman to issue this final
rule.
James J. Keightley,
Secretary, Board of Directors, Pension Benefit Guaranty Corporation.
[FR Doc. 02-8340 Filed 4-5-02; 8:45 am]
BILLING CODE 7708-01-P