[Federal Register: July 1, 2008 (Volume 73, Number 127)]
[Proposed Rules]
[Page 37390-37402]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01jy08-13]
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PENSION BENEFIT GUARANTY CORPORATION
29 CFR Parts 4001, 4022, and 4044
RIN 1212-AA98
Bankruptcy Filing Date Treated as Plan Termination Date for
Certain Purposes; Guaranteed Benefits; Allocation of Plan Assets;
Pension Protection Act of 2006
AGENCY: Pension Benefit Guaranty Corporation.
ACTION: Proposed rule.
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SUMMARY: This is a proposed rule to implement section 404 of the
Pension Protection Act of 2006. Section 404 amended Title IV of ERISA
to provide that when an underfunded, PBGC-covered, single-employer
pension plan terminates while its contributing sponsor is in
bankruptcy, sections 4022 and 4044(a)(3) of ERISA are to be applied by
treating the date the sponsor's bankruptcy petition was filed as the
termination date of the plan. Section 4022 determines which benefits
are guaranteed by PBGC, and section 4044(a)(3) determines which
benefits are entitled to priority in ``priority category 3'' in the
statutory hierarchy for allocating the assets of a terminated plan.
Thus, under the 2006 amendments, when a plan terminates while the
sponsor is in bankruptcy, the amount of benefits guaranteed by PBGC and
the amount of benefits in priority category 3 are fixed at the date of
the bankruptcy filing rather than at the plan termination date. This
will, in most cases, reduce the amount of guaranteed benefits and the
amount of benefits in priority category 3.
DATES: Comments must be submitted on or before September 2, 2008.
ADDRESSES: Comments may be submitted by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov. Follow the
Web site instructions for submitting comments.
E-mail: reg.comments@pbgc.gov.
Fax: 202-326-4224.
Mail or Hand Delivery: Legislative and Regulatory Department,
Pension Benefit Guaranty Corporation, 1200 K Street, NW., Washington,
DC 20005-4026.
All submissions must include the Regulation Identifier Number for
this rulemaking (RIN 1212-AA98). Comments received, including personal
information provided, will be posted to http://www.pbgc.gov. Copies of
comments may also be obtained by writing to Disclosure Division, Office
of
[[Page 37391]]
the General Counsel, Pension Benefit Guaranty Corporation, 1200 K
Street, NW., Washington, DC 20005-4026, or calling 202-326-4040 during
normal business hours. (TTY and TDD users may call the Federal relay
service toll-free at 1-800-877-8339 and ask to be connected to 202-326-
4040.)
FOR FURTHER INFORMATION CONTACT: John H. Hanley, Director, or Gail
Sevin, Manager, Legislative and Regulatory Department; or James J.
Armbruster, Assistant Chief Counsel, Office of Chief Counsel; 1200 K
Street, NW., Washington, DC 20005-4026. Mr. Hanley and Ms. Sevin may be
reached at 202-326-4024; Mr. Armbruster at 202-326-4020, extension
3068. (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 or 202-326-4020.)
SUPPLEMENTARY INFORMATION:
Background
The Pension Benefit Guaranty Corporation (``PBGC'') administers the
single-employer pension plan termination insurance program under Title
IV of the Employee Retirement Income Security Act of 1974 (``ERISA'').
The program covers private-sector, single-employer defined benefit
plans, which pay premiums to PBGC each year. Covered plans that are
underfunded may terminate either in a distress termination under
section 4041(c) of ERISA or in an involuntary termination (one
initiated by PBGC) under section 4042 of ERISA. When such a plan
terminates, PBGC typically is appointed statutory trustee of the plan,
and becomes responsible for paying benefits in accordance with the
provisions of Title IV.
The amount of benefits paid by PBGC under a terminated, trusteed
plan is determined by several factors. The starting point is the plan
itself: PBGC pays only those benefits that were provided under the plan
and that have been earned by the participant under the plan terms.
But PBGC does not guarantee all benefits earned under a terminated
plan. There are statutory and regulatory limits on PBGC's guarantee,
which are discussed below. On the other hand, a participant may
sometimes receive from PBGC more than his guaranteed benefits, if
either the allocation under section 4044 of ERISA of the plan's assets
or the allocation under section 4022(c) of PBGC's recoveries, or both,
results in additional benefits being payable.
When a plan terminates, a termination date must be established in
accordance with section 4048 of ERISA. If the plan is underfunded and
terminates in a distress or involuntary termination, the termination
date is the date agreed upon by the plan administrator and PBGC or, if
they do not agree, the date set by a United States district court.
The termination date is a critical date for many purposes under
Title IV of ERISA. For example, it is the date as of which a plan
sponsor's liability to the PBGC for a terminated plan's unfunded
benefit liabilities is determined under section 4062(b) of ERISA. Most
relevant to this proposed regulation, the termination date--under prior
law--was the date that governed the amount of benefits participants in
the terminated plan would receive. The amount of benefits guaranteed by
PBGC under section 4022 of ERISA and the amount of any additional
benefits payable from the plan's assets under section 4044 or from
PBGC's recoveries under section 4022(c) were all determined as of the
termination date.
Many single-employer pension plans that terminate in a distress or
involuntary termination do so while the plan sponsor is in bankruptcy.
Indeed, two of the criteria for a distress termination are based on the
sponsor's liquidating or reorganizing in bankruptcy. See ERISA section
4041(c)(2)(B)(i), (ii).
A persistent problem for the PBGC insurance program has been that
the funded status of plans often deteriorates significantly while the
plan sponsor is in bankruptcy. Many sponsors have failed to make
minimum funding contributions to their plans during the bankruptcy,
while the plan continues to pay retiree benefits as usual and employees
continue to earn additional benefits. Because the termination date
often comes after the sponsor has been in bankruptcy for some time, the
result has been that PBGC's losses often increase substantially during
the course of a bankruptcy proceeding.
Congress sought to address this problem in the Pension Protection
Act of 2006 (``PPA 2006''), which the President signed into law on
August 17, 2006. Section 404 of PPA 2006 provides generally that, if a
PBGC-insured plan terminates while its contributing sponsor is in
bankruptcy, PBGC's guarantees and the amount of benefits entitled to
priority in ``priority category 3'' in the ERISA section 4044
allocation of the plan's assets are determined as of the date that the
sponsor's bankruptcy petition was filed (the ``bankruptcy filing
date'') rather than as of the termination date. This means, for
example, that benefits earned by participants after the bankruptcy
filing date are not guaranteed. The changes generally reduce the amount
of benefits guaranteed by PBGC and the amount of benefits receiving
priority treatment in the section 4044 asset allocation. By protecting
PBGC from growth in its liabilities during bankruptcy proceedings,
these changes reduce claims on PBGC's funds and thereby strengthen the
PBGC insurance program. The changes are described more fully below.
PPA 2006 provided that the changes made by section 404 of PPA 2006
are effective for plan terminations that occur during the bankruptcy of
the plan sponsor, if the bankruptcy filing date was on or after
September 16, 2006 (the date that is 30 days after PPA's enactment).
The terminations to which the changes apply are referred to in this
preamble and in the proposed regulation as PPA 2006 bankruptcy
terminations. Of course, if a plan's termination date is the same as
the bankruptcy filing date, then the plan is unaffected by the changes
made by section 404.
Overview of Proposed Regulatory Changes
The proposed regulation implements the statutory changes, described
above, made by section 404 of PPA 2006. It would amend PBGC's
regulations on Benefits Payable in Terminated Single-Employer Plans, 29
CFR part 4022; Termination of Single-Employer Plans, 29 CFR part 4041;
and Allocation of Assets in Single-Employer Plans, 29 CFR part 4044.
The amendments would establish rules for PPA 2006 bankruptcy
terminations, the most important of which are:
A participant's guaranteed benefit is based on the amount
of his service and the amount of his compensation (if applicable) as of
the bankruptcy filing date.
The Title IV guarantee limits--the maximum guaranteeable
benefit, the phase-in limit, and the accrued-at-normal limit--are all
determined as of the bankruptcy filing date.
Only benefits that are nonforfeitable as of the bankruptcy
filing date are guaranteed. Thus, for example, early retirement
subsidies and disability benefits to which a participant became
entitled after the bankruptcy filing date are not guaranteed.
Participants who retired under a subsidized early
retirement benefit (or a disability or other benefit) to which they
became entitled between the bankruptcy filing date and the termination
date will continue in pay status, or may go into pay status if they are
not already receiving a benefit, but the amount of
[[Page 37392]]
the benefit is reduced to reflect that the subsidy (or other benefit)
is not guaranteed.
The benefits in priority category 3 under section 4044(a)
of ERISA are benefits in pay status, or that could have been in pay
status, three years before the bankruptcy filing date, generally taking
into account only benefit increases that were effective throughout the
five-year period ending on the bankruptcy filing date.
Benefits under section 4022(c) of ERISA are based on
(among other things) the value of a plan's unfunded nonguaranteed
benefits. Because section 404 of PPA 2006 has changed guaranteed
benefits and benefits in priority category 3, the unfunded
nonguaranteed benefits are changed and therefore the section 4022(c)
benefits are also changed.
Where a plan has more than one contributing sponsor and
all contributing sponsors did not file for bankruptcy on the same date,
PBGC determines the date to treat as the bankruptcy filing date, based
on the facts and circumstances.
Although the bankruptcy filing date thus displaces a plan's
termination date as the controlling date for certain purposes, the
termination date continues to be important for other purposes. For
example, although the monthly amount of benefits guaranteed and the
monthly amount of benefits in priority category 3 will be determined by
reference to the bankruptcy filing date, the value of those benefits is
determined--as before PPA 2006--as of the plan's termination date. The
value of a terminated plan's assets, too, is determined as of the
termination date. Also, determinations under sections 4062(a) and (b)
of ERISA of the parties liable for a plan's unfunded benefit
liabilities and the amount of those liabilities are made as of the
termination date.
The proposed regulation also makes some minor changes unrelated to
PPA 2006. The discussion below describes in detail the proposed
regulatory changes, as well as areas in which no change to the
regulations is needed.
Guaranteed Benefits
Prior Law
PBGC's guarantee is limited, under section 4022(a) of ERISA, to
nonforfeitable benefits under a terminated plan. Before PPA 2006, the
crucial date for determining guaranteed benefits was the plan's
termination date, established under section 4048 of ERISA. PBGC had to
determine the amount of benefits participants had earned under the
plan, and whether those benefits were nonforfeitable, as of the
termination date.
In addition, PBGC's guarantee is subject to two important
limitations under section 4022(b) of ERISA: the maximum guaranteeable
benefit (sometimes referred to as the maximum guarantee limit or the
maximum insurance limit) under section 4022(b)(3), and the phase-in
limit under sections 4022(b)(1) and 4022(b)(7). The maximum
guaranteeable benefit essentially places a ceiling, or cap, on the
amount of a participant's guaranteed benefit. The maximum monthly
guaranteeable benefit under section 4022(b)(3)(B) was $750 per month
for a 65-year-old participant receiving a straight-life annuity in a
plan that terminated in 1974. (The maximum guaranteeable benefit may be
lower, under section 4022(b)(3)(A), depending on the participant's
average monthly gross income, but this limitation rarely applies, and
the discussion and examples in this regulation assume that it does not
apply.) The $750 monthly figure is adjusted each year based on the
contribution and wage base under the Social Security Act; for example,
for a plan whose termination date was in 2005 the maximum monthly
amount at age 65 payable as a straight-life annuity was $3,801.14. The
maximum guaranteeable benefit for an individual participant depends on
his age at the later of the plan's termination date or the date he
begins receiving his benefit from PBGC, and on the form in which the
benefit is paid. For example, the maximum guaranteeable benefit is
lower if the participant begins receiving benefits from PBGC before age
65, or if the benefit form will provide a survivor benefit after the
participant dies.
The phase-in limit under sections 4022(b)(1) and 4022(b)(7) of
ERISA provides that PBGC's guarantee of a benefit increase resulting
from amendment of an existing plan or adoption of a new plan is phased
in over a five-year period. PBGC's guarantee is equal to the number of
full years before the termination date that the increase was in effect,
multiplied by 20% (or $20 per month, if greater). For example, a
benefit increase that was in effect more than two years before the
termination date but less than three years is 40% guaranteed (or $40
per month, if greater, but not more than the amount of the increase). A
benefit increase is considered to be in effect from the later of the
date the benefit increase was adopted or the date it became effective.
There is a third limitation on PBGC's guarantee that the agency
adopted when it issued its initial guaranteed benefits regulation. (40
FR 43509, Sept. 22, 1975.) Under Sec. 4022.21 of PBGC's regulation,
PBGC's guarantee is generally limited to the amount of the
participant's benefit payable as a straight-life annuity commencing at
normal retirement age. This limit, often referred to as the ``accrued-
at-normal'' limit, means that PBGC generally does not guarantee
temporary supplemental benefits payable to a participant who retires
before normal retirement age. Consider, for example, a participant who
was entitled under his plan to receive $1,000 per month as a straight-
life annuity starting at his normal retirement date but who could
retire early under certain conditions with an unreduced benefit of
$1,000 plus a supplement of $400 per month payable until age 62. If the
participant retires early, PBGC generally will not guarantee more than
$1,000 per month.
Before PPA 2006, the maximum guaranteeable benefit, the phase-in
limit, and the accrued-at-normal limit were all calculated as of the
termination date of a plan. Accordingly, before PPA 2006, a
participant's guaranteed benefit would be the amount of the
nonforfeitable plan benefit to which the participant was entitled as of
the termination date, subject to the guarantee limits applicable as of
that date.
PPA 2006 Changes
Section 404 of PPA 2006 changed the way in which the amount of
guaranteed benefits will be determined in PPA 2006 bankruptcy
terminations. Section 404(a) of PPA 2006 added a new subsection (g) to
section 4022 of ERISA. New section 4022(g) provides as follows:
Bankruptcy Filing Substituted for Termination Date.--If a
contributing sponsor of a plan has filed or has had filed against
such person a petition seeking liquidation or reorganization in a
case under title 11, United States Code, or under any similar
Federal law or law of a state or political subdivision, and the case
has not been dismissed as of the termination date of the plan, then
this section shall be applied by treating the date such petition was
filed as the termination date of the plan.
The ``section'' referred to is section 4022 of ERISA, which as
explained above determines the amount of a participant's guaranteed
benefit. Thus, for a plan that terminates while its contributing
sponsor is in bankruptcy, section 4022(g) requires that a participant's
guaranteed benefit be determined by treating the date the sponsor's
bankruptcy petition was filed (the ``bankruptcy filing date'') as if it
were the termination date of the plan.
[[Page 37393]]
This change has a number of important consequences. First, it means
that a participant's guaranteed benefit can be no greater than the
amount of his plan benefit as of the bankruptcy filing date. Even
though the plan in many cases will have continued after the bankruptcy
filing date and (in the absence of a plan freeze) participants will
have continued to accrue benefits after that date, those post-
bankruptcy accruals will not be guaranteed. Thus, under the change, a
participant's guaranteed benefit will be calculated by reference to the
amount of his service and the amount of his compensation (or the amount
of the plan's benefit ``multiplier,'' depending on how the plan
calculates benefits) as of the bankruptcy filing date.
Second, only benefits that were nonforfeitable as of the bankruptcy
filing date will be guaranteed. For example, in a plan that has five-
year ``cliff'' vesting, a participant with less than five years of
service as of the bankruptcy filing date will have no guaranteed
benefit, even if his benefit becomes vested by the section 4048
termination date. Similarly, if a participant becomes entitled to a
disability retirement benefit or an early retirement subsidy after the
bankruptcy filing date but before the termination date, that disability
benefit or subsidy will not be guaranteed.
Third, the PBGC guarantee limits--the maximum guaranteeable
benefit, the phase-in limit, and the accrued-at-normal limit--will all
be determined as of the bankruptcy filing date. For example, if the
sponsor's bankruptcy filing date is in 2008 and the plan's termination
date is in 2010, the maximum guaranteeable benefit for all plan
participants will be based on the 2008 limit. Also, an individual
participant's maximum guaranteeable benefit will be based on his age
and form of benefit as of the later of the bankruptcy filing date or
the date he begins to receive his benefit. Similarly, the phase-in rule
will be applied by counting the number of full years before the
bankruptcy filing date that a benefit increase has been in effect. The
accrued-at-normal limit, too, will be determined based on the facts as
of the bankruptcy filing date.
The proposed rule would modify PBGC's regulations to reflect the
changes described above for PPA 2006 bankruptcy terminations. In most
cases, the proposed regulation simply provides that in a PPA 2006
bankruptcy termination, ``bankruptcy filing date'' is substituted for
``termination date'' each place that ``termination date'' appears in a
specified section or paragraph of the regulation. The proposed
regulation provides a number of examples to clarify what this means in
various situations. The regulations are unchanged for plans to which
the changes do not apply (non-PPA 2006 bankruptcy terminations).
Aggregate Limit on Benefits Guaranteed
Title IV of ERISA includes an additional limitation on PBGC's
guarantee that applies only when a participant receives benefits under
two or more trusteed plans. Section 4022B of ERISA provides that, in
such a situation, the sum of the guaranteed benefits payable from PBGC
funds with respect to all such plans may not exceed the maximum
guaranteeable benefit payable ``as of the date of the last plan
termination.''
PPA 2006 made no change to this provision. PBGC therefore proposes
to make no change to part 4022B of its regulations, and proposes to
calculate the aggregate limit, as previously, by reference to a
participant's maximum guaranteeable benefit as of the section 4048
termination date of the latest-terminating plan.
Benefits Payable Under the Section 4044 Allocation
Prior Law
PPA 2006 also made an important change to the allocation of a
terminated plan's assets under section 4044 of ERISA. To understand
this change, it is important to understand how the section 4044
allocation worked before the PPA 2006 amendment.
As noted above, a participant may receive more than his guaranteed
benefit from PBGC, depending on the amount of the plan's assets and
whether his benefits are entitled to priority under ERISA's allocation
scheme. Section 4044 of ERISA specifies how a plan's assets are to be
allocated among various classes of guaranteed and nonguaranteed
benefits of participants. Part 4044 of PBGC's existing regulations
provides detail about how assets and benefits are valued, and how the
assets are allocated to the benefits. (Section 4022(c) of ERISA may
provide additional benefits, as discussed below.)
The first step in the section 4044 allocation is to assign each
participant's plan benefits to one or more of six ``priority
categories'' that are described in paragraphs (1) through (6) of
subsection 4044(a) of ERISA. Before PPA 2006, the benefits in each
priority category were as follows:
Priority category 1: The portion of a participant's accrued benefit
derived from the participant's voluntary contributions.
Priority category 2: The portion of a participant's accrued benefit
derived from the participant's mandatory contributions.
Priority category 3: The portion of a participant's benefit that
was in pay status as of the beginning of the three-year period ending
on the termination date of the plan, or that would have been in pay
status at the beginning of such three-year period if the participant
had retired before the beginning of the three-year period. In either
case, however, the benefits in this category are limited to the lowest
annuity benefit payable under the plan provisions at any time during
the five-year period ending on the termination date (e.g., disregarding
benefit increases in the five-year period).
Priority category 4: All other guaranteed benefits, and benefits
that would be guaranteed but for the aggregate limit of section 4022B
of ERISA and the stricter phase-in limit that applies to business
owners.
Priority category 5: All other nonforfeitable benefits under the
plan.
Priority category 6: All other benefits under the plan.
PBGC's regulations make a distinction between a participant's
``gross'' benefit in a priority category and his ``net'' benefit in
that category (although the regulations do not use these terms). The
gross benefit is the total amount of the participant's benefit that
would be in a priority category, if benefits in higher priority (i.e.,
lower numbered) categories were not subtracted. The net benefit is the
amount in the priority category after subtracting amounts in higher
priority categories. For example, a participant's net benefit in
priority category 4 generally excludes any portion of his guaranteed
benefit that was allocated to priority categories 2 or 3. See 29 CFR
4044.10(c). Descriptions of benefits in a priority category usually
refer to the net benefits in that category, and the discussion below
generally follows that usage, unless otherwise indicated.
Once the benefits of each participant have been assigned to the
applicable priority category or categories, the benefits of all
participants are valued, using the rules in PBGC's valuation
regulation, 29 CFR part 4044, subpart B. The terminated plan's assets
are also valued (at fair market value). The valuation of both the plan
benefits and the plan assets is done as of the termination date.
After the plan benefits and assets are valued, the assets are
``poured through'' the priority categories, beginning with priority
category 1. If the assets are sufficient to pay all benefits in
priority
[[Page 37394]]
category 1, then they pour into priority category 2, and so on until
either all benefits in all categories have been covered or until the
assets are insufficient to pay all benefits within a category. Where
assets are insufficient to pay all benefits within a category, they are
allocated among the benefits in that category according to the rules in
part 4044 of PBGC's regulations.
It is important to note that benefits in priority category 3--which
may or may not be guaranteed--come ahead of guaranteed benefits in
priority category 4 in the section 4044 asset allocation. Thus, for
example, if a terminated plan's assets are sufficient to cover all
benefits in priority category 3, those benefits will be paid by PBGC,
regardless of whether they are guaranteed.
PPA 2006 Changes
Section 404 of PPA 2006 made an important change to priority
category 3 in the asset allocation, similar to the change to guaranteed
benefits. Section 404(b) added a new subsection (e) to section 4044,
which provides as follows:
Allocation of Assets Among Priority Groups in Bankruptcy
Proceedings.--If a contributing sponsor of a plan has filed or has
had filed against such person a petition seeking liquidation or
reorganization in a case under title 11, United States Code, or
under any similar Federal law or law of a State or political
subdivision, and the case has not been dismissed as of the
termination date of the plan, then subsection (a)(3) shall be
applied by treating the date such petition was filed as the
termination date of the plan.
Subsection (a)(3) of section 4044 describes the benefits assigned to
priority category 3. As explained above, before PPA 2006 the benefits
in priority category 3 were the benefits that were in pay status as of
the beginning of the three-year period ending on the termination date,
or that would have been in pay status as of that date if the
participant had retired--but based on the plan provisions during the
five years before the termination date under which the benefit would be
the least. See 29 CFR 4044.13. PBGC interprets new section 4044(e) to
mean that these three-year and five-year periods are the three-year and
five-year periods before the bankruptcy filing date rather than before
the termination date. In other words, the benefits in priority category
3 will be benefits in pay status, or that could have been in pay
status, three years before the bankruptcy filing date, but generally
taking into account only benefit increases that were effective
throughout the five-year period ending on the bankruptcy filing date.
(The exception in Sec. 4044.13(b)(5) for certain ``automatic'' benefit
increases will apply to applicable benefit increases in the fourth and
fifth years preceding the bankruptcy filing date.)
In addition, the changes made by PPA 2006 section 404(a) to the way
guaranteed benefits are determined necessarily affect the gross
benefits that are assigned to priority category 4. As explained above,
the gross benefits assigned to priority category 4 are guaranteed
benefits (and benefits that would be guaranteed but for the aggregate
limit of section 4022B and the stricter phase-in limit that applies to
business owners). Because section 404(a) of PPA 2006 has modified
PBGC's guarantee, the gross benefits assigned to priority category 4 in
a PPA 2006 bankruptcy termination are those benefits guaranteed under
new section 4022(g), not the benefits that would be guaranteed absent
that provision. In other words, the guaranteed benefits in priority
category 4 will be the plan benefits that were both accrued and
nonforfeitable as of the bankruptcy filing date, based on the guarantee
limits as of that date. In addition, the PPA 2006 changes to benefits
in priority category 3 necessarily affect the net benefits in priority
category 4 as well; some guaranteed benefits that previously would have
been in priority category 3 will now fall into priority category 4. The
proposed rule reflects this treatment.
PPA 2006 did not amend the other priority categories of section
4044. Therefore, the gross amount of a participant's benefit in those
categories will be unaffected by the changes discussed above. For
example, the gross amount of a participant's benefit in priority
category 5 is all of the participant's benefit that is nonforfeitable
as of the plan's termination date. See ERISA section 4044(a)(5); 29 CFR
4044.15. Thus, a benefit that is not guaranteed because it was
forfeitable as of the bankruptcy filing date will be treated as
nonforfeitable for purposes of priority category 5 if the participant
satisfied the conditions of entitlement to the benefit between the
bankruptcy filing date and the plan's termination date.
The net amount of a participant's benefit in priority category 5,
however, is necessarily affected by the changes to the benefits in
priority categories 3 and 4. For example, benefits that are not
guaranteed because they became nonforfeitable between the sponsor's
bankruptcy filing date and the plan's termination date will not be in
priority category 4 but will be in priority category 5. Thus, a
participant in that situation will have a smaller guaranteed benefit in
priority category 4 and therefore a larger net benefit in priority
category 5. (Benefits in priority category 5 are divided into
subcategories, based on whether they would have been payable based on
the plan provisions in effect five years before the plan's termination
date, or became payable due to subsequent plan amendments. See ERISA
section 4044(b)(4) (before PPA 2006, section 4044(b)(3)); 29 CFR
4044.10(e). Because PPA 2006 did not amend this provision, PBGC
interprets the five-year period in section 4044(b)(4) of ERISA--and in
Sec. 4044.10(e) of PBGC's regulation--as still being the five-year
period before the termination date. No change in the regulation is
needed to embody this interpretation.)
Like the change to the guarantee provisions, the PPA 2006 changes
to the ERISA section 4044 asset allocation apply to PPA 2006 bankruptcy
terminations--plan terminations occurring during a bankruptcy
proceeding initiated on or after September 16, 2006.
The PPA 2006 changes, as explained above, require PBGC to determine
the amount of a participant's monthly benefit in priority category 3
and priority category 4 by reference to the bankruptcy filing date
rather than the termination date. Valuing benefits in the priority
categories is a different matter. PBGC has always valued benefits and
plan assets as of the plan's termination date, and section 4044(e) does
not dictate a change to that approach for priority category 3. Although
section 4044(e) might be read to suggest that a valuation should be
done as of the bankruptcy filing date for purposes of priority category
3, PBGC believes that the better interpretation is that the valuation
should still be done as of the termination date. Subsection (a)(3) of
section 4044, which is to be ``applied'' by treating the bankruptcy
filing date as the termination date, describes only the kind of
benefits that fall into priority category 3, not the time or manner of
valuing those benefits or plan assets.
Moreover, because the statutory change applies only to priority
category 3, benefits and plan assets will still be valued as of the
termination date for all other categories. Using a different valuation
date for priority category 3 than for all the other priority categories
would be complex to administer, difficult to explain to participants,
and anomalous in its results. In the absence of a clear statutory
mandate of that intricate approach, PBGC proposes to take the simpler
and more coherent approach of valuing benefits and assets as of the
termination date for all priority categories.
[[Page 37395]]
Accordingly, the proposed rule makes no change to PBGC's existing
rules in this regard. Under Sec. 4044.10(c), benefits in a trusteed
plan will still be valued as of the termination date. The tables in
Appendix D to part 4044 used to determine a participant's expected
retirement age are also unchanged, and continue to be based on the year
in which the plan's termination date occurs and on the facts as of the
termination date. A terminated plan's assets, too, will still be valued
as of the termination date under Sec. 4044.3(b).
Benefits Payable Under Section 4022(c) of ERISA
Prior Law
Under section 4022(c) of ERISA, PBGC pays additional benefits to
participants and beneficiaries, beyond guaranteed benefits and benefits
provided by the plan's assets. The amount of section 4022(c) benefits
depends on PBGC's recoveries of unfunded benefit liabilities under
section 4062 (or, in some circumstances, under sections 4063 or 4064).
Sections 4062(a) and (b) of ERISA provide that, when a plan terminates
in a distress termination or an involuntary termination, the
contributing sponsor of the plan and all members of the contributing
sponsor's controlled group are liable to PBGC for the ``total amount of
the unfunded benefit liabilities (as of the termination date) to all
participants and beneficiaries under the plan.'' The amount of unfunded
benefit liabilities, defined in section 4001(a)(18) of ERISA, is the
excess of the value of the plan's benefit liabilities over the value of
the plan's assets--i.e., the amount of the shortfall in the plan's
assets.
PBGC seeks to recover from contributing sponsors and members of
their controlled groups as much as it can of terminated plans' unfunded
benefit liabilities. A portion of those recoveries is paid to
participants and beneficiaries of a terminated plan in accordance with
the provisions of section 4022(c) of ERISA. Section 4022(c) provides
for determination of a ``recovery ratio,'' which is then multiplied by
the total value of the plan's unfunded nonguaranteed benefits to
determine the total amount allocable to participants in the plan who
have unfunded nonguaranteed benefits. It is allocated to those unfunded
nonguaranteed benefits beginning in the section 4044 priority category
where the plan's assets ran out, but none of it is allocated to
guaranteed benefits--i.e., this section 4022(c) allocation ``skips
over'' guaranteed benefits in the priority categories.
The recovery ratio is described in section 4022(c)(3) of ERISA. For
a large plan, it equals the value of PBGC's recovery of unfunded
liabilities for that plan divided by the amount of that plan's unfunded
benefit liabilities ``as of the termination date.'' For a small plan,
the ratio is based on an average of PBGC's recoveries over a five-year
period. For this purpose, a small plan is any plan in which the value
of unfunded nonguaranteed benefits is equal to or less than $20
million. (Section 408 of PPA 2006 changed the five-year period over
which the recovery ratio is determined for small plans; that change
generally applies to plans in which termination was initiated on or
after September 16, 2006.)
A plan's unfunded nonguaranteed benefits, as the term suggests, are
those benefits that are neither funded by the plan's assets under the
section 4044 allocation nor guaranteed by PBGC. (PBGC generally uses
the term ``unfunded nonguaranteed benefits,'' because that term is more
descriptive than ``outstanding amount of benefit liabilities,'' the
term used in section 4001(a)(19) of ERISA.) Stated differently, the
unfunded nonguaranteed benefits are the benefits lost by participants
on account of their plan's termination, a portion of which is made up
by the section 4022(c) allocation.
PPA 2006 Changes
New section 4022(g) instructs PBGC to apply section 4022 by
treating the bankruptcy filing date as the plan's termination date.
Section 4022(c), of course, is part of section 4022. PBGC interprets
this statutory language, for section 4022(c) benefits, to mean that in
determining a plan's unfunded nonguaranteed benefits, PBGC must take
into account the changes to guaranteed benefits under new section
4022(g) and the changes to the asset allocation under new section
4044(e). For example, a benefit that became nonforfeitable between the
bankruptcy filing date and the termination date is not guaranteed and
thus (if not funded) is included in the unfunded nonguaranteed
benefits.
The regulation also provides that, as in a non-PPA 2006 bankruptcy
termination, PBGC will value the unfunded nonguaranteed benefits as of
the termination date. For reasons similar to those explained above
regarding priority category 3 benefits, PBGC believes that the
statutory provision should not be interpreted to require a different
valuation date for this purpose.
The proposed regulation similarly provides that the other elements
that go into calculation of section 4022(c) benefits are unaffected by
the PPA 2006 changes. The recovery ratio described in section
4022(c)(3)(A), as explained above, is based on PBGC's recoveries of
unfunded benefit liabilities. Because that section provides that the
denominator of the recovery ratio is the amount of the plan's unfunded
benefit liabilities as of the termination date, one might conclude that
in a PPA 2006 bankruptcy termination the unfunded benefit liabilities
should be determined for this purpose as of the bankruptcy filing date.
The proposed regulation does not adopt that approach. The numerator of
the recovery ratio--PBGC's recoveries--is based on PBGC's statutory
claim for unfunded benefit liabilities, which, under section 4062(b) of
ERISA, must be determined as of the termination date. Because section
4062(b) was not amended by PPA 2006, PBGC's recoveries will still be
based on that termination date-computed claim. PBGC believes that the
general language of section 4022(g) should not be interpreted to
require a separate determination of unfunded benefit liabilities to be
made as of the bankruptcy filing date, when PBGC recoveries will be
based on a determination of unfunded benefit liabilities as of the
termination date. Thus, the amount of a plan's unfunded benefit
liabilities, as in a non-PPA 2006 bankruptcy termination, will be
determined based on the value of the plan's assets and benefit
liabilities as of the termination date. See ERISA sections 4001(a)(18),
4062(b).
The proposed rule would add a new Sec. 4022.51 to PBGC's
regulations to incorporate the above interpretations. It provides, for
example, that in computing section 4022(c) benefits in a PPA 2006
bankruptcy termination, the benefits included in a plan's unfunded
nonguaranteed benefits take into account the provisions of sections
4022(g) and 4044(e) of ERISA, and the corresponding provisions of
PBGC's regulations. The value of unfunded nonguaranteed benefits would
be multiplied by the recovery ratio, as in a non-PPA 2006 bankruptcy
termination, to determine the total dollar amount to be allocated for
the plan. That dollar amount would be allocated to the unfunded
nonguaranteed benefits of participants in the same manner as before PPA
2006, but the result of the allocation would be different because of
the changes made by section 404 of PPA 2006 to guaranteed benefits and
the benefits in priority category 3. For example, a benefit that would
have been guaranteed under prior law but is not guaranteed under PPA
2006 and is not
[[Page 37396]]
funded under the section 4044 allocation is an unfunded nonguaranteed
benefit that might be paid under the section 4022(c) allocation.
Other Issues
Reduction of Benefits to Title IV Levels
In a distress termination, the plan administrator is required,
beginning on the proposed termination date, to reduce benefits in pay
status to the estimated levels payable under Title IV. See ERISA
section 4041(c)(3)(D)(ii); 29 CFR 4041.42(c), 4022.61-4022.63. The
proposed regulation provides that for any PPA 2006 bankruptcy
termination, those estimated benefits are based on the rules described
above relating to the bankruptcy filing date.
PPA 2006 did not change the provision in section 4041 of ERISA
about when these benefit reductions are to be made. Accordingly, the
proposed regulation does not change the rule in Sec. 4041.42(c) of the
regulations that the reductions are made beginning on the proposed
termination date.
Recoupment of Overpayments
PBGC's current regulations provide that the agency recoups benefit
overpayments if it determines that net benefits paid exceed the amount
to which a participant is entitled under Title IV of ERISA. See 29 CFR
4022.81. For example, if a retiree is paid an estimated Title IV
benefit of $3,050 per month while PBGC is processing the termination of
the plan, and PBGC later determines that the participant is entitled to
a Title IV benefit of only $3,000 per month, the agency generally
recoups the net overpayment (the $50 difference times the number of
months the benefit was overpaid) from future benefit payments. The
amount recouped is determined by multiplying future benefit payments by
a fraction the numerator of which is the net overpayment and the
denominator of which is the present value of the benefit to which the
participant is entitled under Title IV. The proposed regulation amends
Sec. 4022.82(a) to provide that the denominator is determined taking
into account the changes to participants' benefits made by section 404
of PPA 2006.
In computing the net overpayment, the current regulations provide
that PBGC takes into account only overpayments made on or after the
latest of the proposed termination date, the termination date, or, if
no notice of intent to terminate was issued, the date on which
proceedings to terminate the plan are instituted pursuant to section
4042 of ERISA. See 29 CFR Sec. 4022.81(c)(1). Thus, for example, in a
case where a plan is terminated under section 4042 and the termination
date is before the date on which PBGC initiated termination
proceedings, PBGC does not recoup overpayments made before initiation
of the termination proceedings even though those overpayments were made
after (what later became) the termination date.
PBGC proposes not to make any change to this rule. Accordingly, as
under prior law, in determining the amount to be recouped (or otherwise
recovered, if there are no future benefits from which to recoup), PBGC
will include only overpayments made on or after the latest of the
proposed termination date, the termination date, or, if no notice of
intent to terminate was issued, the date on which proceedings to
terminate the plan are instituted pursuant to section 4042 of ERISA.
Entry Into Pay Status
As explained above, under new section 4022(g) of ERISA, PBGC will
not guarantee a benefit that was forfeitable as of the bankruptcy
filing date even it became nonforfeitable by the termination date. This
includes, for example, a subsidized early retirement benefit to which a
participant became entitled between the two dates.
Because the plan normally will have been ongoing as of the
bankruptcy filing date, participants who became entitled to subsidized
early retirement benefits or other benefits after the bankruptcy filing
date but before the termination date may have retired and been put into
pay status by the plan administrator. It would impose a hardship on
such participants to take them out of pay status, likely depriving them
of all or most of their retirement income.
To address this situation, the regulation proposes that
participants who became entitled under their plan to subsidized early
retirement benefits or other benefits between the bankruptcy filing
date and the termination date will be continued in pay status or, if
they are not already receiving a benefit, will be allowed to go into
pay status. The amount of such a benefit, however, would be reduced to
reflect that the subsidy is not guaranteed.
Sufficiency for Guaranteed Benefits
In a distress termination, the plan's enrolled actuary must
certify, among other things, whether the plan is sufficient for
guaranteed benefits as of the proposed termination date and as of the
proposed distribution date. ERISA section 4041(c)(2)(A). In making
those determinations, the actuary must take into account nonguaranteed
benefits to which the plan's assets must be allocated under section
4044--notably, nonguaranteed benefits in priority category 3. PBGC must
determine whether it agrees that the plan is sufficient for guaranteed
benefits. ERISA section 4041(c)(3)(A). If PBGC agrees that the plan is
sufficient for guaranteed benefits, it so notifies the plan
administrator and the administrator then proceeds to distribute the
plan's assets and carry out the termination of the plan. ERISA section
4041(c)(3)(B)(ii). One purpose of the determinations under section 4041
of the plan's sufficiency for guaranteed benefits is to avoid PBGC
trusteeship of a plan that has enough assets to pay all the benefits
that PBGC would pay if it took over the plan. (Any additional benefits
that may be payable under section 4022(c) of ERISA are not considered
for purposes of whether a plan is sufficient for guaranteed benefits.)
The proposed regulation provides that in a PPA 2006 bankruptcy
termination, the determination of sufficiency for guaranteed benefits
is made taking into account the amendments made by section 404 of PPA
2006. That is, the plan actuary and PBGC should determine sufficiency
for guaranteed benefits based on whether, as of the termination date
and the distribution date, the plan has sufficient assets to pay the
benefits that are guaranteed as of the bankruptcy filing date and the
benefits that are in priority category 3 as of three years before the
bankruptcy filing date (based generally on the plan provisions as of
five years before the bankruptcy filing date). It would make little
sense to treat as insufficient for guaranteed benefits--and thus
require PBGC to trustee--a plan that has enough assets to provide all
the benefits that PBGC would pay if it became statutory trustee of the
plan.
Amendment of Definition of Basic-Type Benefit
PBGC's regulations define the term ``basic-type benefit'' in Sec.
4001.2 to mean any benefit that is guaranteed under part 4022 or that
would be guaranteed if the guarantee limits in Sec. Sec. 4022.22
through 4022.27 (primarily the maximum guaranteeable benefit and the
phase-in limit) did not apply. A ``nonbasic-type benefit'' is any
benefit provided by a plan other than a basic-type benefit. The effect
of this distinction is to treat temporary supplements, which as
explained above are generally not guaranteed due to the accrued-at-
normal limitation in Sec. 4022.21, as nonbasic-type
[[Page 37397]]
benefits. Nonbasic-type benefits are treated differently from basic-
type benefits in the section 4044 allocation. See, e.g., Sec. Sec.
4044.10(c) and 4044.12.
If no change were made to the definition of basic-type benefit in a
PPA 2006 bankruptcy termination, benefits that accrued, or to which a
participant otherwise became entitled, between the sponsor's bankruptcy
filing date and the plan's termination date would become nonbasic-type
benefits (because they would not be guaranteed but not due to the
limitations in Sec. Sec. 4022.22 through 4022.27) and thus subject to
the different treatment currently accorded temporary supplements. Such
benefits would, absent this regulatory change, receive less favorable
treatment in priority category 5, a technical result that PBGC believes
was not intended by the statutory change. Not amending the regulation
would also require PBGC to follow the more complex allocation
procedures in part 4044 for nonbasic-type benefits even where a plan
has no temporary supplements. Accordingly, the proposed regulation
would modify the definition of ``basic-type benefits'' to provide that
benefits not guaranteed solely because they accrued or became
nonforfeitable, or the participant became entitled to them, after the
bankruptcy filing date will be considered basic-type benefits. This
change to the regulatory definition of basic-type benefits requires a
conforming change to Sec. 4044.14 of the regulations, to ensure that
these nonguaranteed benefits are not placed in priority category 4,
which (with limited exceptions for benefits of business owners and of
participants in more than one terminated plan) is reserved for
guaranteed benefits.
Determination of the Bankruptcy Filing Date
Section 404 of PPA 2006 requires treating the date that a
contributing sponsor of a plan has filed or has had filed against it
``a petition seeking liquidation or reorganization in a case under
title 11, United States Code, or under any similar Federal law or law
of a state or political subdivision'' as the termination date of the
plan, for the purposes discussed above. The proposed regulation uses
the term ``bankruptcy filing date'' to describe the date when a
bankruptcy petition has been filed, and PBGC does not anticipate
difficulty determining what that date is in most cases.
However, three situations may arise in which there could be
ambiguity about the bankruptcy filing date. The first involves
conversion of a bankruptcy case--for example, where a bankruptcy case
began with the filing of a petition for reorganization under Chapter 11
of the Bankruptcy Code but was later converted to a liquidation case
under Chapter 7. The proposed regulation clarifies that, in such a
situation, the date of the original bankruptcy petition is the
bankruptcy filing date. This is consistent with section 348 of the
Bankruptcy Code, which provides that conversion of a case from one
chapter to another under the Bankruptcy Code does not change the date
of the filing of the petition.
The second situation involves plans that have more than one
contributing sponsor. Section 404 of PPA 2006 applies where a plan
terminates during the bankruptcy proceeding of ``a'' contributing
sponsor of a plan. Although most terminating single-employer plans have
only a single contributing sponsor, some plans have more than one
contributing sponsor. If a plan with multiple contributing sponsors
terminates during the sponsors' bankruptcy proceedings and if the
various sponsors all filed for bankruptcy on the same date, the
proposed regulation provides that that date is the bankruptcy filing
date.
However, if the various contributing sponsors filed for bankruptcy
on different dates, or if not all of them have filed for bankruptcy, it
is not obvious what date should be treated as the bankruptcy filing
date. PBGC believes that it would be impracticable to use more than one
bankruptcy filing date in determining benefits under a single plan. But
PBGC also believes that it would be unwise to attempt to establish a
mechanical rule on what date to use that would apply in all cases. The
proposed regulation therefore provides that, where a plan has more than
one contributing sponsor and not all sponsors filed for bankruptcy on
the same date, PBGC will determine the date to treat as the bankruptcy
filing date for determining guaranteed benefits and benefits in
priority category 3. PBGC's determination will be based on all the
relevant facts and circumstances, which may include such things as the
size of the various contributing sponsors, the relative amounts of
their minimum required contributions to the plan, the amount of time
between bankruptcy filing dates, and the expectations of participants
regarding continuation of the plan.
The third situation involves liquidation or reorganization cases
that are filed, not under the U.S. Bankruptcy Code, but under a
``similar * * * law of a state or political subdivision.'' Some states
have insolvency statutes similar to the U.S. Bankruptcy Code and
include provisions similar to 11 U.S.C. 301(a), 302(a), and 303(b)
under which a case is commenced by the filing of a petition in court.
The date on which such a petition is filed would be treated as the
bankruptcy filing date under the proposed rule. Other, perhaps more
informal, proceedings, such as assignments for the benefit of
creditors, may have different procedures for commencing cases, which
may vary from state to state. For such proceedings, PBGC would make
case-by-case determinations on what date is most analogous to the date
of the filing of a bankruptcy petition and would treat that date as the
bankruptcy filing date.
Changes Unrelated to PPA 2006
A few minor changes unrelated to the PPA 2006 amendments are
proposed. For example, in Sec. Sec. 4022.4(a)(1), 4044.2, and 4044.13,
the proposed regulation would change the words ``date of termination''
or ``date of plan termination'' to ``termination date'' to conform to
the current phrasing in section 4048(a) of ERISA. The proposed
regulation would amend Sec. 4022.4 to codify PBGC's practice of
allowing a participant who has elected an optional annuity form of
benefit (not a lump sum) at any time up until the date that PBGC is
appointed statutory trustee of the plan to receive his benefit in that
form, even if it is not one of the PBGC optional forms under Sec.
4022.8(c) of the regulations. The proposed regulation would also
correct the reference in Sec. 4022.22 to the provision of the Internal
Revenue Code defining ``earned income''; the definition has been moved
from section 911(b) to section 911(d)(2) of the Code since PBGC's
original regulation was adopted.
A new Sec. 4022.62(b)(5) has been added to clarify that the rules
in Sec. 4022.62(b), which generally apply to the calculation of
estimated benefits pending PBGC's determination of final benefits, do
not override the requirements of subparts A or B of part 4022 with
respect to the requirements for a benefit to be guaranteed by PBGC.
Coordination With Other PPA 2006 Amendments
Section 404 was only one of a number of provisions of PPA 2006 that
affect the determination of benefits under Title IV. PBGC's regulations
therefore must coordinate the various provisions, where necessary.
Below is a description of certain PPA 2006 amendments that interrelate
with the changes made by section 404.
[[Page 37398]]
Shutdown Benefits and Other Unpredictable Contingent Event Benefits
One situation requiring coordination involves section 403 of PPA
2006, which added new section 4022(b)(8) to the guarantee provisions of
Title IV. Section 4022(b)(8) provides a special phase-in rule for
shutdown benefits and other ``unpredictable contingent event
benefits.'' In cases to which that provision applies, PBGC is to apply
the phase-in rules of section 4022 as if a plan amendment had been
adopted on the date that the unpredictable contingent event occurred.
For example, in a case in which new section 4022(g) does not apply, if
an unpredictable contingent event occurred more than two years but less
than three years before the termination date, this would mean that the
guarantee of a benefit increase arising from the unpredictable
contingent event would be 40% phased in.
But if section 4022(g) also applies to such a case, PBGC believes
that, as with other benefit increases, the five-year phase-in period
must be measured by reference to the bankruptcy filing date, not the
termination date. Thus, continuing the above example, if the sponsor's
bankruptcy filing date were one year before the plan's termination
date, then the guarantee of the unpredictable contingent event benefit
would be only 20% rather than 40% phased in, because the unpredictable
contingent event would have occurred more than one year but less than
two years before the bankruptcy filing date. Section 4022(b)(8) applies
to benefits that become payable as a result of an unpredictable
contingent event that occurs after July 26, 2005.
PBGC intends to issue a separate proposed rule to implement section
4022(b)(8).
Commercial Airlines
Another provision that raises coordination issues is PPA 2006
section 402(g)(2)(A), which added new section 4022(h) to Title IV.
Section 4022(h) modifies the guarantee and asset allocation rules
primarily for plans of commercial airlines that make an election under
section 402(a)(1) of PPA 2006 (relating to special minimum funding
rules) and that terminate within 10 years of such election. Section
4022(h) provides that when those conditions are met, section 4022 is to
be applied by treating the first day of the first applicable plan year
(for the special airline funding rules) as the termination date of the
plan. It also provides generally that the plan's assets are to be
allocated first to the benefits that would have been guaranteed but for
this provision (i.e., ahead of benefits in all other priority
categories under section 4044). Section 4022(h) applies to plan years
ending after August 17, 2006.
The proposed regulation does not address implementation of section
4022(h) or how it interrelates with the amendments made by section 404
of PPA 2006. PBGC intends to do so in a future rulemaking.
Substantial Owner Benefits
Section 407 of PPA 2006 amended section 4022(b)(5) of ERISA, which
previously provided a special phase-in rule for PBGC's guarantee of the
benefits of ``substantial owners,'' who were generally defined as those
owning more than 10% of the business. Under the amendment, a special
phase-in rule applies only to benefits of ``majority owners,''
generally defined as those owning 50% or more of the business. The
amendment also completely revamped the way in which the special phase-
in rule works. Previously, the substantial owner phase-in rule was used
in lieu of the usual phase-in rule for benefits of substantial owners.
The new majority owner phase-in rule, by contrast, applies in addition
to the usual phase-in rule, but the additional limitation looks back
only 10 years rather than 30 years. Finally, section 407 of PPA 2006
amended section 4044 of ERISA to change the treatment in priority
category 4 of benefits subject to the majority owner phase-in. These
section 407 amendments are effective for distress terminations in which
notices of intent to terminate are provided on or after January 1,
2006, and for involuntary terminations in which notices of
determination are provided on or after January 1, 2006.
The proposed regulation does not address implementation of these
changes or how they interrelate with the amendments made by section 404
of PPA 2006. PBGC intends to do so in a future rulemaking.
Applicability
Section 404(c) of PPA 2006 provided that the changes made by
section 404 apply to any plan whose termination date occurs while
bankruptcy proceedings are pending with respect to the contributing
sponsor of the plan, if the bankruptcy proceedings were initiated on or
after September 16, 2006. Bankruptcy proceedings are pending, for this
purpose, if the contributing sponsor has filed or has had filed against
it a petition seeking liquidation or reorganization in a case under
title 11, United States Code, or under any similar Federal law or law
of a State or political subdivision, and the case has not been
dismissed as of the termination date of the plan. Accordingly, the
proposed regulation, which implements the statutory changes, likewise
applies to terminations occurring during a bankruptcy proceeding of the
contributing sponsor that was initiated on or after September 16, 2006.
Compliance With Rulemaking Guidelines
E.O. 12866
PBGC has determined, in consultation with the Office of Management
and Budget, that this rule is a ``significant regulatory action'' under
Executive Order 12866. The Office of Management and Budget has
therefore reviewed this notice under E.O. 12866. Pursuant to section
1(b)(1) of E.O. 12866 (as amended by E.O. 13422), PBGC identifies the
following specific problems that warrant this agency action: Section
404 of the Pension Protection Act of 2006 made significant changes to
provisions of Title IV of ERISA relating to the guarantee of benefits
under section 4022 and the allocation of a terminated plan's assets
under section 4044. The proposed rule implements those statutory
changes and, as described in this preamble, clarifies the implications
of those changes in areas where there might be ambiguity in the absence
of a regulation. The proposed rule provides guidance to participants
and beneficiaries of terminated plans about their benefits paid by
PBGC; it will also assist PBGC staff in making benefit determinations.
Except for a few minor housekeeping items described above under
``Changes Unrelated to PPA 2006,'' the proposed rule is limited to
implementing and clarifying the changes made by section 404.
Regulatory Flexibility Act
PBGC certifies under section 605(b) of the Regulatory Flexibility
Act (5 U.S.C. 601 et seq.) that the amendments in this proposed
regulation would not have a significant economic impact on a
substantial number of small entities. The amendments implement and in
some cases clarify statutory changes made in PPA 2006; they do not
impose new burdens on entities of any size. Virtually all of the
statutory changes affect only PBGC and persons who receive benefits
from PBGC. Accordingly, as provided in section 605 of the Regulatory
Flexibility Act, sections 603 and 604 do not apply.
[[Page 37399]]
List of Subjects
29 CFR Part 4001
Pensions.
29 CFR Part 4022
Pension insurance, Pensions, Reporting and recordkeeping
requirements.
29 CFR Part 4044
Pension insurance, Pensions.
For the reasons given above, PBGC proposes to amend 29 CFR parts
4001, 4022, and 4044 as follows.
PART 4001--TERMINOLOGY
1. The authority citation for part 4001 continues to read as
follows:
Authority: 29 U.S.C. 1301, 1302(b)(3).
2. In Sec. 4001.2:
a. Amend the definition of ``basic-type benefit'' by adding at the
end: ``In a PPA 2006 bankruptcy termination, it also includes a benefit
accrued by a participant, or to which a participant otherwise became
entitled, on or before the plan's termination date but that is not
guaranteed solely because of the provisions of Sec. Sec. 4022.3(b) or
4022.4(c).''
b. Amend the definition of ``sufficient for guaranteed benefits''
by adding at the end: ``In a PPA 2006 bankruptcy termination, the
determination whether a plan is sufficient for guaranteed benefits is
made taking into account the limitations in sections 4022(g) and
4044(e) of ERISA (and corresponding provisions of these regulations).
The determinations of which benefits are guaranteed and which benefits
are in priority category 3 under section 4044(a)(3) of ERISA are made
by reference to the bankruptcy filing date, but the present values of
those benefits are determined as of the proposed termination date and
the date of distribution.''
c. Add two new definitions in alphabetical order to read as
follows:
Sec. 4001.2 Definitions.
* * * * *
``Bankruptcy filing date means the date on which a petition
commencing a case under the United States Bankruptcy Code is filed, or
the date on which any similar filing is made commencing a case under
any similar Federal law or law of a state or political subdivision,
with respect to the contributing sponsor of a plan, if such case has
not been dismissed as of the termination date of the plan. If a
bankruptcy petition is filed under one chapter of the United States
Bankruptcy Code, or under one chapter or provision of any such similar
law, and the case is converted to a case under a different chapter or
provision of such Code or similar law (for example, a Chapter 11
reorganization case is converted to a Chapter 7 liquidation case), the
date of the original petition is the bankruptcy filing date. If such a
plan has more than one contributing sponsor: (a) If all contributing
sponsors entered bankruptcy on the same date, that date is the
bankruptcy filing date; (b) if all contributing sponsors did not enter
bankruptcy on the same date (or if not all contributing sponsors have
filed for bankruptcy), PBGC will determine the date that will be
treated as the bankruptcy filing date based on all the facts and
circumstances, including but not limited to the relative sizes of the
contributing sponsors, the relative amounts of their minimum required
contributions to the plan, and the expectations of participants
regarding continuation of the plan.
* * * * *
PPA 2006 bankruptcy termination means a plan termination to which
section 404 of the Pension Protection Act of 2006 applies. Section 404
of the Pension Protection Act of 2006 applies to any plan termination
in which the termination date occurs while bankruptcy proceedings are
pending with respect to the contributing sponsor of the plan, if the
bankruptcy proceedings were initiated on or after September 16, 2006.
Bankruptcy proceedings are pending, for this purpose, if a contributing
sponsor has filed or has had filed against it a petition seeking
liquidation or reorganization in a case under title 11, United States
Code, or under any similar Federal law or law of a State or political
subdivision, and the case has not been dismissed as of the termination
date of the plan.''
* * * * *
PART 4022--BENEFITS PAYABLE IN TERMINATED SINGLE-EMPLOYER PLANS
3. 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.
4. Immediately preceding subpart A, add the following note:
Note: PBGC has not yet amended part 4022 to reflect certain
changes made by the Pension Protection Act of 2006, Public Law 109-
280. Those changes include Section 402(g)(2)(A) of PPA 2006 added
section 4022(h) to ERISA, which modifies the Title IV guarantee and
asset-allocation rules primarily for plans of certain commercial
airlines. Section 403 of PPA 2006 added section 4022(b)(8) to ERISA,
which provides a special rule for the phase-in of PBGC's guarantee
of shutdown benefits and other ``unpredictable contingent event
benefits''. Section 407 of PPA 2006 amended section 4022(b)(5) of
ERISA to change the rules for the phase-in of PBGC's guarantee of
the benefits of business owners. Section 408 of PPA 2006 amended
section 4022(c)(3)(B)(ii) of ERISA to change the five-year period
used for averaging PBGC's recoveries in computing benefits under
section 4022(c). PBGC intends to amend part 4022 at a later date to
conform it to current statutory provisions.
Sec. 4022.2 [Amended]
5. In Sec. 4022.2, amend the first paragraph by removing the words
``annuity, Code'' and adding in their place ``annuity, bankruptcy
filing date, Code''; and by removing the words ``plan year, proposed
termination date'' and adding in their place ``plan year, PPA 2006
bankruptcy termination, proposed termination date''.
6. In Sec. 4022.3:
a. Redesignate paragraphs (a), (b), and (c) as paragraphs (1), (2),
and (3).
b. Designate the introductory text as paragraph (a), and add a new
heading ``General.''
c. Add new paragraph (b) to read as follows:
Sec. 4022.3 Guaranteed benefits.
(a) General.* * *
(b) PPA 2006 bankruptcy termination.
(1) Substitution of bankruptcy filing date. In a PPA 2006
bankruptcy termination, ``bankruptcy filing date'' is substituted for
``termination date'' each place that ``termination date'' appears in
paragraph (a) of this section.
(2) Examples.
(i) Vesting. A plan provides for 5-year ``cliff'' vesting--i.e.,
benefits become 100% vested when the participant completes five years
of service; before the five-year mark, benefits are 0% vested. The
contributing sponsor of the plan files a bankruptcy petition on
November 15, 2006. The plan terminates with a termination date of
December 4, 2007, and PBGC becomes statutory trustee of the plan. A
participant had four years and six months of service at the bankruptcy
filing date and became vested in May 2007. None of the participant's
benefit is guaranteed because the benefit was not nonforfeitable as of
the bankruptcy filing date.
(ii) Subsidized early retirement benefit. The facts regarding the
plan are the same as in Example (i), but the plan also provides that a
participant may retire from active employment with a subsidized (i.e.,
not actuarially reduced) early retirement benefit if he is at least age
55 and has completed 10 years of service. A participant was age 55 and
had nine years and six months of
[[Page 37400]]
service at the bankruptcy filing date. The participant continued
working for another six months, then retired as of June 1, 2007, and
immediately began receiving from the plan a subsidized early retirement
benefit. The subsidized early retirement benefit is not guaranteed by
PBGC because it was not nonforfeitable on the bankruptcy filing date.
PBGC will continue paying the participant a benefit, but it will
guarantee only that portion of the participant's benefit that does not
include the subsidy. PBGC would also allow a similarly situated
participant who had not started receiving a benefit before PBGC became
trustee of the plan to begin receiving a benefit, but in an amount that
does not include the subsidy.
(iii) Accruals after bankruptcy filing date. The facts regarding
the plan are the same as in Example (i). A participant has a vested,
accrued benefit of $500 per month as of the bankruptcy filing date. At
the plan's termination date, the participant has a vested, accrued
benefit of $512 per month. His guaranteed benefit is limited to $500
per month, the accrued, nonforfeitable benefit as of the bankruptcy
filing date.
7. In Sec. 4022.4:
a. Amend paragraph (a)(1) by removing ``date of the termination''
and adding in its place ``termination date''.
b. Amend paragraph (a)(3) by removing ``; or'' at the end.
c. Amend paragraph (a)(4) by adding ``; or'' at the end.
d. Revise paragraph (a)(2) and add new paragraph (c) to read as
follows:
Sec. 4022.4 Entitlement to benefit.
(a) * * *
(2) The benefit is an annuity form of payment that the participant
or beneficiary elected before the termination date of the plan or, if
later, the date on which PBGC became statutory trustee of the plan.
* * * * *
(c) In a PPA 2006 bankruptcy termination, ``bankruptcy filing
date'' is substituted for ``termination date'' each place that
``termination date'' appears in paragraphs (a)(1) and (a)(3) of this
section.
8. In Sec. 4022.6:
a. Amend paragraph (a) by removing ``provided in paragraph (b) of''
and adding in its place ``otherwise provided in''.
b. Add new paragraph (d) to read as follows:
Sec. 4022.6 Annuity payable for total disability.
* * * * *
(d) PPA 2006 bankruptcy termination. In a PPA 2006 bankruptcy
termination, ``bankruptcy filing date'' is substituted for
``termination date'' in paragraph (a) of this section.
9. In Sec. 4022.21:
a. Amend paragraph (a)(1) by removing ``(b), (c) and (d)'' in the
first sentence and adding in its place ``(b), (c), (d), and (e).''
b. Add new paragraph (e) to read as follows:
Sec. 4022.21 Limitations; in general.
* * * * *
(e) PPA 2006 bankruptcy termination. In a PPA 2006 bankruptcy
termination, ``bankruptcy filing date'' is substituted for
``termination date'' each place that ``termination date'' appears in
paragraph (a)(1) of this section. Example: A plan provides for normal
retirement at age 65. If a participant terminates employment at or
after age 55 with 25 years of service, the plan will pay an unreduced
early retirement benefit, plus a temporary supplement of $400 per month
until the participant reaches age 62. There are no recent benefit
increases subject to the phase-in limitation. When the plan's
contributing sponsor files a bankruptcy petition in 2008, a participant
who is still working has a vested, accrued benefit of $1,500 per month
(as a straight-life annuity) and has satisfied the age and service
requirements for the unreduced early retirement benefit. The
participant retires eight months later, when his vested, accrued
benefit is $1,530 per month (as a straight-life annuity). He elects to
receive his benefit as a 50% joint-and-survivor annuity, and begins
receiving a total benefit of $1,777: his $1,530 accrued benefit,
reduced by 10% for the survivor benefit, plus the $400 temporary
supplement. The plan terminates six months later, during the sponsor's
bankruptcy. From the termination date until the participant reaches age
62, PBGC will guarantee $1,500: the $1,500 accrued benefit (as a
straight-life annuity) as of the bankruptcy filing date, reduced to
$1,350 to reflect the 10% reduction for the survivor benefit, plus $150
of the temporary supplement that, in combination with the $1,350, does
not exceed the $1,500 accrued-at-normal limit. When the participant
reaches age 62, his guaranteed benefit is reduced to $1,350, because
under plan provisions the temporary supplement ceases at that time.
10. Revise Sec. 4022.22 to read as follows:
Sec. 4022.22 Maximum guaranteeable benefit.
(a) In general. Subject to section 4022B of ERISA and part 4022B of
this chapter, and except as provided in paragraph (b) of this section,
benefits payable with respect to a participant under a plan shall be
guaranteed only to the extent that such benefits do not exceed the
actuarial value of a benefit in the form of a life annuity payable in
monthly installments, commencing at age 65 equal to the lesser of--
(1) One-twelfth of the participant's average annual gross income
from his employer during either his highest-paid five consecutive
calendar years in which he was an active participant under the plan, or
if he was not an active participant throughout the entire such period,
the lesser number of calendar years within that period in which he was
an active participant under the plan; or
(2) $750 multiplied by the fraction x/ $13,200 where ``x'' is the
Social Security contribution and benefit base determined under section
230 of the Social Security Act in effect at the termination date of the
plan.
(b) PPA 2006 bankruptcy termination. In a PPA 2006 bankruptcy
termination--
(1) The five-year period described in paragraph (a)(1) of this
section shall not include any calendar years that end after the
bankruptcy filing date.
(2) ``Bankruptcy filing date'' is substituted for ``termination
date of the plan'' in paragraph (a)(2) of this section. Example: A
contributing sponsor files a bankruptcy petition in 2007. The sponsor's
plan terminates in a distress termination with a termination date in
2008. PBGC will compute participants' maximum guaranteeable benefits
based on the amount determined under paragraph (a)(2) of this section
for 2007 ($4,125.00 as a straight-life annuity starting at age 65).
(c) Gross income. For purposes of paragraph (a)(1) of this
section--
(1) Gross income means ``earned income'' as defined in section
911(d)(2) of the Code, determined without regard to any community
property laws.
(2) If the plan is one to which more than one employer contributes,
and during any calendar year the participant received gross income from
more than one such contributing employer, then the amounts so received
shall be aggregated in determining the participant's gross income for
the calendar year.
11. In Sec. 4022.23, add new paragraph (g) to read as follows:
Sec. 4022.23 Computation of maximum guaranteeable benefits.
* * * * *
(g) PPA 2006 bankruptcy termination. In a PPA 2006 bankruptcy
termination, ``bankruptcy filing date'' is substituted for
``termination date'' each place that
[[Page 37401]]
``termination date'' appears in paragraphs (c), (d), and (f) of this
section. Example: The contributing sponsor of a plan files a bankruptcy
petition in July 2007, and the sponsor's plan terminates in a PBGC-
initiated termination with a termination date in July 2008. At the
bankruptcy filing date:
Participant A was age 64 and receiving a benefit from the
plan in the form of a 10-year certain-and-continuous annuity, with 4
years remaining in the certain period.
Participant B was age 60 and 6 months and was still
working; he began receiving a benefit from the plan in the form of a
50% joint-and-survivor annuity when he turned 61 in January 2008. His
spouse was the same age as he.
Participant C was age 59 and was still working; he began
receiving a straight-life annuity from the PBGC in July 2010 when he
was 62 years old.
In accordance with Sec. 4022.22(b)(2), PBGC computes the maximum
guaranteeable monthly benefit for Participants A, B, and C based on the
amount determined under section 4022.22(a)(2) for 2007. (The gross
income-based limitation in Sec. 4022.22(a)(1) does not apply to any of
these participants.) Participant A's maximum guaranteeable monthly
benefit is $3,759.25 [$4,125.00 x .93 (7% reduction for a benefit
starting at age 64) x .98 (2% reduction for a certain-and-continuous
annuity with 4 years remaining in the certain period)]. Participant B's
maximum guaranteeable monthly benefit is $2,673.00 [$4,125.00 x .72
(28% reduction for a benefit starting at age 61) x .90 (10% reduction
due to the 50% joint-and-survivor feature)]. Participant C's maximum
guaranteeable monthly benefit is $3,258.75 [$4,125.00 x .79 (21%
reduction for a benefit starting at age 62)].
12. In Sec. 4022.24, add new paragraph (f) to read as follows:
Sec. 4022.24 Benefit increases.
* * * * *
(f) PPA 2006 bankruptcy termination. In a PPA 2006 bankruptcy
termination, ``bankruptcy filing date'' is substituted for
``termination date'' each place that ``termination date'' appears in
paragraphs (a) and (c) of this section.
13. In Sec. 4022.25, add new paragraph (f) to read as follows:
Sec. 4022.25 Five-year phase-in of benefit guarantee for participants
other than substantial owners.
* * * * *
(f) PPA 2006 bankruptcy termination. In a PPA 2006 bankruptcy
termination, ``bankruptcy filing date'' is substituted for
``termination date'' each place that ``termination date'' appears in
paragraphs (c) and (d) of this section. Example: A plan amendment that
was adopted and effective in February 2007 increased a participant's
benefit by $300 per month. The contributing sponsor of the plan filed a
bankruptcy petition in March 2009 and the plan has a termination date
in April 2010. PBGC's guarantee of the participant's benefit increase
is limited to $120 ($300 x 40%), because the increase was made more
than 2 years but less than 3 years before the bankruptcy filing date.
14. In the heading for Subpart C, remove ``Unfunded Nonguaranteed
Benefits [RESERVED]'' and add in its place ``Section 4022(c)
Benefits.''
15. Add new Sec. 4022.51 to Subpart C to read as follows:
Sec. 4022.51 Determination of section 4022(c) benefits in a PPA 2006
bankruptcy termination.
(a) Amount of unfunded nonguaranteed benefits. For purposes of this
section, and subject to paragraph (b), a plan's amount of unfunded
nonguaranteed benefits means the plan's outstanding amount of benefit
liabilities, as defined in section 4001(a)(19) of ERISA, determined as
of the plan's termination date. A plan's amount of unfunded
nonguaranteed benefits is multiplied by the applicable recovery ratio
to determine the aggregate amount to be allocated with respect to
participants of the plan under section 4022(c)(1) of ERISA.
(b) Benefits included in unfunded nonguaranteed benefits. For
purposes of computing benefits under section 4022(c) of ERISA in a PPA
2006 bankruptcy termination, unfunded nonguaranteed benefits are
benefits under a plan as of the plan's termination date that are
neither guaranteed by PBGC (taking into account section 4022(g) of
ERISA) nor funded by the plan's assets (taking into account section
4044(e) of ERISA).
(c) Determination of recovery ratio. In a PPA 2006 bankruptcy
termination, the recovery ratio under section 4022(c) of ERISA is
determined as follows. The numerator is based on PBGC's recoveries
under section 4062, 4063, or 4064, valued as of the plan's (or plans')
termination date (or dates). The denominator of the recovery ratio is
based on the amount of unfunded benefit liabilities, as defined in
section 4001(a)(18) of ERISA, as of the plan's (or plans') termination
date (or dates).
16. In Sec. 4022.61:
a. Amend paragraph (c) by removing ``4022.22(b)'' and adding in its
place ``4022.22(a)(2)'' and by adding at the end: ``In a PPA 2006
bankruptcy termination, the maximum guaranteeable benefit is determined
as of the bankruptcy filing date, in accordance with Sec. Sec.
4022.22(b) and 4022.23(g) of this part.''
b. Amend paragraph (f) introductory text by removing ``:'' and
adding in its place ``.'' and by adding at the end ``(For examples
addressing issues specific to a PPA 2006 bankruptcy termination, see
Sec. Sec. 4022.21(e), 4022.22(b), and 4022.23(g).)''.
17. In Sec. 4022.62:
a. Amend paragraph (b)(1) by adding at the end: ``In a PPA 2006
bankruptcy termination:''
b. Amend paragraph (b)(2) by adding at the end: ``In a PPA 2006
bankruptcy termination, the plan administrator shall use the
participant's age as of the benefit commencement date and his or her
service and compensation as of the bankruptcy filing date.''.
c. Redesignate paragraph (e) as paragraph (f).
d. Amend the newly redesignated paragraph (f) introductory text by
removing ``:'' and adding in its place ``.'' and by adding at the end:
``(For an example addressing issues specific to a PPA 2006 bankruptcy
termination, see Sec. 4022.25(f).)''.
e. Add new paragraphs (b)(1)(i), (b)(1)(ii), (b)(5), and (e) to
read as follows:
Sec. 4022.62 Estimated guaranteed benefits.
* * * * *
(b) * * *
(1) * * *
(i) If the participant was also in pay status as of the bankruptcy
filing date, the plan administrator shall use the participant's age and
benefit payable under the plan as of the bankruptcy filing date.
(ii) If the participant was not in pay status as of the bankruptcy
filing date, the plan administrator shall use the participant's age as
of the benefit commencement date and his or her service and
compensation as of the bankruptcy filing date.''
* * * * *
(5) Nothing in this paragraph (b) overrides the provisions of
subparts A and B of part 4022 with respect to the requirements
necessary for a benefit to be guaranteed by PBGC.
* * * * *
(e) PPA 2006 bankruptcy termination. In a PPA 2006 bankruptcy
termination, ``bankruptcy filing date'' is substituted for ``proposed
termination date'' each place that ``proposed termination date''
appears in paragraph (c) of this section.
[[Page 37402]]
18. In Sec. 4022.63:
a. Redesignate paragraph (c)(1) as paragraph (c)(1)(i) and
redesignate paragraph (c)(2) as paragraph (c)(1)(ii).
b. Redesignate the introductory text of paragraph (c) as paragraph
(c)(1) and add a new heading ``In general.''
c. In paragraph (e), amend Example 1 by adding a new paragraph at
the end:
PPA 2006 bankruptcy termination. In a PPA 2006 bankruptcy
termination, the methodology would be the same, but ``bankruptcy filing
date'' would be substituted for ``proposed termination date'' each
place that ``proposed termination date'' appears in the example, and
the numbers would change accordingly.
d. Add new paragraphs (b)(3) and (c)(2) to read as follows:
Sec. 4022.63 Estimated title IV benefits.
* * * * *
(b)* * *
(3) PPA 2006 bankruptcy termination. In a PPA 2006 bankruptcy
termination, ``bankruptcy filing date'' is substituted for ``proposed
termination date'' in the first sentence of paragraph (b)(2) of this
section.
(c) In general. * * *
(2) PPA 2006 bankruptcy termination. In a PPA 2006 bankruptcy
termination, ``bankruptcy filing date'' is substituted for ``proposed
termination date'' each place that ``proposed termination date''
appears in paragraph (c)(1) of this section.
* * * * *
19. In Sec. 4022.82:
a. Amend paragraph (a)(1) by redesignating the second sentence as
paragraph (a)(1)(i), and add a new heading ``Non-PPA 2006 bankruptcy
termination'' and by redesignating the third sentence as paragraph
(a)(1)(iii) and add a new heading ``Facts and circumstances.''
b. Amend the newly redesignated (a)(1)(iii) by removing ``The PBGC
may, however, utilize'' and adding in its place ``PBGC may use''.
c. Add new paragraph (a)(1)(ii) to read as follows:
Sec. 4022.82 Method of recoupment.
(a) * * *
(1) * * *
(i) Non-PPA 2006 bankruptcy termination.***
(ii) PPA 2006 bankruptcy termination. PBGC will determine the
amount of benefit payable with respect to the participant under title
IV of ERISA taking into account the limitations in sections 4022(g) and
4044(e) (and corresponding provisions of these regulations), and will
determine the present value of that amount as of the termination date,
using PBGC interest rates and factors in effect on the termination
date.
(iii) Facts and circumstances.* * *
* * * * *
20. In Appendix D to Part 4022, amend the introductory text by
removing ``Sec. 4022.22(b)'' and adding in its place ``Sec.
4022.22(a)(2)'', and by replacing ``:'' with a ``.'', and by adding a
sentence at the end to read as follows: ``In a PPA 2006 bankruptcy
termination, the applicable year is the calendar year in which the
bankruptcy filing date occurred.''
PART 4044--ALLOCATION OF ASSETS IN SINGLE-EMPLOYER PLANS
21. The authority citation for part 4044 continues to read as
follows:
Authority: 29 U.S.C. 1301(a), 1302(b)(3), 1341, 1344, 1362.
22. In the Note before subpart A:
a. In the second sentence, remove ``in the PBGC's'' and add in its
place ``in other provisions of the PBGC's''.
b. After the second sentence, add a sentence to read as follows:
``In addition, the Pension Protection Act of 2006 has made a number of
significant changes, including changes to the treatment in priority
category 4 of benefits of owners, and changes to the valuation of PBGC
recoveries of liabilities under section 4062(c) of ERISA.''
23. In Sec. 4044.2:
a. Amend paragraph (a) by removing ``annuity, basic-type benefit''
and adding in its place ``annuity, bankruptcy filing date, basic-type
benefit'' and by removing ``plan administrator, single-employer plan''
and adding in its place ``plan administrator, PPA 2006 bankruptcy
termination, single-employer plan''.
b. In paragraph (b), amend the definition of ``valuation date'' by
removing ``date of termination'' and adding in its place ``termination
date''.
24. In Sec. 4044.10(b), add the phrase ``, but, in a PPA 2006
bankruptcy termination, subject to the limitations in sections 4022(g)
and 4044(e) of ERISA (and corresponding provisions of these
regulations)'', at the end of the last sentence.
25. In Sec. 4044.13, add new paragraph (c) to read as follows:
Sec. 4044.13 Priority category 3 benefits.
* * * * *
(c) PPA 2006 bankruptcy termination. In a PPA 2006 bankruptcy
termination, ``bankruptcy filing date'' is substituted for
``termination date'' and ``date of the plan termination'' each place
that ``termination date'' and ``date of the plan termination'' appear
in paragraphs (a) and (b) of this section. In paragraph (b)(5), ``the
bankruptcy filing date'' is substituted for ``termination'' in the
phrase ``during the fourth and fifth years preceding termination.''
Example: A plan provides for normal retirement at age 65 and has only
one early retirement benefit: a subsidized early retirement benefit for
participants who terminate employment on or after age 60 with 20 years
of service. These plan provisions have been unchanged since 1990. The
contributing sponsor of the plan files a bankruptcy petition in June
2008, and the plan terminates during the bankruptcy with a termination
date in September 2010. A participant retired in July 2007, at which
time he was age 60 and had 20 years of service, and began receiving the
subsidized early retirement benefit. The participant has no benefit in
priority category 3, because he was not eligible to retire three or
more years before the June 2008 bankruptcy filing date.
26. Amend Sec. 4014.14 by removing ``basic-type benefits that do
not exceed the guarantee limits set forth in subpart B of part 4022 of
this chapter'' and adding in its place ``guaranteed benefits''.
Issued in Washington, DC, this day of June, 2008.
Vincent K. Snowbarger,
Acting Director, Pension Benefit Guaranty Corporation.
[FR Doc. E8-14813 Filed 6-30-08; 8:45 am]
BILLING CODE 7709-01-P