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Important Changes to ERISA Section 4062(e)

This announcement provides information about two important changes regarding ERISA section 4062(e). First, on December 16, 2014, the President signed into law H.R. 83, which made major changes to section 4062(e). Second, the Pension Benefit Guaranty Corporation is ending the moratorium on enforcement of 4062(e) cases that it announced in July 2014.

Prior Law

Under prior law, section 4062(e) created liability when an employer ceased operations at a facility and, as a result, more than 20% of the employees covered by the employer’s pension plan lost their jobs. The law provided a formula for determining the amount of the liability and allowed employers to satisfy the liability by making payments to PBGC or by posting a bond. In practice, PBGC typically enforced section 4062(e) by negotiating settlements under which the employer agreed to make additional contributions to its pension plan, to reduce the risk that the plan would fail.

PBGC’s 2012 Enforcement Policy and 2014 Moratorium

In 2012, responding to business concerns, PBGC began focusing its 4062(e) enforcement efforts on those cases in which there was a higher risk of substantial plan failure. Under that enforcement policy, PBGC has not enforced section 4062(e) in cases where the plan had fewer than 100 participants or the employer was financially sound.

In response to continuing business concerns, PBGC announced on July 8, 2014, that it was imposing a moratorium until the end of 2014 on enforcement of all 4062(e) cases (both open and new cases) to give PBGC time to consider further targeting and ways to minimize the effects on necessary business activities. PBGC told employers that they should continue to report new 4062(e) cases, but PBGC would take no action on them during the moratorium.

Congress’s Recent Amendment of Section 4062(e)

Congress has largely rewritten section 4062(e) in the recently enacted H.R. 83. PBGC is examining the provisions of the new law and will provide further guidance and information as that effort continues. The amendments are complex, so if you represent an employer that may be subject to section 4062(e), you should review the law yourself or ask your benefit professionals for advice. Here, in simplified description, are some of the major changes:

  1. Small-plan exemption. Plans with fewer than 100 participants are exempt from section 4062(e) (consistent with PBGC’s 2012 enforcement policy).
  2. Exemption for plans better than 90% funded. Plans that were 90% or better funded in the plan year before the cessation occurred are also exempt. The funded level is measured by comparing the plan’s assets to the plan’s unfunded vested benefits, as determined for purposes of paying PBGC premiums.
  3. Liability trigger if no exemption applies. Upon a permanent cessation of operations at a facility, liability is triggered if the cessation results in more than a 15% reduction in the total number of employees eligible to participate in any employee pension plan, including a 401(k) plan, maintained by members of the controlled group. (This replaces the old trigger based on a 20% reduction in the number of active participants in the affected defined benefit plan.)
  4. New way of satisfying liability if no exemption applies and the cessation meets the 15% trigger. The employer has a new, additional way of satisfying the 4062(e) liability that will usually be less expensive: It may contribute to the plan, in 7 annual installments, an amount equal to 1/7 of the unfunded vested benefits (as measured for premium purposes) times the percentage reduction in active participants. The annual installments are also capped at an amount designed to limit the amount by which the 4062(e) additional contribution will increase the plan’s minimum funding contributions. Furthermore, the annual installments cease entirely if in any year the plan becomes 90% funded for unfunded vested benefits (as measured for premium purposes), even if the plan later falls below the 90% level.
  5. Cessations to which the new rules apply. The new rules apply to cessations of operations occurring on or after December 16, 2014. In addition, PBGC must apply the new rules to prior cessations, except where a settlement agreement was entered into before June 1, 2014.
  6. PBGC’s enforcement policy continued. For both past and future cessations, PBGC must apply its prior enforcement policy. This means that PBGC will not enforce section 4062(e) against companies that are financially sound (except, again, in cases of a pre-June 1, 2014 settlement).
  7. Reporting requirements. If a plan is exempt under the fewer-than-100-participants rule or the 90%-funded rule, no reporting of a cessation of operations is required. Otherwise, the employer must report the event to PBGC if the 15% reduction described above is triggered.

We repeat that the above is only a simplified description of some of the law’s changes. You or your advisers should review the full text of the law. PBGC is providing this summary solely to assist employers and the public; it does not constitute PBGC’s official interpretation of the new law, which PBGC continues to review.

PBGC is Ending its Enforcement Moratorium

Now that Congress has addressed the cessations to which section 4062(e) should apply and the amount and manner of satisfying the liability, PBGC has decided that there is no need to continue its enforcement moratorium. Employers that had or have a cessation of operations on or after December 16, 2014, that is not exempt and that meets the 15% reduction trigger described above should report the event to PBGC. Employers that had a cessation before that date should report it to PBGC, if they have not already done so. PBGC may be contacting employers that previously reported a cessation for additional information to determine whether and how the new rules apply to that event.


PBGC recognizes that employers are likely to have questions about these major changes to section 4062(e). We ask that you send your questions to We will do our best to respond promptly. You may also call Attorney Roger Reiersen at 202-326-4000, ext. 3704.