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News & Policy

PBGC Issues Rule on Employer Liability When Closing a Facility

June 15, 2006

WASHINGTON-The Pension Benefit Guaranty Corporation (PBGC) today announced it is publishing a rule, narrow in scope, specifying how to calculate the liability that arises when an employer ceases operations at a facility and, as a result, more than 20 percent of employees covered by its defined benefit pension plan separate from employment. The final rule, which modifies 29 CFR parts 4062 (Liability for Termination of Single-employer Plans) and 4063 (Withdrawal Liability; Plans under Multiple Controlled Groups) will appear in tomorrow's Federal Register and become effective on July 16, 2006.

The new rule codifies the method the PBGC has used on a case-by-case basis to assess the liability, and therefore will have little or no effect on calculation of the liability amount.

"This rule provides a simple, equitable formula for calculating employer liability arising from a cessation of operations," said Vince Snowbarger, acting PBGC Executive Director. "It reflects the PBGC's ongoing effort to streamline regulation and improve administration of the pension insurance program."

In general, the facility closure liability is calculated by multiplying the total unfunded benefit liabilities by a fraction whose numerator is the number of plan participants separated as a result of the cessation and whose denominator is the total number of current employees who are plan participants. This amount is placed into escrow for the benefit of the plan. If the plan terminates within five years, the payment is treated as a plan asset. If the plan does not terminate within that time, the payment is returned to the employer. In lieu of the liability payment, the contributing sponsor may be required to furnish a bond to the PBGC to be held for the benefit of the plan.

The PBGC is a federal corporation created under the Employee Retirement Income Security Act of 1974. It currently guarantees payment of basic pension benefits earned by 44 million American workers and retirees participating in over 30,000 private-sector defined benefit pension plans. The agency receives no funds from general tax revenues. Operations are financed largely by insurance premiums paid by companies that sponsor pension plans and by investment returns.

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PBGC No. 06-53