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News & Policy

PBGC Simplifies Rules for Protecting and Closing Fully-funded Pensions

November 06, 1997

The Pension Benefit Guaranty Corporation (PBGC) has issued final rules that extend deadlines and simplify procedures companies must follow in closing out fully-funded pension plans insured by PBGC. The rules also provide new model notices companies may use to inform workers and retirees about intended pension plan termination and state guarantee protection for annuity benefits.

"Simplification of these requirements will bring regulatory relief to employers while fully protecting workers' pensions," said PBGC Executive Director David M. Strauss.

The regulatory changes replace rules that caused some plan sponsors to miss deadlines and required them to restart the procedure, which added cost and time to the standard termination process and delayed payments to plan participants.

Under the new rules, plan administrators have 180 days after the proposed termination date, rather than 120 days, to file a termination notice with PBGC. Plan administrators also have up to 120 days, rather than the previous 60 days, to distribute plan assets after they have received a clearance letter from the IRS. Plan assets are normally distributed through the purchase of annuities or lump sum payments.

The new rules also incorporate PBGC's policy on waiving penalties for late filing of the post-distribution certification, which has been in effect since March 14, 1997. The penalty will be waived if the certification is filed within 90 days after the due date.

To further simplify the termination process, PBGC has developed a model notice that plan administrators may use to inform plan participants of the intended plan termination and the effect it will have on their benefits.

As part of the new rule, the benefit notice must inform potential lump sum recipients of the mortality and interest assumptions that will be used to calculate the lump sum.

The new rules also add a requirement that plan administrators inform participants about state guarantees that apply to their benefits in the event the annuity provider encounters financial problems. To make it easier for administrators to comply, PBGC has developed a model notice.

Both model notices are included with the forms and instructions in the standard termination package. The instructions and model notices as well as the new regulation will be available on PBGC's home page at

The changes, which are published in the November 7, 1997, Federal Register, are effective for pension plans that begin the standard termination process on or after January 1, 1998. However, some new provisions that provide increased flexibility will apply to terminations that are already underway. For example, any deadline that has not passed as of January 1, 1998, is extended to the deadline that applies under the new rules.

The final regulation generally follows the proposed regulation that was developed after conducting focus groups with pension practitioners and took into account participants' concerns and PBGC's experience. The comments received on the proposed rule, which was published in the March 14, 1997, Federal Register, generally commended PBGC for extending deadlines.

PBGC is a federal agency created by the Employee Retirement Income Security Act of 1974 to guarantee payment of basic pension benefits earned by workers. It covers some 42 million American workers and retirees participating in about 50,000 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. 98-05