Technical Update 04-2: Extension of PBGC Reporting Relief Relating to Use of 100% of 30-Year Treasury Yield
March 19, 2004
NOTE: In Technical Update 04-2, the PBGC provided interest rate relief ONLY for the reporting requirements discussed in the update. Nothing in Technical Update 04-2 affects the interest rate to be used when determining the amount of premium to be paid for a plan.
This Technical Update 04-2 extends the PBGC reporting relief provided in Technical Update 02-1 (May 1, 2002) in certain situations where the requirement to report, or the timing of the report, is based on PBGC variable-rate premium (VRP) calculations. In Technical Update 02-1, the PBGC permitted use of 100% (rather than 85%) of the annual yield on 30-year Treasuries to value vested benefits for certain PBGC reporting purposes, with the relief tied to reporting periods or events occurring or becoming effective during calendar years 2002 or 2003. This Technical Update extends that relief beyond calendar year 2003, through and including May 31, 2004.
Section 405 of the Job Creation and Worker Assistance Act of 2002 (JCWAA) increased the required interest rate for calculating vested benefits for the PBGC's VRP from 85% to 100% of the annual yield on 30-year Treasury securities on a temporary basis for plan years beginning in 2002 or 2003. Although the JCWAA change did not apply for purposes of PBGC reporting or disclosure requirements that are tied to the VRP calculation, the PBGC used its waiver and extension authority to permit use of 100% of the 30-year Treasury yield ("the JCWAA 100% rate") for purposes of certain PBGC reporting (but not disclosure) requirements. Specifically, PBGC Technical Update 02-1 permitted use of the JCWAA 100% rate in determining PBGC reporting obligations for:
- Information Years ending in calendar years 2002 or 2003, in the case of annual employer reporting under section 4010 of ERISA.
- Reportable events that occurred in calendar years 2002 or 2003, in the case of post event reporting under section 4043(a) of ERISA.
- Reportable events with effective dates in calendar years 2002 or 2003, in the case of advance reporting under section 4043(b) of ERISA.
This Technical Update 04-2 permits continued use of the JCWAA 100% rate in the following circumstances.
Post-Event Reporting (ERISA Section 4043(a))
ERISA Section 4043(a) and the PBGC's regulations (29 CFR §§ 4043.1-.35) require plan administrators and contributing sponsors to notify PBGC within 30 days after they know or have reason to know that a reportable event has occurred (post-event reporting). There are a variety of reporting waivers and reporting extensions in these regulations and in PBGC Technical Update 97-6 that are tied to the VRP status of the plan, and that therefore may be affected by the required interest rate used to calculate vested benefits for the PBGC's VRP.
In the case of any reportable event that occurs between January 1, 2004, and May 31, 2004, the PBGC will permit use of the JCWAA 100% rate to value vested benefits for purposes of determining whether a waiver or an extension of post-event reporting applies.
Advance Reporting (ERISA Section 4043(b))
ERISA section 4043(b) requires certain non-public companies to give the PBGC notice at least 30 days before the effective date of certain events (advance reporting). This advance reporting is required if: (1) the aggregate unfunded vested benefits of plans maintained by members of the controlled group exceed $50 million (disregarding plans with no unfunded vested benefits) and (2) the aggregate funded vested benefit percentage (for those plans that are underfunded for vested benefits) is less than 90 percent. Vested benefits for both the $50 million and the 90% gateway tests are computed using the VRP interest rate as of the "testing date" for the plan year that includes the effective date of the reportable event.
In the case of any reportable event with an effective date between January 1, 2004, and May 31, 2004, the PBGC will permit use of the JCWAA 100% rate to value vested benefits for purposes of determining whether a company is subject to advance reporting.
Employer Annual Reporting (ERISA Section 4010)
ERISA section 4010 and the PBGC's regulations (29 CFR Part 4010) require controlled groups to report to PBGC if the aggregate unfunded vested benefits in plans maintained by members of the controlled group (disregarding plans with no unfunded vested benefits) exceed $50 million for any Information Year. Under this $50 million gateway test, each plan's unfunded vested benefits are determined as of a plan-specific 4010 gateway testing date - the last day of that plan's plan year ending within the Information Year.1
In the case of an Information Year that ends between January 1, 2004, and May 31, 2004, the PBGC will permit use of the JCWAA 100% rate to value vested benefits for purposes of the $50 million gateway test under ERISA section 4010 for all plans included in the gateway calculation, regardless of their plan years. In the usual situation where the 4010 gateway testing date is the last day of a calendar month (e.g., December 31, 2003), the JCWAA 100% rate to be used is the 30-year Treasury yield for that calendar month (e.g., December 2003). If the 4010 gateway testing date is any day other than the last day of a calendar month (e.g., January 14, 2004), the JCWAA 100% rate to be used is the 30-year Treasury yield for the preceding calendar month (e.g., December 2003).
This is illustrated by the following chart, which assumes that the controlled group has an Information Year ending on January 31, 2004:
Neither this Technical Update 04-2 nor Technical Update 02-1 affects 29 CFR § 4010.4(b)(2), which already allows use of 100% of the Treasury yield, but only if certain other specified assumptions are used.
Effect of Any Legislative Changes to Required Interest Rate
The PBGC is providing the reporting relief in this Technical Update 04-2 as an interim measure pending legislative developments. Legislation is pending that would change the required interest rate for calculating vested benefits for the PBGC's VRP on a temporary basis for plan years beginning in 2004 or 2005. Once the legislative situation is clarified, the PBGC will consider whether there is a need for further guidance or further reporting relief. However, the PBGC emphasizes that the interim reporting relief provided in this Technical Update will remain in effect notwithstanding any such legislative change, and is in addition to any PBGC reporting relief that may result from such a legislative change.
PBGC Contact Points
For questions about this Technical Update in general, contact Gail Sevin of the Corporate Policy and Research Department at (202) 326-4080, ext. 3011, or Sevin.Gail@PBGC.gov. Questions about specific section 4010 filings or specific section 4043 advance notice filings should be directed to Karen Krist Justesen of the Corporate Finance and Negotiations Department at (202) 326-4070, ext. 3647, or Justesen.Karen@PBGC.gov.
1 This determination tracks the determination of unfunded vested benefits for the plan year that begins on the day after the 4010 gateway testing date, e.g., the 2004 calendar plan year where the 4010 gateway testing date is December 31, 2003. (The 4010 gateway testing date generally serves as the premium snapshot date for that next plan year.)