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Frequently Asked Questions About ERISA 4062(e)

What is Section 4062(e) and How Does it Work?

Section 4062(e) is a provision of ERISA intended to help protect pensions in situations where a company ceases operations and workers lose their jobs.

A 4062(e) event occurs when:

  • There is a permanent cessation of operations at a facility; and
  • That cessation results in a workforce reduction of more than a 15% reduction in the total number of eligible employees; where
  • Eligible employees are employees eligible to participate in any employee pension plan (i.e. any defined benefit plan or defined contribution plan) maintained by members of the controlled group.

Then PBGC can take steps to protect the pension plan. There are several ways an employer can provide protection for the pension plan when a 4062(e) event occurs.
 

Are There Any Exemptions?

Yes. Pension plans falling into either of the following categories are exempt from 4062(e):

  • Pension plans that had fewer than 100 participants with accrued benefits as of the plan valuation date.
  • Pension plans that were at least 90% funded in the plan year before the cessation occurred. The funded level for this exemption is measured by comparing the plan’s assets to the plan’s unfunded vested benefits, as determined for purposes of paying PBGC premiums.

If a plan falls under one of these exemptions, then no reporting is required.

What Kinds of Company Actions Might Cause 4062(e) Events?
  • A company shuts down a plant and moves its operations to another country while the plant’s workers lose their jobs.
  • A company sells its operations to a new owner, who doesn’t hire the employees who lost their jobs and doesn’t take responsibility for their pension plan liabilities.
  • A company restructures and shuts down a facility, workers lose their jobs, and — because their pension is underfunded — they are at risk of losing their pension, too.
What Kinds of Company Actions are Not Covered by 4062(e)?
  • A company's stock is acquired and the new owner continues both the operations and the pension plan.
  • The closure is seasonal or temporary (e.g., to install new equipment).
Who Decides if a Company Action is Covered?

Initially, the company does. Companies report to PBGC if they believe their actions are covered by the law.

If PBGC and a company disagree whether an action is covered by the law, companies can appeal to an independent appeals board at PBGC and to the federal district court. 

How are Employees Counted?

In determining whether the 15% threshold has been met, the denominator includes all employees of the controlled group who are eligible to participate in an employee pension benefit plan (as defined by ERISA Section 3(2)).

As an example: Parent owns two subsidiaries: Subsidiary A (whose employees all work at Facility A) and Subsidiary B (whose employees all work at Facility B). Each of the three entities has 100 employees and every employee is eligible to participate in a defined benefit plan or a defined contribution plan offered within the controlled group. If the controlled group’s operations at Facility A shut down, then the denominator would include all the employees who are employed by any of the controlled group members (Parent, Subsidiary A, and Subsidiary B) who are eligible to participate in any defined benefit or defined contribution plan offered within the controlled group. Thus, the denominator would be 300 eligible employees.  

The numerator is the workforce reduction – i.e. the number of eligible employees at a facility who are separated from employment due to the permanent cessation of operations of the employer at the facility.

In the example above, if all 100 eligible employees of Subsidiary A lose their jobs with Subsidiary A due to the shutdown, then the numerator would be 100. As such, the workforce reduction in this example would be 100/300, or 33%, which is above 15%.

See Section 4062(e)(2)(A)&(B) and 4062(e)(5)(A) for details on these provisions.

Are There Any Limitations to Which Employees are Counted in the Workforce Reduction?

Yes. There are several provisions of the law that may further reduce the number of employees that are included in the workforce reduction:

  • Within a reasonable time, the employer replaces the employee, at the same or another facility within the U.S., with an employee who is a U.S. citizen or U.S. resident
  • Under certain circumstances, when a stock or asset purchaser continues some of the operations at the facility and:
    • within a reasonable amount of time, the purchaser replaces the eligible employee with a U.S. citizen or U.S. resident and also maintains a single employer pension plan which assumes the pension assets and liabilities relating to the employee who would have been counted in the workforce reduction; or
    • a non-participant eligible employee, who would have been counted in the workforce reduction, continues working at the facility for the purchaser; or
    • a participant eligible employee continues working at the facility for the purchaser and the purchaser maintains a single employer pension plan which assumes the pension assets and liabilities relating to the employee.

See Section 4062(e)(2)(C)&(D) for details on these provisions.

Is PBGC Continuing its Pre-Amendment Enforcement Policy in Effect in June 2014?

Yes. Congress amended Section 4062(e) in December 2014 and included a direction to PBGC that it may not initiate enforcement actions inconsistent with its enforcement policy in effect on June 1, 2014. This means that PBGC continues not to enforce section 4062(e) against companies that meet the October 2012 guidelines for strong-company cases, unless a settlement was reached before June 1, 2014. PBGC's enforcement policy guidelines as of June 1, 2014 are available. However, companies that believe they may fall within the strong-company category must still report 4062(e) events to PBGC.

What are the Different Ways to Satisfy 4062(e) Liability?

Companies that have had a 4062(e) event since the law was amended in 2014 generally elect to make additional plan contributions pursuant to 4062(e)(4). Companies typically use 4062(e)(4) since Congress added this option in 2014. However, there are other options for meeting the obligation and these other options can also be combined.

Options for satisfying liability through making additional pension contributions:

  • Election of additional contributions under 4062(e)(4):
    • A sponsor may contribute, 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.
    • These installments end the first plan year in which the ratio of the plan asset’s market value to the funding target for the plan year is at least 90%. See 4062(e)(4)(C) for additional information.
    • Limitation: The amount of each annual installment shall not exceed the excess of (1) 25% of the difference between the plan asset’s market value and the funding target for the preceding plan year, over (2) the minimum required contribution under section 303 for the plan year.
    • Notification: A company must notify PBGC of this election within 30 days of notifying PBGC of the 4062(e) event.

or

  • Contribution of full 4062(e) liability as calculated pursuant to PBGC’s regulation on liability for termination of single employer plans (see 29 CFR §4062.8). Companies that don’t want to contribute the full amount immediately can negotiate an arrangement for contributions over time.

Non-contribution options:

Depending on the circumstances, PBGC and plan sponsors may agree on other ways to satisfy the liability, including:

  • Putting cash in an escrow fund for five years.
  • Establishing a letter of credit for five years.
  • Surety bond in favor of PBGC for five years.

Since money contributed to the plan permanently reduces plan underfunding long-term, PBGC and most sponsors prefer that protection. The other remedies expire if the plan is still operating after five years.

How Can Companies Find Out More Information?

Anyone can discuss any 4062(e) matter anonymously with PBGC by calling PBGC’s Corporate Finance and Restructuring Department (CFRD) at 202-326-4070 or by emailing 4062e@pbgc.gov. You don’t have to give a company name and we keep it confidential if you do. All business information that is provided confidentially and meets the legal standards under the Freedom of Information Act for “confidential business information”  is kept confidential.

How Should Companies Report a 4062(e) Event?

Companies must report 4062(e) events to PBGC within 60 days of the cessation. PBGC is working on a form, which will be published in the Federal Register and subject to comment under the Paperwork Reduction Act. Currently, no specific format is required, but the notice should identify the affected plan and employer, and include a statement that there has been a cessation of operations under Section 4062(e), and a request that PBGC determine the resulting liability.

  • For example: “Our Company closed/sold our Anytown operation on Date and more than 15 percent of our employees eligible to participate in an employee pension plan stopped working for the Company. Please let us know if there is any liability for the Anytown Pension Plan under section 4062(e).”
  • The notice may be mailed to CFRD at 1200 K Street, NW, Washington, DC 20005-4026, faxed to 202-842-2643, or emailed to 4062e@pbgc.gov.

PBGC will contact you after receiving your notice if additional information is needed.

Note the requirement to provide notice of an event under Section 4062(e) is in addition to any Reportable Event notice that may be required under Section 4043 (see the Active Participant Reduction event on the Reportable Events and Large Unpaid Contributions page).

Once a Company Notifies PBGC, What Happens Next?

PBGC will contact the company representative who notified us and discuss the notice. The case will likely be closed after one or two phone calls or emails if PBGC finds that any of the following is true: one or more of the exceptions applies, the company qualifies for nonenforcement as a strong-company case under the enforcement policy, or the plan was 90% funded in the first plan year in which the ratio of market value of plan assets to the funding target for the plan year is at least 90%.  If none of these apply and PBGC finds there is liability, the company has a variety of options for satisfying the liability. See What are the Different Ways to Satisfy 4062(e) Liability?

What if a Company Disagrees with PBGC?

If a company disputes PBGC’s findings, such as whether an exception applies or the liability calculation, it can appeal to an independent appeals board operated by a separate part of PBGC. If a company is dissatisfied with the decision of the independent appeals board, it can go to Federal Court.

Our appeals process is explained on our website.