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Frequently Asked Questions 4062(e) Enforcement Pilot Program

Section 4062(e): New law is enacted; moratorium ends

On December 16, President Obama signed into law H.R. 83, which made major changes to the provision of ERISA that created liability in certain situations where there was a reduction in active participants in a plan as a result of a cessation of operations (section 4062(e)).

With the new law in effect, PBGC will not continue the six-month moratorium on the enforcement of section 4062(e) that expired December 31.  

The new law generally applies both to future cessations of operations and to those that have already occurred, except where a settlement agreement was entered into before June 1, 2014.

PBGC has outlined some of the major changes in the law and provided a point of contact for questions in "Important Changes to ERISA Section 4062(e)".  Further guidance will be issued in the future. 

What is ERISA 4062(e)?

ERISA section 4062(e) is pension law that requires companies with pension plans to report to PBGC when they stop operations at a facility and employees lose their jobs.  In such a case, 4062(e) requires the company to provide financial security to protect the plan.  PBGC typically requires companies to make additional contributions or provide a financial guarantee. 

Why is PBGC changing its enforcement approach?

The business community pointed out that 4062(e) was sometimes applied when there was little or no risk either to pensions or PBGC, because the plan was small or the company involved has the financial strength to stand behind its pension. 

On reflection, PBGC agreed, and so we've decided to change the way we enforce the law.  Where companies meet standard tests of financial soundness or have less than 100 participants, we won't require them to provide financial guarantees. 

How is PBGC modifying its enforcement program?

Until very recently, PBGC enforced all 4062(e) cases without regard to the size of the plan or the financial health of the company sponsor.  PBGC is implementing a pilot program under which going forward, PBGC will generally take no action to enforce section 4062(e) liability against creditworthy companies or small plans and target its 4062(e) enforcement efforts to companies where the risk remains substantial. 

The decision to take no action will be based on PBGC's analysis of a company's financial strength and the circumstances of the case.  PBGC may periodically request additional information from the company to confirm its continued qualification as creditworthy.  If the company is no longer creditworthy during the five-year enforcement period, PBGC will enforce the 4062(e) liability.

How will the new enforcement approach affect small plans?

PBGC realizes that enforcing 4062(e) on small businesses and small plans creates a burden.  Under the new policy, PBGC will not enforce against small plans with 100 participants or less.

What does PBGC mean by "creditworthiness" and "financial strength" and how will they be determined?

PBGC will use the standards already used by businesses throughout the world:  common financial measures of financial soundness such as credit ratings, credit scores, indebtedness, liquidity, and profitability.  If a company is creditworthy   and there are no other indicators of financial weakness or other risks, PBGC will take no action. See Guidelines for Enforcement of ERISA section 4062(e).

Will creditworthy companies still have to report 4062(e) events?

Yes, the law requires companies to report.  However, we will not act on reports from creditworthy companies. 

Please contact PBGC if you are unsure about whether a transaction constitutes a 4062(e) event; those conversations can, on request, be subject to confidentiality agreements.

What is the status of PBGC's 2010 proposed rule on 4062(e)?

We're using this pilot program to help us decide what changes to make in our proposed regulation.

Who should we contact if we have questions about the 4062(e) enforcement pilot program?

Contact Ajit Gadre, or 202-326-4070.