[November 22, 1999 (Volume 64, Number 224)] [Unified Agenda] From the Federal Register Online via GPO Access [frwais.access.gpo.gov] [DOCID:ua22no99_002-150] [Page 64072-64073] PENSION BENEFIT GUARANTY CORPORATION (PBGC) PBGC Statement of Regulatory and Deregulatory Priorities PBGC Insurance Programs The Pension Benefit Guaranty Corporation (PBGC) administers two insurance programs for private defined benefit plans under title IV of the Employee Retirement Income Security Act of 1974 (ERISA): A single- employer plan termination insurance program and a multiemployer plan insolvency insurance program. The PBGC protects the pensions of nearly 42 million working men and women in about 44,000 private defined benefit plans, including about 2,000 multiemployer plans. Under the single-employer program, the PBGC pays guaranteed and certain other pension benefits to participants and beneficiaries if their plan terminates with insufficient assets (distress and involuntary terminations). At the end of fiscal year 1998, the PBGC was trustee of almost 2,700 plans and paid $848 million in benefits to about 209,000 people during 1998. Another 263,000 people will receive benefits when they retire in the future. Most terminating single-employer plans terminate with sufficient assets to pay all benefits. The PBGC has administrative responsibility for these terminations (standard terminations), but its role is limited to seeing that proper procedures are followed and participants and beneficiaries receive their plan benefits. The multiemployer program (which covers about 8.8 million workers and retirees in about 2,000 insured plans) is funded and administered separately from the single-employer program and differs in several significant ways. The multiemployer program covers only collectively bargained plans involving more than one unrelated employer. The PBGC provides financial assistance (in the form of a repayable loan) to the plan if the plan is unable to pay benefits at the guaranteed level. Guaranteed benefits are generally less than a participant's full benefit under the plan (and less than the single-employer guaranteed benefit). PBGC financial assistance occurs infrequently. The PBGC receives no funds from general tax revenues. Operations are financed by insurance premiums, investment income, assets from pension plans trusteed by the PBGC, and recoveries from the companies formerly responsible for the trusteed plans. To carry out these functions, the PBGC must issue regulations interpreting such matters as the termination process, establishment of procedures for the payment of premiums, and assessment and collection of employer liability. Objectives and Priorities PBGC regulatory objectives and priorities are developed in the context of the statutory purposes of title IV: (1) To encourage voluntary private pension plans, (2) to provide for the timely and uninterrupted payment of pension benefits to participants and beneficiaries, and (3) to maintain the premiums that support the insurance programs at the lowest possible levels consistent with carrying out the PBGC's statutory obligations (ERISA section 4002(a)). The PBGC implements its statutory purposes by developing regulations designed: (1) To assure the security of the pension benefits of workers, retirees, and beneficiaries; (2) to improve services to participants; (3) to ensure that the statutory provisions designed to minimize losses for participants in the event of plan termination are effectively implemented; (4) to encourage the establishment and maintenance of defined benefit pension plans; (5) to facilitate the collection of monies owed to plans and to the PBGC, while keeping the related costs as low as possible; and (6) to simplify the termination process. Legislative Initiatives On December 8, 1994, the Retirement Protection Act of 1994 was enacted. The Retirement Protection Act (1) accelerates the funding of underfunded single-employer pension plans, (2) phases out the cap on the variable rate portion of the premium paid to the PBGC by underfunded single-employer plans, (3) provides the PBGC with better tools to prevent employers from escaping their plan funding obligations through corporate transactions, (4) requires better information to participants in underfunded plans on plan funding status and PBGC guarantees, and (5) helps assure that workers do not lose pensions because they have lost contact with a terminating pension plan covered by the PBGC. In May 1996, the President submitted the Retirement Savings and Security Act (RSSA) to Congress. The RSSA would have expanded coverage, increased portability and worker protection, and simplified pension law. The proposal included an increase in the guarantees in the multiemployer insurance program to address inflation since 1980 and expansion of the PBGC's missing participant program to include terminating defined contribution plans and non-PBGC-covered defined benefit plans. The Small Business Job Creation Act of 1996 and the Taxpayer Relief Act of 1997 included many of the RSSA provisions but did not include the increase in the multiemployer guarantee or the expansion of the missing participant program. These provisions are contained in several bills that were introduced in the House and Senate in 1997, 1998, and 1999 and remain legislative objectives. Many workers are not saving enough, through personal savings or a 401(k) or other defined contribution plan, for a secure retirement. About half of all workers have no employment-based pension coverage. In businesses with fewer than 100 employees, only about 20 percent of workers are covered by any retirement plan. Traditional pension plans, i.e., defined benefit plans, provide a predictable lifetime benefit, guaranteed by the PBGC. Yet the defined benefit system is stagnating. In early 1998, the Administration proposed a new, simplified defined benefit plan-the Secure Money Annuity or Retirement Trust (SMART)-for employers with 100 or fewer employees. SMART combines the advantages of traditional defined benefit plans and defined contribution plans, while removing some of the major obstacles that discourage small business from adopting defined benefit plans. (The SMART proposal is contained in the Income Security Enhancement Act of 1999 (S. 8), the Employee Pension Portability and Accountability Act of 1999 (H.R. 1213), and the Retirement Security Act of 1999 (H.R. 1590).) For workers, SMART provides predictable benefits for life, guaranteed by PBGC, portability, and a chance to share in favorable investment experience. For employers, SMART offers more predictable contributions and reduced administrative costs. Additional Administration proposals to encourage defined benefit plans include reduced PBGC premiums for new plans and improved benefit guarantees for owners of small businesses (these can be severely limited under current law). Reduced premiums for newly established plans. For small employers, a flat-rate per participant premium of $5 (rather than $19) and no variable rate premium during the first five plan years of a plan [[Page 64073]] established by a small employer. For larger employers, phase-in of the variable rate premium ($9 per $1,000 of unfunded vested current liability) in newly established plans at 20% per year. Improved benefit guarantees for owners of small businesses. For an owner with less than 50% ownership, the guarantee limits would be the same as for non-owner participants. After a plan has been in effect for ten years, owners with a 50% or greater ownership interest would have the same guarantee limits as other participants. Regulatory and Deregulatory Initiatives The PBGC issued regulations implementing the Retirement Protection Act through the end of 1996. In FY 1997 through FY 1999, the PBGC focused on changes that would simplify the rules and reduce regulatory burden. The PBGC: Reduced penalties for late premiums that are paid before the PBGC notifies the plan of the delinquency (statement of policy, December 2, 1996). Extended the time limits for various actions required to terminate a fully funded single-employer plan in a ``standard termination'' (final rule, November 7, 1997). Stopped the reduction of monthly benefits under its actuarial recoupment method once the nominal amount of the benefit overpayment is repaid (final rule, May 29, 1998). Provided participants with benefits valued up to $5,000 in PBGC-trusteed plans with the choice of receiving their benefit in the form of an annuity or a lump sum (final rule, July 17, 1998). Proposed to simplify its valuation assumptions by adopting a single set of assumptions for allocation purposes (proposed rule, October 26, 1998). Extended the filing date for PBGC premiums to match the latest Form 5500 filing date (final rule, December 14, 1998). Proposed to amend its premium regulation to encourage self- correction of premium underpayments by making it easier to qualify for safe-harbor penalty relief (proposed rule, May 26, 1999). The PBGC is continuing to review its regulations to look for further simplification opportunities. The PBGC's regulatory plan for October 1, 1999, to September 30, 2000, consists of one significant regulatory action. _______________________________________________________________________ ----------- Proposed Rule ----------- 146. ALLOCATION OF ASSETS IN SINGLE-EMPLOYER PLANS; VALUATION OF BENEFITS AND ASSETS Priority: Other Significant Legal Authority: 29 USC 1302(b)(3); 29 USC 1341; 29 USC 1301(a); 29 USC 1344; 29 USC 1362 CFR Citation: 29 CFR 4044 subpart B Legal Deadline: None Abstract: The Pension Benefit Guaranty Corporation is considering amending its benefit valuation and asset allocation regulations by adopting more current mortality tables and otherwise simplifying and improving its valuation assumptions and methods. Statement of Need: The PBGC's regulations prescribe rules for valuing a terminating plan's benefits for several purposes, including (1) determining employer liability and (2) allocating assets to determine benefit entitlements. The PBGC's interest assumption for valuing benefits, when combined with the PBGC's mortality assumption, is intended to reflect the market price of single-premium, nonparticipating group annuity contracts for terminating plans. In developing its interest assumptions, the PBGC uses data from surveys conducted by the American Council of Life Insurance. The PBGC currently uses a mortality assumption based on the 1983 Group Annuity Mortality Table in its benefit valuation and asset allocation regulations (29 CFR parts 4044 and 4281). In May 1995, the Society of Actuaries Group Annuity Valuation Table Task Force issued a report that recommends new mortality tables for a new Group Annuity Reserve Valuation Standard and a new Group Annuity Mortality Valuation Standard. In December 1996, the National Association of Insurance Commissioners adopted the new tables as models for determining reserve liabilities for group annuities. The PBGC is now considering incorporating the new tables into its regulations and making other modifications. Summary of Legal Basis: The PBGC has the authority to issue rules and regulations necessary to carry out the purposes of title IV of ERISA. Alternatives: Not yet determined. Anticipated Cost and Benefits: Cost estimates are not yet available. However, the PBGC expects that this regulation will not have a material effect on costs. Risks: Not applicable. Timetable: _______________________________________________________________________ Action DFR Cite _______________________________________________________________________ ANPRM 62 FR 12982 03/19/97 ANPRM Comment Period End 05/19/97 NPRM 03/00/00 Regulatory Flexibility Analysis Required: No Government Levels Affected: None Agency Contact: James L. Beller Attorney Pension Benefit Guaranty Corporation Office of the General Counsel 1200 K Street NW. Washington, DC 20005-4026 Phone: 202 326-4024 TDD Phone: 800 877-8339 Fax: 202 326-4112 RIN: 1212-AA55 BILLING CODE 7708-01-F [[Page 64074]]