WASHINGTON — Today the Pension Benefit Guaranty Corporation announced changes in its efforts to preserve pension plans by targeting enforcement where plans are at risk, and reducing requirements where they are not.
“Instead of using a one-size-fits-all approach, we are focusing on the handful of companies that pose real risk,” said PBGC Director Josh Gotbaum. “For most companies, it will mean fewer requirements and less hassle — and it will let us use our resources where they’re really needed.”
As a result, 92 percent of companies that sponsor pension plans will not face enforcement efforts. This includes small plans with 100 participants or less.
PBGC made these changes in response to a directive from the President to review and reconsider regulatory requirements. Companies sponsoring pension plans have long said that PBGC imposed requirements even when plans posed little or no risk of defaulting on their pension obligations. After the Presidentially-mandated review, PBGC agreed. The agency also concluded that, by targeting, it could both respond to industry concerns and preserve plans more effectively, too.
PBGC plans to apply the new approach to its financial assurance program under ERISA’s section 4062(e). No new financial soundness standards will be created: in each case, PBGC will use measures of financial soundness that are already available and used by companies and plans.
Targeting Financial Assurance Enforcement to Plans that are at risk
Whenever a company ceases operations at a facility, and a substantial share of workers in the pension plan lose their jobs, PBGC requires financial assurance (ERISA section 4062(e). Typically companies provide financial assurance through additional contributions to the plan or a letter of credit guaranteeing future contributions.
Historically, this requirement has been enforced regardless of the size of the plan or the financial health of the sponsoring company. The business community argued that this imposed a burden even where there was little threat to the retirement security of their employees or the agency. After careful review, PBGC agreed.
PBGC is starting a pilot program that focuses enforcement on companies where there is a higher risk of default. Companies that are financially sound by existing measures will not be required to provide financial assurance of any kind.
This pilot program is an exercise of PBGC’s discretionary enforcement authority. It will be modified based on experience.
For more information, view the 4062(e) Enforcement Pilot Program frequently asked questions and the Guidelines for Enforcement of ERISA section 4062(e).
PBGC protects the pension benefits of 44 million Americans in private-sector pension plans. The agency is directly responsible for paying the benefits of more than 1.5 million people in failed pension plans. PBGC receives no taxpayer dollars and never has. Its operations are financed by insurance premiums and with assets and recoveries from failed plans. For more information, visit PBGC.gov.
On April 11, 2013, PBGC updated this press release with a link to the 4062(e) enforcement guidelines. The rest of this press release remains the same.