Technical Update 06-1: Reporting Relief for Certain Employers Based on Use of Corporate Bond Index for Section 4010 Gateway Test

I. Background.

Employers maintaining defined benefit plans with large amounts of underfunding must submit financial and actuarial information annually to the Pension Benefit Guaranty Corporation. (See section 4010 of ERISA and 29 CFR part 4010.) Reports are due 105 days after the end of the "Information Year" (generally the calendar year).

ERISA section 4010 generally requires controlled groups to report to the PBGC if the aggregate unfunded vested benefits in plans maintained by the controlled group exceed $50 million (disregarding plans with no unfunded vested benefits) ("the 4010 Gateway Test"). Vested benefits are calculated on a plan-by-plan basis as of the last day of the plan year that ends within the Information Year ("the 4010 Gateway Testing Date").

This determination tracks the determination of unfunded vested benefits for variable rate premium (VRP) purposes for the plan year that begins on the day after the 4010 Gateway Testing Date, e.g., the 2006 calendar plan year where the 4010 Gateway Testing Date is December 31, 2005 .¹ (The 4010 Gateway Testing Date generally serves as the premium snapshot date for that next plan year.) See Footnote 2 to Technical Update 04-3, which is on the PBGC's Web site at:

http://www.pbgc.gov/practitioners/law-regulations-informal-guidance/content/tu12782.html

The Pension Funding Equity Act of 2004 ("PFEA") set the PBGC's VRP interest rate for plan years beginning in 2004 or 2005 at 85% of the annual rate of interest determined by the Secretary of the Treasury on amounts invested conservatively in long-term investment grade corporate bonds ("PFEA 85% Corporate Rate") for the calendar month preceding the calendar month in which the plan year begins. The PBGC publishes VRP interest rates on its Web site at www.pbgc.gov.

For purposes of determining vested benefits for the 4010 Gateway Test for plan years ending on or after December 31, 2005, the PFEA 85% Corporate Rate no longer applies. (Employers must use the interest rate they would use for VRP purposes for their plan year beginning on or after January 1, 2006.) Thus, filings due on or after April 15, 2006, must value benefits for plan years ending on or after December 31, 2005, using an interest rate of 85% of the annual yield on 30-year Treasury securities (the "Snap-back 85% Treasury Rate").

However, if enacted, pending legislation would extend the PFEA 85% Corporate Rate for premium purposes for another year. Thus, for the 4010 Gateway Test, employers also would use the PFEA 85% Corporate Rate for another year instead of the Snap-back 85% Treasury Rate.

Because the pending legislation creates uncertainty as to which interest rate will be applicable, the PBGC, pursuant to its authority under 29 CFR § 4010.11, is waiving reporting for certain employers that would not have to file using the PFEA 85% Corporate Rate.

II. Reporting Relief.

Reporting is waived for filings under 29 CFR part 4010 for information years ending on or after December 31, 2005, and on or before June 30, 2006, provided no filing would be required if, for purposes of the 4010 Gateway Test, the PFEA 85% Corporate Rate is used for valuing vested benefits for plan years ending on or after December 31, 2005.

This Technical Update has no effect on the determination of premiums or on any other reporting requirements.

III. PBGC Contact Points.

For questions about this Technical Update, contact Amy Viener of the Policy, Research and Analysis Department at (202) 229-4000, ext. 3919, or viener.amy@pbgc.gov. Questions about specific section 4010 filings should be directed to Ruth Williams of the Department of Insurance Supervision and Compliance (202) 229-4000, ext. 6744, or williams.ruth@pbgc.gov.