The President signed the Retirement Protection Act of 1994 (the RPA) on December 8, 1994 as part of the General Agreement on Tariffs and Trade Legislation, Public Law No. 103-465, 108 Stat. 4809. The RPA amends the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986 (the Code)(i) to strengthen pension funding for underfunded plans, (ii) to increase the termination insurance premiums that underfunded plans pay to the Pension Benefit Guaranty Corporation (the PBGC), (iii) to require additional reporting to PBGC by companies with large underfunded plans, (iv) to give PBGC concurrent authority to go to court to enforce certain missed funding contributions in PBGC-covered plans, (v) to keep workers and retirees better informed about their pension and (vi) to establish a missing participant program.
This PBGC Technical Update highlights major changes made by the RPA. The Update summarizes the entire RPA, but, as a PBGC issuance, it provides guidance only with respect to those RPA provisions that are within PBGC's authority.
Part 1 of the Update provides background information briefly summarizing the major portions of the RPA that amend the Code and are under the authority of the Treasury Department (including the Internal Revenue Service (IRS)), not the PBGC. These provisions relate to the funding of pension plans, lump sum distributions, excise tax relief and certain of the issues relating to benefit increases in bankruptcy. Because the Treasury Department (including the IRS) will interpret and enforce these provisions, this PBGC Technical Update merely describes these statutory provisions and provides no interpretation or guidance of any kind with respect to them. Accordingly, this Update may not be cited in support of or against any particular interpretation of these provisions.
Part 2 of the Update addresses those portions of the RPA that primarily are under the PBGC's authority. Part 2 both summarizes and provides guidance with respect to the RPA changes to Title IV of ERISA. Pending the issuance of regulations or other guidance, a contributing sponsor, plan administrator or plan may rely on the guidance in this Update with respect to Title IV matters. If future guidance is more restrictive, such guidance will be applied without retroactive effect. This Technical Update is not intended to be all-inclusive with respect to matters that may arise in complying with Title IV of ERISA. No inference should be drawn regarding any matters that are not addressed.
Table of Contents
Part 1: Summary of RPA Provisions under the authority of the Treasury Department
I. Pension Plan Funding (Highlights)
A. DRC Formula
B. DRC Assumptions
C. DRC Threshold
D. Phase-In Rules
II. Other Funding Reforms
A. Full Funding Limit
B. Liquidity Rule
C. Excise Tax Relief
D. Quarterly Contributions
III. Lump-Sum Distributions
A. Minimum Distributions
B. Limitation on Maximum Benefits
IV. Prohibition on Benefit Increases Where Plan Sponsor is in Bankruptcy
Part 2: Summary of and Guidance on RPA Provisions under the Authority of the PBGC
V. PBGC Funding Enforcement
A. Lien for Missed Minimum Funding Contributions
B. Enforcement of Minimum Funding Requirements
VI. PBGC Reporting
A. Reportable Events and Advance Notice
B. Certain Information Required to be Furnished to the PBGC
VII. Computation of Additional PBGC Premium
A. Phase-Out of Cap on Variable Rate Premium
B. Regulate Public Utility Plans
C. 1994-R Premium Payment Package
VIII. Participant Reforms
A. Disclosure to Participants
B. Missing Participants
C. Modification of Maximum Guarantee for Disability Benefits
D. Remedies for Noncompliance With Requirements for Standard Terminations
Part 1: Summary of RPA Provisions under the Authority of the Treasury Department
1. Pension Plan Funding (Highlights). RPA section 751-755 and 761-764. Except as otherwise noted, the amendments made by the RPA are effective for plan years beginning after December 31, 1994.
A. DRC Formula. The deficit reduction contribution (the DRC) is an additional funding charge under section 302(d) of ERISA and section 412(1) of the Code that applies to single-employer underfunded plans with more that 100 participants. The RPA makes two key changes to the formula used to calculate the DRC.
* First, the RPA strengthens the basic DRC contribution formula. Plans with funding ratios of 60 percent or less must fund, in the current year, 30 percent of their new liabilities within the meaning of section 302(d) of ERISA and section 412(1) of the Code. For each percentage point by which a plan's funding ratio exceeds 60 percent, the DRC amortization percentage is reduced by four-tenths of one percent, decreasing to 18 percent as the plan becomes 90 percent funded.
* Second, the RPA improves on the rules that coordinate the DRC funding requirements with the basic funding rules by taking into account in the DRC calculations the amortization of all charges and credits including: (i) experience gains or losses, (ii) changes in liabilities due to changes in funding methods and (iii) changes in liabilities due to changes in actuarial assumptions. In addition, the DRC calculation is revised to substitute the expected increases in current liability during the year for the normal cost under the regular funding method. Thus, a plan's minimum funding requirement for a plan year will be based on the greater of the DRC or the amount determined under the plan's regular funding method.
B. DRC Assumptions. The RPA gradually narrows the interest rate corridor used to calculate current liability for purposes of the DRC and specifies a mortality assumption. (Prior law did not restrict the choice of mortality table.) For the 1995 plan year, the corridor for the interest rate used to calculate current liability for DRC purposes is set at 90 percent to 109 percent of the four-year weighted average interest rate on 30-year Treasury securities. The 109 percent will be reduced by one percent per year, ending at 105 percent in 1999.
In addition, plans generally are required to use mortality tables (which have not yet been issued) prescribed by the Secretary of Treasury that will be based on the 1983 Group Annuity Mortality Table (GAM 83). Once issued, these tables will remain in effect until the Secretary of Treasury issues new tables. The new tables will not be effective before the 2000 plan year.
Plans may use special mortality tables for disabled participants. For the 1995 plan year, plans may use their own mortality assumption for participants who are entitled to plan disability benefits. Beginning in 1996, plans may use two special mortality tables prescribed by the Secretary of Treasury for participants who are disabled. The first table is for participants entitled to plan disability benefits for disabilities (as defined under the plan) that occurred in plan year before 1995. The second table is for participants with disabilities that occur in plan years beginning after 1994 and that meet the Social Security definition of disability.
C. DRC Threshold. The DRC generally applies only to plans with more than 100 participants that have a funded current liability percentage of less that 90 percent. In making this threshold calculation of the funded current liability percentage, assets are not reduced by any credit balance in the funding standard account. (Assets continue to be reduced by any credit balance for all other DRC purposes.) In addition, for purposes of the DRC threshold calculation, current liability is calculated using the maximum interest rate allowable under the interest rate corridor for that year.
The RPA provides special volatility rules that exempt certain pension plans from the special DRC funding requirement for underfunded plans if they are just below the 90 percent threshold. There are both a transitional rule and a permanent rule.
Under the transition volatility rule, a plan that met any one of three special eligibility tests for any of the two plan years beginning in 1992, 1993, and 1994 is not subject to the DRC in the 1995 or 1996 plan year, provided the plan is at least 80 percent funded in 1995 or 1996, respectively. The three eligibility tests are:
1) the plan's full-funding limit under section 302(c)(7) of ERISA and section 412(c)(7) of the Code for the plan year was zero;
2) the plan (a) had no DRC charge for the plan year or (b) would have had no charge if credit balances were not subtracted from assets and the plan had used the highest allowable rate of interest for the year in determining its current liability;
3) the plan's additional DRC charge for the plan year did not exceed the lesser of 0.5 percent of current liability or $5 million.
The plan may meet different tests in different years, and the two years do not need to be consecutive.
Under the permanent volatility rule, a plan has no DRC for a year if the plan's funded current liability percentage is at least 80 percent and if the plan had been 90 percent or better funded for any two consecutive years of the previous three plan years. A pre-1995 year is treated as 90 percent funded only if the plan met one of the three special eligibility tests described above.
D. Phase-In Rules. The RPA permits a plan to amortize over 12 years the increase in current liability in 1995 due to the required use of the RPA's interest and mortality assumptions (i.e., the plan can treat the increase as part of old liability). (Subsequent liability increases due to the decrease in the top of the interest rate corridor are included in new liability.) Alternatively, an employer may make an irrevocable election to treat as old liability (subject to 12-year amortization) the increase in all current liability attributable to plan years beginning after December 31, 1987 and before January 1, 1995. If this alternative is chosen, the amount owed under the DRC for each of the first seven plan years after 1994 cannot be less than would have been owed under the DRC if pre-RPA law had remained in effect.
When a successor table to GAM 83 is adopted, the initial increase in current liability attributable to the adoption of the new table may be amortized over 10 years.
For plan years 1995-2001, the RPA also provides an optional rule to protect employers from extraordinary increases in annual contributions. Under this rule, the DRC is limited to an amount that will increase the plan's funding ratio to a target funding ratio for the year. The target funding ratio is calculated by increasing the initial funding ratio (as of the first day of the 1995 plan year) by a fixed number of percentage points each year. The number of percentage points is determined based on the applicable ratio (defined as the prior year's target ratio or, for the 1995 plan year, the initial funded current liability percentage). Under this optional rule, an employer will never owe less for a plan year than the amount owed if pre-RPA law had remained in effect.
If the applicable ratio for a year is less than or equal to 75 percent, the target percentage is increased by three percentage points per year for plan years 1995 through 1999, four percentage points for 2000, and five percentage points for 2001. If the applicable ratio exceeds 85 percent, the increment is two percentage points per year for plan years 1995 through 1999, three percentage points for 2000, and four percentage points for 2001. If the applicable ratio is between 75 percent and 85 percent, the increment is adjusted proportionally.
II. Other Funding Reforms. RPA sections 751,754,755,761, and 764.
A. Full Funding Limit. The RPA revised the full funding limit. A plan's full funding limit is the greater of: (a) the limit under prior law (the excess of the lesser of accrued liability or 150 percent of current liability over the lesser of market value or actuarial value of assets); or (b) the excess of 90 percent of the current liability of the plan, over the actuarial value of assets. Current liability under (a) and (b) includes the expected increase in current liability due to benefits accruing during the plan year. For purposes of (b), current liability is calculated using the new DRC assumptions (i.e., the lower interest rate corridor and specified mortality) and assets are not reduced by credit balances in the funding standard account. For purposed of (a), current liability can be calculated using the pre-RPA assumptions.
B. Liquidity Rule. The RPA also establishes a special liquidity requirement for plans that are in danger of not being able to make annual benefit payments. See section 302(e)(5) of ERISA and section 412(m)(5) of the Code. This rule requires an underfunded plan (less than 100 percent funded for current liability) to maintain cash, marketable securities or other liquid assets specified by the Secretary of the Treasury in regulations equal to three years' worth of disbursements (adjusted for certain lump-sum payments and annuity purchases), based on payments made from the plan during the previous 12-month period. If a plan does not satisfy this requirement for any quarter, the plan sponsor must make additional contributions in order to avoid a non-deductible excise tax and is prohibited from making lump-sum and other payments in excess of the amount payable as a single life annuity during the period in which the plan has a liquidity shortfall. This rule does not apply to plans with 100 or fewer participants or to multiemployer plans.
C. Excise Tax Relief. The RPA removes impediments to full funding by granting excise tax relief in two situations. First, the RPA eliminates the excise tax on nondeductible contributions to terminating single-employer plans covered by the PBGC with 100 or fewer participants to the extent that the contributions do not cause plan assets to exceed current liabilities (see section 404 (a)(1)(D) of the Code). This provision is effective for taxable years ending on or after December 8, 1994.
Second, the RPA eliminates the 10 percent excise tax on nondeductible contributions to defined contribution plans (up to 6 percent of compensation) that are nondeductible because they exceed the aggregate deductible limit (generally 25 percent of compensation) for employers who maintain both defined benefits and defined contribution plans covering one or more participants in common (see section 404 (a)(7) of the Code). This provision is effective for taxable years ending on or after December 31, 1992.
D. Quarterly Contributions. The RPA also repeals the requirement for quarterly contributions for plans that are at least 100 percent funded for current liability for the preceding plan year (see section 302(e)(1) of ERISA and section 412 (m)(1) of the Code). This provision is effective for plan years beginning after December 8, 1994.
III. Lump-Sum Distributions. RPA section 767.
The RPA changes both the minimum and maximum benefit calculation requirements.
A. Minimum Distributions. A plan must determine the minimum value of lump- sum distribution (or other non-annuity distribution) using the 30-year Treasury bond rate for the month before the date of distribution (or such other time as the Secretary may prescribe by regulation) and using a mortality table prescribed by the Secretary of Treasury based on the GAM 83 table (see Rev. Rul. 95-6, 1995-4 I.R.B. 22 for tables for lump sums). Subject to the limitation described below, plans may provide for greater lump-sum amounts. A participant's benefit will not be considered to be reduced in violation of section 204(g) of ERISA or section 411 (d)(6) of the Code merely because the benefit is determined in accordance with the new minimum lump-sum methodology.
Although a plan need not adopt this new standard until the 2000 plan year, a plan may be amended any time on or after December 8, 1994, to adopt this change. Because plans do not have to adopt the RPA minimum lump-sum methodology until the 2000 plan year, the PBGC will continue to publish its monthly PBGC lump-sum interest rates until at least that time.
B. Limitation on Maximum Benefits. For defined benefit plans, if a plan benefit is payable in a form other than a single life annuity or payments begin before or after social security retirement age, the benefit must be actuarially adjusted for purposes of the defined benefit limit under section 415(b)(2)(B), (C) and (D) of the Code. The RPA requires that the mortality table used to adjust the benefit or limitation be prescribed by the Secretary of Treasury based on the GAM 83 mortality table (see Rev.Rul. 95-6, 1995-4 I.R.B.22). If the benefit is paid as a lump-sum (or in other non-annuity forms), the interest rate used to adjust the maximum benefit is the 30-year Treasury bond rate.
Generally, this provision is effective for plan years and limitation years beginning after December 31, 1994. Benefits accrued as of the last day of the last plan year beginning before January 1, 1995 will not have to be reduced merely because of this provision.
IV. Prohibition on Benefit Increases Where Plan Sponsor is in Bankruptcy. RPA section 766.
The RPA generally prohibits benefit increases while an employer is in bankruptcy. The RPA prohibits that an employer that is a debtor in a bankruptcy proceeding may increase benefits in a PBGC-covered, single-employer plan only if (1) the plan would have a funded current liability percentage after the benefit increase of 100 percent or more, and (2) the benefit increase does not become effective until after the effective date of the employer's plan of reorganization.
The prohibition on benefit increase does not affect benefit increases negotiated or adopted during the bankruptcy that become effective after the sponsor emerges from bankruptcy, nor does it preclude benefit increases from becoming effective during bankruptcy under plan amendments adopted or collective bargaining agreements entered into before bankruptcy. It also does not apply to plan amendments (1) that the Secretary of Treasury determines are reasonable and provide for only de minimis increases in the liabilities of the plan with respect to employees of the debtor; (2) that repeal an amendment described in section 302(c)(8) of ERISA or section 412(c)(8) of the Code; or (3) that are needed to satisfy Code qualification requirements.
If a benefit increase is adopted during bankruptcy, phase-in of the PBGC's guarantee will begin from the later of the effective date stated in the plan amendment that increases benefits or the effective date of the plan or reorganization.
This section also provides that adoption of a prohibited amendment violates the Code's qualification requirements. This provision is effective for plan amendments adopted on or after December 8, 1994.
Part 2: Summary of and Guidance on RPA Provisions under the Authority of the PBGC
V. PBGC Funding Enforcement.
A. Lien for Missed Minimum Funding Contributions. RPA section 768. The RPA makes changes that authorize the PBGC to perfect a plan's statutory lien for missed contributions more quickly. A plan has a statutory lien against the employer's assets for missed contributions exceeding $1 million. Under section 412(n) of the Code (prior to its amendment by RPA), the lien arose 60 days after the contribution was due and the lien was for the amount of the missed contribution less a $1 million exclusion. The RPA eliminates the 60-day waiting period so that the lien arises on the due date for the payment. In addition, the RPA eliminates the $1 million exclusion from the lien amount but retains the $1 million threshold before the lien arises. Finally, the RPA clarifies that these statutory lien are applicable only to PBGC-covered plans. This provision is effective for installments and other payments that become due on or after December 8, 1994.
B. Enforcement of Minimum Funding Requirements. RPA section 773. The RPA gives the PBGC express authority to bring a civil action to enforce minimum funding standards in plans that are covered by the PBGC's guarantees, if a contribution of $1 million of more is not made. The RPA dose not affect the concurrent enforcement authority of the Department of Labor on the excise tax authority of the Internal Revenue Service. This provision is effective for installments and other required payments that become due on or after December 8, 1994.
VI. PBGC Reporting
A. Reportable Events and Advance Notice. RPA section 771. The RPA adds four new reportable events to section 4043 of ERISA. In addition, the RPA renumbers, as new section 4043 (c)(13), the PBGC's general regulatory authority to specify other reportable events. The four new reportable events generally are the following:
(1) when, as a result of an event such as a sale of a subsidiary, a controlled group member ceases to be a member of the controlled group (new section 4043 (c)(9);
(2) when a contributing sponsor or member of a contributing sponsor's controlled group liquidates (new section 4043 (c)(10);
(3) when, in any 12-month period, a contributing sponsor or controlled group member (a) declares an extraordinary dividend or (b) redeems 10 percent or more of the total combined voting power or total value of shares of all classes of stock of the entire controlled group (new section 4043 (c)(11));
(4) when, in any 12-month period, 3 percent or more of the benefit liabilities of a PBGC-covered plan are transferred to a plan maintained by a sponsor who is outside the controlled group (new section 4043 (c)(12)).
For both the new and old reportable events, the reporting obligations now apply to the contributing sponsor as well as to the plan administrator. Plan administrators or contributing sponsors must give the PBGC notice of the new reportable events for events that occur on or after February 6, 1995 (60 days after the enactment of RPA).
In general, the plan administrator or contributing sponsor need not notify the PBGC until 30 days after the event occurs. However, in certain limited circumstances, the contributing sponsor (but not the plan administrator) must notify the PBGC at least 30 days in advance of the occurrence of the four new reportable events and any other reportable event specified by regulations. This advance notice only applies if--
(1) at the close of the preceding plan year, the contributing sponsor and members of its controlled group maintain plans subject to Title IV (excluding any plans with no unfunded vested benefits)
* with aggregate unfunded vested benefits in excess of $50 million, and
* with aggregate funded vested benefit percentage less than 90 percent; and
(2) the contributing sponsor or the members of the sponsor's controlled group to which the event relates is not a person or a subsidiary of a person subject to the reporting requirements of section 13 or 15(d) of the Securities Exchange Act of 1934.
Contributing sponsors must give the PBGC at least 30-days advance notice of the new reportable events as early as January 8, 1995 (for an event that occurs on February 6).
The RPA provides that any information submitted to the PBGC pursuant to the requirements of section 4043 of ERISA is exempt from the public disclosure requirements of the Freedom of Information Act (section 552 of Title 5 of the United States Code), and that no such material may be made public, except (1) in the context of a relevant administrative or judicial proceeding, or (2) to either body of Congress, including any authorized committee subcommittee of the Congress.
Until further guidance is issued, the following rules apply where advance reporting is not required. In the case of an event that is a reportable event only under the RPA but is not subject to the advance reporting requirements, the PBGC will consider the notice requirements satisfied if the plan administrator or contributing sponsor provides to the PBGC, 30 days after the event, the general information required under the existing reportable event regulation (see 29 CFR section 2615.3(b)). In the case of an event that is a reportable event under both the RPA and the existing regulations (see 29 CFR 2615.21,.22, and .23), the PBGC will consider the requirements of the RPA and the existing regulations satisfied only if the plan administrator or the contributing sponsor provides to the PBGC, 30 days after the event, all of the information required under the existing regulations (see 29 CFR section 2615.3). Notices should be sent to the Case Operations and Compliance Department, Pension Benefit Guaranty Corporation, 445 12th Street SW, Washington, DC 20024-2101.
Where advance reporting is required, until further guidance is issued, the PBGC will consider the statutory requirements satisfied if plan sponsors (1) notify the PBGC at least 30 days in advance of the reportable event, (2) make a good faith effort to provide the general information required under the existing reportable event regulation (29 CFR 2615.3(b)) with their initial filing, and (3) for an event that is a reportable event under both the RPA and existing regulations, provide any additional information required under the existing reportable event regulations with the initial filing or as soon thereafter as it is available. Companies subject to the advance reporting requirements should send their notices to the Corporate Finance and Negotiations Department, Pension Benefit Guaranty Corporation, 445 12th Street SW, Washington, DC 20024-2101.
Failure to provide the PBGC with any notice or other material information in a timely manner as required under the RPA or existing law will result in a penalty of $1,000 per day. See section 4071 of ERISA.
B. Certain Information Required to be Furnished to the PBGC. RPA section 772. The RPA requires certain contributing sponsors and members of their controlled groups to provide financial and actuarial information to the PBGC annually in a manner and at the time specified by the PBGC in regulations. This new requirement generally is limited to situations in which:
(1) at the end of the preceding plan year, the total amount of unfunded vested benefits in all plans of the contributing sponsor and members of its controlled group (taking into account only those plans with unfunded vested benefits) exceeds $50 million;
(2) the conditions for imposition of a lien for missed contributions have been met with respect to any plan maintained by the contributing sponsor or any member of its controlled group; or
(3) minimum funding waivers in excess of $1 million have been granted with respect to any plan maintained by the contributing sponsor or any member of its controlled group, and any portion of these waivers is outstanding.
The RPA provides that any information submitted to the PBGC pursuant to the requirements of section 4010 of ERISA is exempt from the public disclosure requirements of the Freedom of Information Act (section 552 of Title 5 of the United States Code), and that no such material may be made public, except (1) in the context of a relevant administrative or judicial proceeding, or (2) to either body of Congress, including any authorized committee or subcommittee of the Congress.
The PBGC is developing regulations to implement new section 4010 of ERISA. No information needs to be provided to the PBGC pursuant to this section until such regulations are issued. The authority given to the PBGC under this section is in addition to, and does not replace, the PBGC's existing authority to obtain information. Thus, the absence of regulations under this section does not relieve sponsors of any other information requirements.
VII. Computation of Additional PBGC Premium. RPA section 774.
A. Phase-Out of Cap on Variable Rate Premium. The PBGC's annual insurance premiums for single-employer plans consists of a flat-rate premium of $19 per participant paid by all insured plans and a variable rate premium (VRP) of $9 per $1,000 of unfunded vested benefits paid by underfunded plans. Under prior law, the VRP was capped at a maximum charge of $53 per participant. The RPA phases out the cap on the VRP for plan years beginning on or after July 1, 1994. In the first year, the VRP will be $53 plus 20 percent of the difference between the uncapped premium and $53, increasing to $53 plus 60 percent of the difference in the second year. The VRP is completely uncapped in the third plan year. The flat-rate premium of $19 per participant remains unchanged.
Effective for plan years beginning on or after July 1, 1997, the interest rate used to calculate the VRP will increase from 80 percent to 85 percent of the spot rate for 30-year Treasury securities as of the month preceding the month in which the plan year begins. For plan years beginning with the first plan year that plans are required to use a new mortality table prescribed by the Secretary of the Treasury that replaces the GAM 83-based tables for certain funding purposes (which will not occur before the 2000 plan year), the interest rate will increase to 100 percent of the Treasury spot rate, and the plan assets will have to be valued at their fair market value.
B. Regulated Public Utility Plans. Plans of regulated public utilities engaged in the sale of electric energy, gas, water, or sewage disposal (as described in section 7701 (a)(33)(A)(i) of the Code) generally will continue to be subject to the $53 per-participant VRP cap until plan years beginning after the earlier of January 1, 1998 or the date the utility begins to collect from customers rates that reflect the premium increase.
C. 1994-R Premium Payment Package. Because the RPA changes in the VRP cap are retroactive, plans with plan years beginning on or after July 1, 1994 will not be able to use the current 1994 premium payment package (consisting of PBGC Form 1, Schedule A, and instructions). The PBGC will shortly be publishing and mailing to plan administrators of plans with 1994 plan years beginning on or after July 1, 1994 a revised 1994 premium payment package (the 1994-R package consisting of PBGC Form 1, Schedule A-R, and instructions) reflecting the RPA changes. All plans with 1994 plan years beginning on or after July 1, 1994 must file using these revised forms.
Under the RPA rules, all underfunded plans (other than certain plans of regulated public utilities) must calculate the VRP because the $53 per-participant cap no longer applies. The 1994-R package will include a worksheet to simplify the new calculations for the phase out of the VRP cap.
VIII. Participant Reforms.
A. Disclosure to Participants. RPA section 775. The RPA requires that plan administrators of certain underfunded plans annually notify participants and beneficiaries in language that can be understood by average participants of the plan's funding status and the limits of the PBGC's guarantee should the plan terminate while underfunded. Only those plans that are subject to the VRP and that are not exempt from the DRC are required to provide this notice. This participant notice requirement applies to all plans including plans with 100 or fewer participants. This new section 4011 of ERISA is effective for plan years beginning after December 8, 1994. However, no notification is required until the PBGC issues regulations prescribing the form, manner and time of the notice. The PBGC is developing regulations, and anticipates having them published so that plans will give the notice for the 1995 plan year. The regulations will include a model notice that plans can use to satisfy the requirements.
B. Missing Participants. RPA section 776. The RPA amends ERISA's standard terminations requirements for participants whom the plan administrator cannot locate after a diligent search (missing participants)(see section 4041(b) and 4050 of ERISA). The RPA requires a plan administrator to transfer assets to the PBGC for each missing participant whose benefit is not provided by the purchase of an annuity. The RPA also requires that a plan administrator provide the PBGC with information, such as the name of the annuity provider and the participant, in the case of any missing participant for whom the plan administrator purchases an annuity.
The RPA provides that a plan that operates in accordance with these provisions will not fail to be a qualified plan solely because it followed these provisions with respect to the benefits of missing participants (see section 401 (a)(34) of the Code) and that plans shall provide that, upon termination, benefits of missing participants shall be treated in accordance with new section 4050 (see section 206(f) of ERISA).
This provision is effective for distributions that occur in plan years commencing after the PBGC issues final regulations implementing these provisions. The PBGC is working quickly to develop the operational and system changes, and regulations needed to implement the program.
C. Modification of Maximum Guarantee for Disability Benefits. RPA section 777. The RPA provides that the PBGC's maximum guaranteed monthly benefit paid to a participant who is totally and permanently disabled on or before the plan termination date is not reduced to reflect the age at which the participant commences benefits. To be considered disabled for purposes of the maximum guarantee, the Social Security Administration must have determined that the participant satisfies the definition of disability under Title II or XVI of the Social Security Act. This provision is effective for plans with respect to which termination proceedings are instituted by the PBGC, or in the case of distress terminations for which notices of intent to terminate are filed, on or after December 8, 1994.
D. Remedies for Noncompliance With Requirements for Standard Termination. RPA section 778(a). The RPA provides the PBGC with discretion not to issue a notice of noncompliance invalidating a standard termination if the PBGC determines that issuance of such a notice would be inconsistent with the interest of participants and beneficiaries. The PBGC can continue to exercise other current law remedies in those situations; for example, assessing penalties against the plan administrator under section 4071 of ERISA. This provision is effective for standard terminations with respect to which the PBGC has not issued a notice of noncompliance or a final determination nullifying the termination as of December 8, 1994. Until further guidance is issued, the PBGC will apply this discretion in narrow circumstances where it is clearly in the interest of participants.