The law requires that pension plans and the companies that sponsor them give PBGC notice of various events affecting either the company or the plan that may signal financial problems and could potentially put pensions at risk.
Reportable event filings enable PBGC to take steps to encourage plan continuation or, if plan termination is called for, to maximize recovery of the shortfall from all possible sources. In either case, the filings provide information to help PBGC protect plan participants and the pension insurance program. Without timely information about a reportable event, PBGC typically learns that a plan is in danger only when most opportunities for protecting participants and the pension insurance program have been lost.
In general, reports are due 30 days after the event occurs (post-event reporting). For some privately-held companies that sponsor plans with large underfunding, some events must be reported 30 days in advance of the event (advance reporting). The events for which post-event reporting is required are:
Active Participant Reduction
Change in Controlled Group*
Distribution to Substantial Owner
Insolvency or Similar Settlement*
Transfer of Benefit Liabilities*
Missed Required Contribution
Application for Minimum Funding Waiver*
Inability to Pay Benefits When Due
* These events also require advance reporting if the sponsor is subject to those rules.
The statute allows PBGC to waive reporting with respect to any reportable event. PBGC has used that authority to issue regulations that try to minimize the burden of reporting on plan sponsors, while still getting the information it needs to protect pensions.
As the laws and business environment have changed and in response to the 2011 Executive Order on Improving Regulations and Regulatory Review, PBGC reviewed the reportable events regulation (including the waiver provisions) to see whether we are continuing to get important information, and to make sure we only ask for information we need. Thus, PBGC’s reportable events regulation has been updated to reduce the amount of unneeded filings and to make sure we hear on a timely basis when pensions may be at risk. PBGC also has the ability to waive reporting with respect to any reportable event on a case-by-case basis.
On September 11, 2015, PBGC published a final rule that changes the reportable events regulation.
The biggest changes in the final regulation involve reporting waivers (i.e., criteria that exempt a company from filing a reportable event notice). Through these waivers, PBGC limits reporting to only the information we need. It allows PBGC to exempt about 94 percent of plans and sponsors from many reporting requirements that would otherwise apply.
The new waiver structure is designed to reduce the burden of reporting for sponsors that present the least risk of not being able to afford to keep their plans.
In addition to changes to the waivers, the regulation has been updated to revise certain definitions, modify certain terminology due to changes in the law, eliminate most filing extensions, and require that reports be submitted electronically.
For post-event reporting, the changes apply to events that occur on or after January 1, 2016. For advance reporting, the changes apply to reports due on or after that date.
It depends which reporting requirement is involved:
- For plans subject to post-event reporting, the new Form 10 must be used for events that occur on or after January 1, 2016.
- For plans subject to advance reporting, the new Form 10-Advance must be used for reports due on or after January 1, 2016 (i.e., for events expected to take effect on or after January 31, 2016)
- For reporting large unpaid contributions, the new Form 200 must be used if the date the aggregate value of missed contributions first exceeds $1 million is on or after January 1, 2016.
As with the old regulation (the regulation in effect before the regulatory changes), the requirement to report is automatically waived if certain criteria are met. These criteria differ for various events. For example, for several events, reporting is waived if the plan is small (see Q&A 11 for detailed information about small plan waivers).
The final regulation provides some waivers that were not available under the old regulation, including a new waiver for companies that pose little risk to the pension insurance system. Another new waiver applies to public companies.
For five events — Extraordinary Dividend or Stock Redemption, Change in Controlled Group, Active Participant Reduction, Distribution to a Substantial Owner, and Transfer of Benefit Liabilities — reporting is waived if any of the following waivers apply:
- Low-default-risk waiver. This new waiver — based on company financial metrics —measures risk to the pension insurance system. The waiver is flexible and offers sponsors choices in how they can meet the waiver criteria. Those criteria are based on existing, readily-available financial information that companies already use for many business purposes. See Q&A’s 5-8 for detailed information about this waiver.
- Well-funded plan waiver. This waiver is based on a plan owing no variable-rate premium (VRP). Because VRPs are not required if a plan is 100% funded using specified methods and assumptions, this waiver is called the “well-funded plan waiver”. See Q&A 9 for detailed information about this waiver.
- Public company waiver. This waiver applies if the event was previously reported on an SEC Form 8-K filing. See Q&A 10 for detailed information about this waiver.
Other waivers in the old regulation (small plan, de minimis segment, and foreign entity waivers) still apply, and in many cases have been expanded, to provide additional relief to plan sponsors where the risk of an event to plans and the pension insurance system is low.
The final regulation also provides some event-specific waivers. For example, with respect to the missed required contribution event, reporting is waived if the missed contribution is made up within 30 days, if the contribution was “missed” solely because the sponsor failed to make a timely election to use the plan’s credit balance to satisfy the funding requirement, and, for small plans only, if the missed contribution was a quarterly installment.
A table showing which waivers apply to which events under the final regulation is available in the final rule.
A company that is a contributing sponsor of a plan meets the low-default-risk standard if the company has adequate capacity to meet its obligations in full and on time. Both the company and the highest level U.S. parent of the plan’s controlled group must show they have adequate capacity. Adequate capacity is evidenced by satisfying either both of the first two or any four of the seven criteria below:
- The probability that the company will default on its financial obligations is not more than 4% over the next five years or not more than 0.4% over the next year, in either case determined on the basis of widely available financial information on the company’s credit quality.
- The company’s secured debt (with some exceptions) does not exceed 10% of its total asset value.
- The company’s ratio of total-debt-to-EBITDA is 3.0 or less.
- The company’s ratio of retained-earnings-to-total-assets is 0.25 or more.
- The company has positive net income for the two most recent completed fiscal years.
- The company has not experienced any loan default event in the past two years regardless of whether reporting was waived.
- The sponsor has not experienced a missed contribution event in the past two years unless reporting was waived.
The probability of default is determined once during annual financial cycle on the basis of widely-available financial information on the company’s credit quality. Sources of such information may include credit scores reported by commercial credit reporting companies or credit ratings from nationally recognized statistical rating organizations. PBGC’s intent is to provide flexibility to companies in meeting the standard and allow a company to determine whether it satisfies the new criterion by referring to third party information that the company considers reliable and already uses with confidence for other business purposes.
A company determines whether it qualifies for the low-default-risk waiver once during an annual financial reporting cycle (on a “financial information date”). If it qualifies on that financial information date, its qualification remains in place throughout a “safe harbor period” that ends 13 months later or on the next financial information date (if earlier). If it does not qualify, its non-qualified status remains in place until the next financial information date. The financial information date is the date annual financial statements are filed with the SEC (if the company is a public company) or the closing date of the company's financials (if the company is not a public company). The closing date of the company's financial statements is the date the financials are closed and finalized.
For example, a company completes its audited financial statements and files them with the SEC on March 15, 2016 for the period January 1 – December 31, 2015 (“2015 Financial Statements”). The company uses the 2015 Financial Statements to determine whether it meets the low-risk-default waiver on March 15, 2016. If it meets the waiver criteria, the company is exempt from reporting events that occur from March 15, 2016 through April 15, 2017. For the following year, if the company completes its financial statements for the 2016 financial year by March 15, 2017 and no longer meets the low-default-risk criteria, the safe harbor is no longer in effect beginning on March 15, 2017.
No. The company makes its own determination of whether, and how, it meets the safe harbor and will not need to inform PBGC of this determination.
The well-funded plan waiver applies if the plan owed no variable rate premium (VRP) for the plan year preceding the year in which the reportable event occurred. For example, consider a calendar year plan, for which the 2016 premium filing is due October 15, 2016. If that filing shows that no VRP is owed for 2016, the plan qualifies for the well-funded plan waiver with respect to reportable events for which the waiver applies occurring in 2017. This is the case even if the 2017 filing (due October 15, 2017) shows that a VRP is owed for 2017.
This waiver applies if any contributing sponsor of a plan is a public company and has timely filed a SEC Form 8-K disclosing the event under an item of the Form 8-K other than under Item 2.02 (Results of Operations and Financial Condition) or in financial statements under Item 9.01 (Financial Statements and Exhibits).
First, the definition of small plan has been modified slightly so that the same definition is used for premium and reportable event purposes. A small plan, for either purpose, is a plan with 100 or fewer participants.
Second, under the final regulation, the small plan waiver now applies to more events (five events, as compared to two events under the old regulation). For small plans, reporting is waived for the following events: Failure to make a required quarterly contribution, Extraordinary Dividend or Stock Redemption, Active Participant Reduction, Change in Contributing Sponsor or Controlled Group, and Transfer of Benefit Liabilities.
A summary of post-event reporting requirements and waivers for small plans is shown below. Other waivers may apply.
Reporting Waivers – Small Plans (100 or fewer participants)
In some cases, yes. The most significant changes are as follows:
- Active Participant Reduction. The way a sponsor determines an Active Participant Reduction has been simplified. Under the old regulation, all participant reductions were treated the same which, in essence, meant sponsors had to keep track of the participant count on each day of the plan years. The final regulation simplifies this process by treating single-cause events (such as a reorganization, mass layoff, or discontinuance of an operation) differently from events resulting from general attrition. With the former, the measurement date for determining whether reduction exceeds the threshold is tied to the event. With the latter, no special measurement date is needed. Instead, counting is required only once a year, on a date where such counting is required for another purpose (e.g., determining PBGC flat-rate premiums).
- Bankruptcy. Under the old regulation, the insolvency event was triggered when a company filed for bankruptcy. That is no longer the case. Reporting of proceedings under the bankruptcy code has been eliminated from the insolvency event.
- Loan Default. Under the old regulation, reporting was required when a loan payment was more than 30 days late, when the lender accelerated the loan, or when there was a written notice of default based on certain serious conditions. Under the final regulation, reporting is required in the case of any default or if the lender waives or agrees to an amendment of any covenant in the loan agreement the effect of which is to cure or avoid a breach that would trigger a default.
- Change of controlled group. A controlled group member’s ceasing to exist because of a merger into another controlled group has been clarified to be non-reportable. Whether an agreement for a controlled group change is legally binding is to be determined without reference to any conditions in the agreement and an example in the regulatory text has been modified to clarify when reporting is required.
The other changes to the events are generally minor. The regulation and the filing instructions provide details about each event to help sponsors determine if and when an event occurs. Plan sponsors and their advisors are advised to consult these documents to familiarize themselves with the various events.
Yes. Advance-notice extensions for loan default and voluntary insolvency events have been eliminated. (The notice date of an event where insolvency proceedings are filed against a debtor by someone outside the plan’s controlled group is extended to 10 days after proceedings begin). Thus, under the final regulation, the due date for these events is the same as for other reportable events subject to the advance-notice requirements (i.e., 30 days prior to the event).
Yes. PBGC may waive any reporting requirements or grant extensions where appropriate. A request for a waiver or extension must be made in writing and state the facts and circumstances on which the request is made.
The final regulation requires electronic filing of reportable events notices. This requirement is part of PBGC’s ongoing implementation of the Government Paperwork Elimination Act. Filers are permitted to e-mail filings with attachments using any one or more of a variety of electronic formats that PBGC is capable of reading as provided in the instructions on PBGC’s Web site. PBGC may consider other e-filing enhancements, such as a web-based filing application for reportable events similar to the applications for PBGC’s section 4010 and premium filings, as internet capabilities and standards change. Such developments would be reflected in PBGC’s reportable events e‑filing instructions. PBGC may grant case-by-case waivers of the electronic filing requirement.
No. Reportable events notices are confidential.
Yes. These FAQs highlight only the most significant changes. Plan sponsors and their advisors should refer to the final regulation for a complete listing of the reporting requirements under the final rule.
PBGC reviews reportable event filings to determine whether the plan is at risk of termination and trusteeship by PBGC. The type of action depends on the event.
Post event reports such as insolvency, missed contributions over $1 million, and liquidations may require PBGC to take immediate actions to protect the plan. For example, in a Chapter 7 liquidation, PBGC files contingent claims with the court to protect the pension plan and ensure any recovery is distributed fairly.
Post event reporting of an active participant reduction, change in controlled group, or failure to make a required contribution, may lead to a dialogue with a company to discuss options for keeping the plan going. For example, if a company files an active participant reduction event and indicates the company is experiencing financial difficulty, PBGC may suggest the company file for a minimum funding waiver in order to obtain some temporary funding relief enabling the company to free up contribution amounts to fund the business or a turnaround.
Updated January 2015