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Risk Mitigation & Early Warning Questions and Answers

Risk Mitigation & Early Warning Questions and Answers

As part of posting our updated Risk Mitigation & Early Warning Program information, we asked stakeholders for feedback. Below are some Questions and Answers for the most common questions and comments we received. 

  1. Did PBGC’s December 2016 updated content signify an expansion of the Early Warning Program to include credit deterioration?

A: No. PBGC has not expanded the program or changed the monitoring criteria or the processes involved. 

A change in a plan sponsor’s credit quality does not trigger an Early Warning Program review.  But if announcement of a transaction does trigger a review, PBGC generally includes credit quality as part of the analysis along with other information. We have made modifications to the Risk Mitigation & Early Warning webpage to make that clear.

  1. How does PBGC use credit rating information in the Early Warning Program?

A: When PBGC reviews transactions, we generally consider the credit ratings of plan sponsors along with other information such as plan funding to determine whether pensions may be at increased risk. If the sponsor is highly rated or the transaction does not result in a downgrade, it is less likely PBGC will contact the sponsor about the transaction.

  1. If the program didn’t change, why did PBGC issue an update?

A: Over the years, PBGC has received feedback from stakeholders that plan sponsors don’t understand how the program works or when PBGC is likely to contact them. Our update increases transparency to the process, expands the description of the program, and replaces outdated references to pension funding law and terminology. It does not change the program. As part of the update we also, for the first time, published the standard information request that we send to plan sponsors.

  1. The monitoring criteria reference a participant count of 5,000 or more or an underfunding threshold of $50 million or more.  Does PBGC apply these thresholds on a plan-by-plan basis or on an aggregate controlled group basis? 

A: PBGC applies the participant count and underfunding monitoring criteria on an aggregate controlled group basis.

  1. What are the potential outcomes of a PBGC review of a transaction under the Early Warning Program?

A: The following describes various outcomes of PBGC Early Warning Program reviews:

  1. PBGC completes an internal review of the transaction and determines it poses no risk to the insurance program or participants, and the issue is closed without contacting the plan sponsor.  Reviews resolved in this way make up the bulk of Early Warning Program activity (approximately two-thirds of reviewed transactions).
  2. If upon review of a transaction, PBGC identifies potential increased risks, we contact the plan sponsor to learn more and request certain information about the sponsor and its pension plan(s). Following discussions with the sponsor and review of the information, if PBGC concludes that the transaction will not present an increased risk of loss to participants or the insurance program, then the review is closed.
  3. If the issue is still open, PBGC and the plan sponsor begin negotiating protections for the pensions and the sponsor chooses to make additional pension contributions outside of an agreement with PBGC.
  4. Following negotiations with PBGC, the sponsor and PBGC enter into an Early Warning Program agreement to protect the sponsor’s pension plan(s).
  1. How does a plan sponsor know when PBGC has decided to close an Early Warning review?

A: PBGC sends a close-out letter to the plan sponsor.

  1. How does the Early Warning Program help protect the interest of workers and retirees?

A: PBGC’s first mission is to encourage the continuation and maintenance of pension plans.  Agreements that PBGC reaches with plan sponsors are designed to improve plan funding and make pension promises more secure. Improved plan funding can make it more likely that a pension plan will continue to provide full benefits to plan participants.

In the event that an underfunded pension plan terminates, a previous agreement with PBGC may provide security that enables the agency to improve its recovery on the plan’s shortfall. Higher recoveries enable PBGC to pay additional benefits to participants when plan assets and recoveries are sufficient to fund benefits that exceed the guarantee limits.    

  1. How does the Early Warning Program help protect the interests of premium payers?

A: PBGC uses premium monies paid by pension plan sponsors to fund insurance losses caused by the termination of underfunded pension plans. The Early Warning Program helps premium payers by avoiding or mitigating losses.  

  1. Does PBGC use information provided in filings made under section 4010 of ERISA to open an Early Warning Program review?

A: No.  We don’t use information provided under section 4010 to open reviews, and the filing of a section 4010 report is not a trigger for the Early Warning Program.  If PBGC has already opened a review of a transaction and we have recent 4010 information, we may be able to rely on it instead of requesting the standard package of actuarial information. Likewise, we may use the financial data provided under 4010 in our analysis so the plan sponsor need not provide it again.

-Last updated May 2017

Last updated August 18, 2017