[Federal Register: August 10, 2010 (Volume 75, Number 153)]
[Proposed Rules]               
[Page 48283-48294]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10au10-11]                         

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PENSION BENEFIT GUARANTY CORPORATION

29 CFR Parts 4062 and 4063

RIN 1212-AB20

 
Liability for Termination of Single-Employer Plans; Treatment of 
Substantial Cessation of Operations

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Proposed rule.

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SUMMARY: ERISA section 4062(e) provides for reporting of and liability 
for certain substantial cessations of operations by employers that 
maintain single-employer plans. PBGC proposes to amend its current 
regulation on Liability for Termination of Single-Employer Plans to 
provide guidance on the applicability and enforcement of ERISA section 
4062(e).

DATES: Comments must be submitted on or before October 12, 2010.

ADDRESSES: Comments, identified by Regulation Identifier Number (RIN) 
1212-AB20, may be submitted by any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the Web site instructions for submitting comments.
     E-mail: reg.comments@pbgc.gov.
     Fax: 202-326-4224.
     Mail or Hand Delivery: Legislative and Regulatory 
Department, Pension Benefit Guaranty Corporation, 1200 K Street, NW., 
Washington, DC 20005-4026.
    All submissions must include the Regulation Identifier Number for 
this rulemaking (RIN 1212-AB20). Comments received, including personal 
information provided, will be posted to http://www.pbgc.gov. Copies of 
comments may also be obtained by writing to Disclosure Division, Office 
of the General Counsel, Pension Benefit Guaranty Corporation, 1200 K 
Street, NW., Washington, DC 20005-4026, or calling 202-326-4040 during 
normal business hours. (TTY and TDD users may call the Federal relay 
service toll-free at 1-800-877-8339 and ask to be connected to 202-326-
4040.)

FOR FURTHER INFORMATION CONTACT: Catherine B. Klion, Manager, or 
Deborah C. Murphy, Attorney, Regulatory and Policy Division, 
Legislative and Regulatory Department, Pension Benefit Guaranty 
Corporation, 1200 K Street, NW., Washington, DC 20005-4026; 202-326-
4024. (TTY/TDD users may call the Federal relay service toll-free at 1-
800-877-8339 and ask to be connected to 202-326-4024.)

SUPPLEMENTARY INFORMATION:

Introduction

    Pension Benefit Guaranty Corporation (PBGC) administers the pension 
plan termination insurance program under title IV of the Employee 
Retirement Income Security Act of 1974 (ERISA). Under ERISA section 
4002(b)(3), PBGC has authority to adopt, amend, and repeal regulations 
to carry out the purposes of title IV.

Background of Proposed Rule

    ERISA section 4062(e) provides that ``[i]f an employer ceases 
operations at a facility in any location and, as a result of such 
cessation of operations, more than 20 percent of the total number of 
his employees who are participants under a plan established and 
maintained by him are separated from employment, the employer shall be 
treated with respect to that plan as if he were a substantial employer 
under a plan under which more than one employer makes contributions and 
the provisions of [ERISA sections] 4063, 4064, and 4065 shall apply.''
    ERISA section 4063(a) requires the plan administrator of a multiple 
employer plan (that is, a single-employer plan with at least two 
contributing sponsors that are not under common control) to notify PBGC 
within 60 days after a substantial employer withdraws from the plan, 
and section 4063(b) and (c) makes the withdrawn employer liable to 
provide a bond or escrow in a specified amount for five years from the 
date of withdrawal, to be applied--if the plan terminates within that 
period--against the plan's underfunding. Section 4063(e) allows PBGC to 
waive this liability if there is an appropriate indemnity agreement 
among contributing sponsors of the plan, and ERISA section 4067 
authorizes PBGC to make alternative arrangements for satisfaction of 
liability under sections 4062 and 4063. (ERISA sections 4064 and 4065 
deal with plan termination liability and annual reports by plan 
administrators.)
    The method described in section 4063(b) for computing the amount of 
liability focuses on relative amounts of contributions by more than one 
employer and is thus impracticable for calculating liability triggered 
by an event involving a plan of a single employer under section 
4062(e). However, section 4063(b) provides that PBGC ``may also 
determine the liability on any other equitable basis prescribed by 
[PBGC] in regulations.'' Pursuant to that authority, on June 16, 2006 
(at 71 FR 34819), PBGC published a final rule providing a formula for 
computing liability under section 4063(b) when there is an event 
described in section 4062(e). The formula provided by the 2006 rule 
apportions to an employer affected by an event under section 4062(e) a 
fraction of plan termination liability based on the number of 
participants affected by the event. Over the next three-and-a-half 
years, PBGC resolved 37 cases under section 4062(e) through negotiated 
settlements valued at nearly $600 million, providing protection to over 
65,000 participants.

[[Page 48284]]

Overview of Proposed Regulation

    The proposed rule would create a new subpart B of PBGC's regulation 
on Liability for Termination of Single-Employer Plans (29 CFR part 
4062) that would focus on section 4062(e). The liability computation 
rules that were added to part 4062 by PBGC's 2006 final rule (now in 
Sec.  4062.8) would be moved to this new subpart B. The purpose and 
scope section of part 4062 and the cross-references section of part 
4063 (Withdrawal Liability; Plans Under Multiple Controlled Groups) 
would be revised to reflect the proposed regulation, and the references 
to the applicability date of part 4062 (now over 20 years in the past) 
would be removed.
    Proposed subpart B addresses two general topics: The applicability 
and enforcement of section 4062(e). The provisions on applicability 
provide guidance on the kinds of events section 4062(e) applies to 
(i.e., on what a ``section 4062(e) event'' is). The enforcement 
provisions describe PBGC's section 4062(e) investigatory program, 
provide rules for notifying PBGC of section 4062(e) events, explain how 
section 4062(e) liability is calculated and how it is to be satisfied, 
and require the preservation of records about events that may be 
section 4062(e) events. Subpart B would also provide for waivers in 
appropriate circumstances.
    Adoption of the regulatory provisions in this proposed rule will 
reduce uncertainty about PBGC's interpretation of the statute, thereby 
permitting more rapid resolution of cases. Clearer rules, together with 
specific, detailed reporting provisions, should encourage self-
reporting of events that PBGC now learns of only through its own 
investigations and may enable PBGC to process section 4062(e) cases 
more quickly, thereby protecting more participants.
    Further clarification of section 4062(e) is also warranted by 
requests from the public. Although PBGC's 2006 rule on section 4062(e) 
was limited to the issue of the liability formula, several commenters 
asked for additional guidance to clarify the meaning of statutory terms 
used to describe when an event covered by section 4062(e) occurs. PBGC 
also regularly receives requests from pension professionals for 
interpretive guidance on section 4062(e). This proposed rule provides 
such guidance.

Applicability of Section 4062(e)

    PBGC proposes to provide guidance on whether and when a ``section 
4062(e) event'' occurs by explaining each of the key terms that appear 
in the statute and in the proposed regulation: ``operation,'' 
``facility,'' ``cease,'' ``separate,'' and ``result.'' The term 
``active participant base'' would be introduced to describe the 
baseline number of active participants against which the statutorily 
required decline in active participants would be measured and to serve 
as the denominator of the apportionment fraction used in calculating 
liability for a section 4062(e) event. Discussions of the subpart B 
explanations of these terms follow.

``Section 4062(e) Event''

    New subpart B would use the term ``section 4062(e) event'' to refer 
to an event to which section 4062(e) applies.
    The proposed regulation would apply only to events involving 
single-employer plans that are not multiple employer plans. ERISA 
section 4062(e) provides that if a section 4062(e) event occurs, the 
affected employer ``shall be treated with respect to [the affected] 
plan as if he were a substantial employer under a plan under which more 
than one employer makes contributions.'' The phrase ``as if'' implies 
that section 4062(e) does not itself apply to events involving plans 
under which more than one employer makes contributions. From the 
context and language of section 4062(e), therefore, PBGC concludes that 
the term ``plan'' in section 4062(e) means a single-employer plan that 
is not a multiple employer plan. Furthermore, the liability formula 
adopted by PBGC in 2006 would produce anomalous results if applied to 
an event involving a multiple employer plan.
    The proposed regulation would require only that a plan be 
maintained by an employer--not both established and maintained--to come 
within the provisions of section 4062(e). In Rose v. Long Island R.R. 
Pension Plan, 828 F.2d 910 (2nd Cir. 1987), the Second Circuit reasoned 
that a plan whose sponsorship has changed may be considered 
``established'' (or ``re-established'') by the new sponsor, 
notwithstanding that it has not first been formally ``terminated.'' In 
addition, in PBGC Opinion Letter 90-6, PBGC noted that it had 
``declined to interpret the conjunction of the terms `established and 
maintained' strictly in the context of the exemption from Title IV 
coverage for governmental plans [under] ERISA section 4021(b)(2) * * * 
because doing so would frustrate the intent of Congress in providing 
the exemption.'' The opinion letter quoted from the Rose case, 
sanctioning that approach on the basis that ``the status of the entity 
which currently maintains a particular pension plan bears more relation 
to Congress' goals in enacting ERISA and its various exemptions than 
does the status of the entity which established the plan.'' \1\ The 
opinion letter applied the same principle to the exemption for 
substantial owner plans under ERISA section 4021(b)(9).
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    \1\ A contrary case is Hightower v. Texas Hospital Association, 
65 F.3d 443 (5th Cir. 1995). The Hightower case does not discuss the 
actions an employer assuming sponsorship of an existing plan might 
take to be treated as having ``established'' (or ``re-established'') 
the plan.
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    PBGC believes that similar reasoning applies to ERISA section 
4062(e), which also uses the phrase ``established and maintained.'' 
PBGC believes the textual analysis in the Rose case would be 
appropriate in interpreting this phrase in ERISA section 4062(e). In 
addition, Congress's goal in enacting section 4062(e) would appear to 
be frustrated, rather than promoted, by excluding from the ambit of 
that provision any case involving a plan established by a different 
employer from the employer maintaining the plan when the event 
occurred. Indeed, such an interpretation would seem to open a 
formalistic loophole that could be exploited where, by chance or 
foresight, a plan's sponsorship changed.
    The proposed regulation would provide explicitly that evaluation of 
risk is not an element in deciding whether a section 4062(e) event has 
occurred. Sections 4062(e) and 4063 call for self-reporting by plan 
administrators. Each section describes a class of events that is to be 
reported. Neither section provides or even suggests that a plan 
administrator is to make a risk assessment and report an event to PBGC 
only if it creates risk for the plan or its participants or for PBGC. 
PBGC believes that section 4062(e) reflects a judgment that as a class, 
events described therein are indicative of increased risk of 
underfunded plan termination within five years--whether or not any 
particular risk factors appear to be present in particular cases. 
PBGC's experience bears out this view. For example, in a recent section 
4062(e) case, an employer opposed the assessment of liability under 
section 4062(e) on the ground that its financial resources eliminated 
any risk to the termination insurance program. But shortly after 
reaching accord with PBGC, the employer entered bankruptcy with its 
plan underfunded because of an economic downturn in the industry.
    Thus PBGC believes that risk is not relevant in deciding whether a 
section 4062(e) event has occurred, and the proposed regulation would 
provide that such decisions be made without regard to whether there 
might in a particular

[[Page 48285]]

case be (or appear to be) no risk to the plan, participants, or PBGC. 
However, as discussed below under Liability for section 4062(e) events, 
in making arrangements for the satisfaction of liability arising from 
section 4062(e) events, PBGC may take account of such circumstances as 
employer financial strength.
    The proposed regulation would also note that if an employer has two 
or more plans, section 4062(e) is applied separately to each plan, not 
on an aggregate basis. This principle is clear from section 4062(e)'s 
references to ``a plan'' and ``that plan.''

``Operation''

    The proposed regulation uses the term ``operation'' (singular 
rather than plural) to refer to a set of activities that constitutes an 
organizationally, operationally, or functionally distinct unit of an 
employer. PBGC proposes that section 4062(e) apply to cessation of an 
operation in this sense. This approach is consistent with PBGC's 
practice and experience in its current enforcement activities under 
section 4062(e). The regulation would also suggest some criteria that 
might be considered in identifying a set of activities as an operation, 
such as whether it is so treated by the employer or its employees or 
customers, by the public, or within the relevant industry.

``Facility''

    Section 4062(e) applies to cessation of an operation ``at a 
facility in any location.'' PBGC thinks that section 4062(e) should be 
read as applying to an employer's cessation of an operation at a 
``facility in any location,'' even if the employer continues or resumes 
the operation at another ``facility in any location.'' Accordingly, 
under the proposed rule, the facility (or facility in any location) 
associated with an operation would simply be the place or places where 
the operation is performed. This would typically be a building or 
buildings, but could be or include any one or more enclosed or open 
areas or structures where one or more employees were engaged in the 
performance of the operation.
    PBGC's view of ``operation'' and ``facility'' means that a facility 
(a building, for example) may be the site of more than one operation. 
Under the proposed regulation, therefore, section 4062(e) might apply 
where some but not all activity at a facility ceased, if the activity 
that ceased constituted an operation distinct from other activities in 
the facility.\2\
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    \2\ For example, an employer might conduct a manufacturing 
operation under the same roof with shipping and administrative 
functions--or with another, distinct manufacturing operation. If the 
employer ceased the manufacturing operation (or one of the two 
manufacturing operations) at the facility, the cessation might come 
within the scope of section 4062(e), even though the employer 
continued its other activity at the facility.
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``Cessation''

    PBGC proposes that where an employer discontinues activity that 
constitutes an operation at a facility, deciding whether a cessation 
has occurred for purposes of section 4062(e) should involve assessment 
of whether the discontinuance represents a mere cutback or contraction, 
or is so thorough that the employer's conduct of the operation at the 
facility can no longer be considered on-going. The proposed regulation 
would address this issue for both voluntary and involuntary 
discontinuances.
    PBGC believes that whether an employer's conduct of an operation at 
a facility ceases or remains on-going (though perhaps curtailed) 
depends on the degree to which the purpose of the operation continues 
to be fulfilled by the employer's activity at the facility. PBGC thus 
proposes that an employer's cessation of an operation at a facility be 
considered to occur only if the employer discontinues all significant 
activity at the facility in furtherance of the purpose of the 
operation.
    Thus, an employer might cease an operation at a facility even 
though insignificant activity at the facility in furtherance of the 
purpose of the operation continued. For example, while continued 
processing of materials on hand would typically constitute significant 
activity in furtherance of the purpose of an operation, desultory sales 
of left-over inventory would typically not. Continuing activity that 
does not further an operation's purpose would be disregarded. For 
example, although maintenance and security activities may be important 
to a manufacturing operation, they do not further the purpose of the 
operation. Thus, a cessation of such an operation could occur even 
though there was a continuance of maintenance and guard services.
    While this approach is apt for ``voluntary'' discontinuances 
pursuant to employer decision,\3\ it is less suitable for 
``involuntary'' discontinuances caused by events outside the employer's 
control. Where a discontinuance of activity is thrust upon an employer, 
rather than stemming from the employer's will, PBGC believes that the 
employer should have an opportunity to react--to resume or to decide 
not to resume the activity--before the discontinuance is characterized 
as a cessation under section 4062(e).
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    \3\ ``Voluntary'' as used here does not connote something 
desirable or preferable, but merely refers to a discontinuance of 
activity that is not involuntary as described below. Thus, for 
example, a discontinuance of activity in response to an economic 
downturn is considered ``voluntary'' because it does not fall within 
the description of an involuntary discontinuance.
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    PBGC proposes to provide two rules for involuntary discontinuances. 
In each situation, cessation would occur not when all significant 
activity stopped, but at a later date--unless the employer in the 
meantime resumed the operation at the facility (in which case there 
would be no cessation) or decided not to resume it (in which case the 
cessation would occur when the decision was made). One situation would 
be where the discontinuance of activity was caused by employee action, 
such as a strike or sickout. In this case, the cessation date would be 
put off until the employee action ended (and the employer would have a 
week in which to resume activity). The other situation would be where 
the discontinuance was caused by a sudden and unanticipated event 
(other than an employee action) such as a natural disaster. In this 
case, the cessation date would be deferred for 30 days--time enough to 
resume work if the event causing the discontinuance left the operation 
viable.
    As indicated in the discussion of ``facility'' above, PBGC believes 
that section 4062(e) may apply to an employer's cessation of an 
operation at one facility even if the employer continues or resumes the 
operation at another facility. For example, where an employer has been 
performing manufacturing, shipping, and administrative functions under 
a single roof, section 4062(e) could apply where the employer moves the 
manufacturing operation outside the United States and has manufactured 
goods shipped in bulk to the original U.S. facility for distribution 
using the employer's own existing shipping operation.
    Similarly, PBGC believes that section 4062(e) applies to an 
employer's cessation of an operation at a facility even if the 
operation is continued or resumed by another employer at the same or 
another facility. One example of this would be the not uncommon 
situation where one employer sells the assets used in an operation to 
another employer that continues or resumes the operation.

[[Page 48286]]

    The proposed regulation would thus provide that continuance or 
resumption of an operation at another facility or by another employer 
is to be disregarded in deciding whether a cessation has occurred.
    The proposed regulation would also reflect PBGC's view that it is 
irrelevant whether an employer begins a new operation contemporaneously 
with its discontinuance of an existing operation, either at the same or 
another facility. A section 4062(e) event concerns itself with the 
cessation of one operation and the effect of that cessation on the 
employment of participants in the affected plan. Undertaking a second 
operation does not nullify the discontinuance of the first or the 
impact of that discontinuance on those participants. Of course, if 
enough of those participants were retained by the employer in 
connection with the new operation to avoid a drop of more than 20 
percent in the active participant-count, there would be no section 
4062(e) event.
    Under the proposed regulation, any hope or expectation the employer 
may have that the discontinued work will be resumed would be irrelevant 
to whether the discontinuance is a cessation. A cessation does not 
ripen into a section 4062(e) event unless it results in a decline of 
more than 20 percent in the number of active participants in the 
affected plan. Where such a decline occurs because an employer 
discontinues activities constituting an operation at a facility, PBGC 
believes that the event should not fail to be covered by section 
4062(e) because the activity may resume.
    The proposed regulation would use the term ``cessation date'' for 
the date when a cessation occurs as discussed above. Since an 
employer's cessation of an operation at a facility is only part of what 
constitutes a section 4062(e) event (the other part being a resultant 
drop of more than 20 percent in the active participant-count), the date 
of a section 4062(e) event might be later than the associated cessation 
date.\4\
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    \4\ For example, assume that the workers in an operation 
represent 21 percent of active participants in a plan and that when 
all activity in furtherance of the purpose of the operation stops, 
19 percent (out of the 21 percent) lose their jobs but the remaining 
2 percent keep working until the machinery used in the operation has 
been crated for disposal. A section 4062(e) event would not occur on 
the cessation date, but only when the over-20-percent active 
participant reduction requirement was satisfied.
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``Separation''

    The fact that an employer ceases an operation at a facility does 
not in itself constitute a section 4062(e) event. Under section 
4062(e), it must also be true that ``as a result of such cessation of 
operations, more than 20 percent of the total number of [the 
employer's] employees who are participants under [the affected plan] 
are separated from employment.'' PBGC believes that ``separation'' as 
used here logically and naturally refers to separation from employment 
with the employer, rather than separation from employment in the 
operation.
    Thus, PBGC believes that the requirement of separation is not 
satisfied if an employee is merely transferred within the employer's 
organization--for example, from work in the ceasing operation to work 
outside it--even if the transfer takes the employee out of the category 
of employees covered by the plan.\5\ By the same token, PBGC believes 
that if an employer ceases an operation, but the operation is continued 
or resumed by a new employer, the fact that a person previously 
employed by the original employer continues to work in the operation as 
an employee of the new employer does not mean that the person has not 
separated from employment (with the original employer). Accordingly, 
the proposed regulation's discussion of separation would be couched in 
terms of the employment relationship between the employer and the 
employee.
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    \5\ In general, such a transfer would not terminate the 
transferred employee's participation in the plan, although it would 
typically mean that the employee would accrue no further benefits 
under the plan.
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    The 60-day period within which notice of a section 4062(e) event 
must be given does not begin to run until a section 4062(e) event has 
occurred--that is, until there has been both a cessation by an employer 
of an operation at a facility and a separation from employment of more 
than 20 percent of the active participants in the affected plan. To 
know the reporting deadline, therefore, it is as important for the plan 
administrator to fix promptly the dates when participants separate from 
employment as it is to fix the cessation date promptly. In some cases 
(e.g., discharges and quits), fixing the separation date is relatively 
straightforward. Other cases (e.g., layoffs) may raise doubt about 
whether or when a separation has occurred. It is important to avoid 
having doubt of this kind delay decisions about whether the 20-percent 
threshold has been exceeded and a section 4062(e) event has thus 
occurred.
    The proposed regulation would provide that an employee separates 
from employment when the employee discontinues the active performance, 
pursuant to the employee's employment relationship with the employer, 
of activities in furtherance of any of the employer's operations, 
unless, when the discontinuance occurs, it is reasonably certain that 
the employee will resume such active work within 30 days--for example, 
after a two-week holiday shutdown. This standard would allow a plan 
administrator to decide immediately whether a separation occurred when 
an employee discontinued active work. If, however, the 30 days pass 
without the employee's having returned, the employee would be 
considered to have separated from employment when active work stopped. 
The focus on active performance of activities pursuant to the 
employment relationship would mean that continued provision of benefits 
to an employee, such as the continued granting of credited service for 
pension purposes, would be disregarded in deciding whether a separation 
from employment occurred.
    The proposed regulation would also include a special rule under 
which an employee's separation before a cessation was complete would be 
ignored if, by the cessation date, (1) the employee was rehired or a 
replacement was hired, and (2) the rehired or replacement employee was 
a participant in the plan.

``Result''

    The proposed regulation would provide that a separation from 
employment results from the cessation of an operation if the separation 
would not have occurred when it did had the cessation not occurred. 
Thus, for example, if an employee had been planning to retire in a year 
or two but chose to retire sooner upon learning of a shutdown that 
would eliminate her job, the separation would be the result of the 
shutdown; whereas if (before learning of the shutdown) she had been 
planning to retire immediately and retired as planned after she learned 
of the shutdown, the separation would not be a result of the shutdown.
    The proposed regulation would provide that whether a separation 
occurs before, on, or after the cessation date is not considered 
decisive of whether the separation is the result of the cessation. An 
operation may not cease instantaneously, and some employees may leave 
before the cessation date because the operation in which they are 
employed is in the process of shutting down, although significant 
activity in furtherance of the purpose of the operation is still 
ongoing. Yet other employees may continue to work after the cessation 
date--for

[[Page 48287]]

example, disassembling machinery and guarding the premises until the 
plant and equipment can be sold--before they finally leave.
    The proposed regulation would also provide that an employee's 
separation may result from the cessation of an operation at a facility 
even if the employee's employment has been in another operation or even 
at another facility. Ceasing one operation can have an impact on other 
operations, whether or not they also cease. For example, an employer 
might have one operation to assemble widgets from pre-fabricated parts, 
and another operation to fabricate widget parts for use in the 
employer's own widget manufactory or for sale to other widget 
manufacturers. If the employer shut down the widget assembly operation, 
there would be reduced demand for widget parts, the fabrication 
operation would cut back, and some fabrication employees would lose 
their jobs--as a result of the shutdown of the widget assembly 
operation. And if there was reduced demand for widget parts in the 
industry generally, the shutdown of the employer's widget assembly 
operation might even cause the shutdown of its fabrication operation, 
and thus all of the fabrication employees might be separated as a 
result of the shutdown of the assembly operation.
    To supplement the general rule on when separation from employment 
results from an employer's cessation of an operation at a facility, 
PBGC is proposing four presumptions based on the relationship between 
the timing of a separation and the timing of events involved in a 
cessation.
    The first presumption (applicable to a voluntary cessation) would 
be that if an employee is employed in an operation at a facility and 
involuntarily separates from employment on or after the date when the 
employer decides to cease the operation at the facility, the employee 
has separated from employment as a result of the cessation.
    The second presumption (also applicable to a voluntary cessation) 
would be that if an employee in an operation at a facility voluntarily 
separates from employment after the employer decision to cease the 
operation at the facility becomes known (to the employee, to employees 
generally, or to the public), the separation results from the 
cessation.
    The third presumption would be that if a cessation is involuntary, 
and an employee in the operation voluntarily or involuntarily separates 
from employment on or after the date of the event that caused the 
cessation, the separation results from the cessation.
    The fourth presumption would be that if an employee employed in an 
operation becomes employed by a new employer that continues or resumes 
the operation, the employee has separated from employment with the 
original employer as a result of the cessation.
    PBGC believes that these four presumptions reflect reasonable 
inferences and will simplify application of the proposed regulation; 
nonetheless, any of the presumptions could be rebutted by appropriate 
evidence.

``Active Participant Base''

    A section 4062(e) event occurs only if ``as a result of [a] 
cessation of operations, more than 20 percent of the total number of 
[the employer's] employees who are participants under [the affected 
plan] are separated from employment.'' To apply the 20-percent test, 
one must know the base number against which the 20 percent is measured. 
The statute provides that this base number is ``the total number of 
[the employer's] employees who are participants under [the affected 
plan],'' but it does not say as of what point in time the number is to 
be fixed, although one may infer that it is to be a pre-cessation 
number.
    The formula for calculating liability for a section 4062(e) event 
that PBGC added to the termination liability regulation in 2006 also 
refers to a base number--the denominator of a fraction that is applied 
to total termination liability to find the liability for a section 
4062(e) event. Section 4062.8(a)(2) of the current regulation describes 
this base number as ``the total number of the employer's current 
employees, as determined immediately before the cessation of 
operations, who are participants under the plan.'' This description is 
consistent with the description of a base number in section 4062(e), 
and administrative convenience is clearly served by using the same 
number for the statutory 20-percent threshold test and for the 
apportionment fraction in the regulatory formula for liability.
    However, the existing regulatory language--``immediately before the 
cessation''--does not provide as much specificity about timing as PBGC 
thinks desirable. PBGC thus proposes to prescribe rules that are 
consistent with, but more specific than, the existing statutory and 
regulatory language, describing when to count active participants for 
purposes of fixing a single base number for both the 20-percent test 
and the liability formula. PBGC proposes to call this number the 
``active participant base.''
    The key to PBGC's proposal is to identify when a cessation begins, 
and employment starts to be affected by the cessation process, so that 
active participants can be counted just before then. For a voluntary 
cessation, carried out pursuant to an employer decision, that decision 
marks the beginning of the cessation process, and the active 
participant base would be measured immediately before that decision. 
For an involuntary cessation, the active participant base would be 
measured immediately before the event that causes the cessation 
(strike, natural disaster, etc.).
    In counting active participants, the proposed regulation would use 
the same formulation for describing active employment as in the 
provision on separation from employment: Active performance, pursuant 
to the employment relationship with the employer, of activities in 
furtherance of the employer's operations (or reasonable certainty of 
resuming such active work within 30 days, with a ``reality check'' if 
30 days have passed). Thus, the active participant base would be 
measured on a basis consistent with the rules about measuring the 
number of participants who separate from employment.
    In response to a public comment, PBGC's 2006 final rule prescribing 
the section 4062(e) liability computation formula clarified that, in 
calculating the denominator of the fraction in the formula (the number 
of employee participants immediately before the cessation), only 
current employees are included. The proposed formulation of the active 
participant base would make this point more clearly.
    The proposal would also clarify that an employee need not be 
accruing benefits under a plan to be a participant in the plan.\6\ 
Freezing a plan should not make the employer immune from section 
4062(e).
---------------------------------------------------------------------------

    \6\ See the definition of ``active participant'' in Sec.  
4043.23 of PBGC's regulation on Reportable Events and Certain Other 
Notification Requirements (29 CFR part 4043).
---------------------------------------------------------------------------

Enforcement of Section 4062(e)

    Proposed subpart B would describe two processes for PBGC to learn 
about section 4062(e) events: PBGC investigations and reports to PBGC 
by plan administrators. It would also describe the liability that 
arises when a section 4062(e) event occurs and how the liability is 
satisfied and would prescribe recordkeeping requirements. Provision 
would also be made for waivers in appropriate circumstances.

PBGC Investigations

    Under ERISA section 4003(a), PBGC has authority to make such 
investigations as it deems necessary to

[[Page 48288]]

enforce title IV and regulations thereunder (such as the regulation 
under section 4062(e) that PBGC is here proposing). PBGC's section 
4062(e) enforcement has been strongly supported by investigations, and 
PBGC expects its section 4062(e) investigatory activity to continue, 
notwithstanding the inclusion in the proposed regulation of detailed 
reporting requirements.
    The investigation provision in proposed subpart B would include a 
deadline for responding to PBGC information requests, and failure to 
respond by the deadline could result in the assessment of penalties 
under ERISA section 4071 (see Late filing penalties below). There would 
also be a requirement to correct or update information submitted to 
PBGC that was or became materially wrong or outdated.

Notice Requirement

    Under ERISA section 4063(a), the plan administrator of a multiple 
employer plan must report the withdrawal of a substantial employer from 
the plan to PBGC within 60 days after the withdrawal. Since section 
4062(e) refers to section 4063 for the procedures to be followed for 
section 4062(e) events, the proposed rule would provide, consistent 
with the statute, that notice of a section 4062(e) event must be filed 
with PBGC by the plan administrator of the affected plan within 60 
days. The 60 days would run from the later of the cessation date or the 
date when the number of active participant separations resulting from 
the cessation exceeds 20 percent of the active participant base.
    Filing forms and instructions, including filing methods, filing 
addresses, required data, etc., would be posted on PBGC's Web site.\7\ 
The proposed regulation would also provide cross-references to filing 
rules in PBGC's regulation on Filing, Issuance, Computation of Time, 
and Record Retention (29 CFR part 4000). PBGC could require submission 
of supplementary information, ordinarily with a 45-day response period, 
which could be shortened if necessary to avoid prejudice to PBGC, the 
plan, or participants. The affected employer would be required to 
furnish necessary information to the plan administrator of the affected 
plan. Any filed information that a filer discovered to be materially 
wrong or outdated would have to be promptly corrected. Thus, for 
example, if more employees separated from employment as a result of a 
cessation after the cessation had been reported to PBGC, and the number 
of additional separations would materially affect liability, the 
additional separations would have to be reported to PBGC.
---------------------------------------------------------------------------

    \7\ The absence heretofore of a section 4062(e) event reporting 
form made it possible to combine a section 4062(e) event notice with 
a reportable event notice under Sec.  4043.23 of PBGC's reportable 
events regulation. PBGC's proposal to require the use of prescribed 
forms to file notice of section 4062(e) events would make this 
unworkable. However, information already submitted to PBGC in a 
reportable event notice would not need to be resubmitted in a 
section 4062(e) event notice.
---------------------------------------------------------------------------

    To simplify section 4062(e) reporting, PBGC proposes to permit a 
plan administrator to disregard affected participants who were not 
employed at the facility where the affected operation was carried out. 
PBGC's experience suggests that effective and efficient enforcement of 
section 4062(e) is not usually best served by focusing the 
administrative resources of PBGC and plan administrators on tracing the 
effects of a cessation on employment at facilities beyond the one 
associated with the ceased operation. Accordingly, the proposed 
regulation would permit a plan administrator to ignore separations at 
other facilities in deciding whether a section 4062(e) event had 
occurred, when to file notice of an event, and how many affected 
participants to report in the notice. Only if PBGC specifically 
requested information about separations at other facilities would they 
need to be reported. In that case, however, or if identified in a PBGC 
investigation, separations at other facilities that were caused by a 
cessation would be counted in both the 20-percent threshold test and 
the liability calculation for the cessation.
    Information submitted to PBGC under the proposed regulation would 
be protected from disclosure to the extent provided in the Freedom of 
Information Act and 18 U.S.C. 1905 (dealing with commercial and 
financial information).

Late Filing Penalties

    ERISA section 4071 authorizes PBGC to assess a penalty against any 
person that fails to timely provide any notice or other material 
information required under section 4062(e) or 4063 or regulations 
thereunder (which would include the proposed regulation).\8\ Under 
section 4071 and the Federal Civil Monetary Penalty Inflation 
Adjustment Act of 1990, as amended by the Debt Collection Improvement 
Act of 1996, the maximum penalty is currently $1,100 per day. See 
PBGC's regulation on Penalties for Failure To Provide Certain Notices 
or Other Material Information (29 CFR part 4071).
---------------------------------------------------------------------------

    \8\ Section 4071 penalties are not the only applicable 
enforcement mechanism.
---------------------------------------------------------------------------

    On July 18, 1995 (at 60 FR 36837), PBGC issued a statement of 
policy on penalties for failure to provide required information in a 
timely manner. The statement said that PBGC would--

consider the facts and circumstances of each case to assure that the 
penalty fits the violation. Among the factors the PBGC will consider 
are the importance and time-sensitivity of the required information, 
the extent of the omission of information, the willfulness of the 
failure to provide the required information, the length of delay in 
providing the information, and the size of the plan.

In general, the policy statement said that PBGC would assess penalties 
much lower than $1,100 per day--$25 per day for the first 90 days of 
delinquency and $50 per day thereafter, with limitations based on plan 
size. However, it also said that PBGC may assess larger penalties if 
circumstances warrant, such as ``if the harm to participants or the 
PBGC resulting from a failure to timely provide material information is 
substantial.'' Such ``larger penalties'' would of course be subject to 
the $1,100-per-day limitation. (The policy statement noted in 
particular that penalties for violations under subparts C and D of 
PBGC's reportable events regulation would generally be at the $1,100-
per-day level.) PBGC believes similarly that violations of the notice 
requirement under sections 4062(e) and 4063 may well result in 
substantial harm to participants and PBGC, especially because of the 
five-year limitation on maintaining a bond or escrow under ERISA 
section 4063(c)(2). Thus, such violations may well warrant section 4071 
penalties larger than the ``general'' ($25/$50-per-day) penalty, 
subject to the $1,100-per-day limitation.

Liability for Section 4062(e) Events

    The liability formula for section 4062(e) events that PBGC added to 
the termination liability regulation in 2006 would be preserved under 
this proposed rule,\9\ with clarification about how the calculation is 
done and some editorial changes (including rewording for consistency 
with terminology used in the rest of subpart B).
---------------------------------------------------------------------------

    \9\ In particular, no change would be made to the requirement to 
measure termination liability (on which section 4062(e) liability is 
based) as of the cessation date rather than as of the section 
4062(e) event date.
---------------------------------------------------------------------------

    The proposed clarification relates to the provision (in both the 
existing and proposed regulation) that liability for a section 4062(e) 
event is based on a computation of termination liability performed as 
if the plan had been terminated by PBGC immediately after the cessation 
date. PBGC believes that termination liability for this purpose should 
be fixed and determinable as of

[[Page 48289]]

the cessation date and should not take account of changes in assets or 
liabilities after the cessation date, such as from the receipt of 
contributions or the accrual of additional benefits. Ignoring post-
cessation-date changes will promote simplicity and avoid the 
possibility that the liability calculation might differ depending on 
how long after the cessation date it was actually performed. This 
provision reflects PBGC's current practice.
    PBGC proposes to remove the example in the current regulation that 
illustrates the computation of the fraction that is applied to 
termination liability to arrive at the liability that arises from a 
section 4062(e) event. The example was intended to make clear that the 
number of pre-event active participants does not include participants 
who are not currently working for the employer when the pre-event 
participant-count is measured. PBGC believes that its proposed 
formulation of the active participant base makes this point clear 
without the need for an example.
    In general, PBGC proposes that it would prescribe one of the 
statutory methods (described in ERISA section 4063(b) and (c)(1)) for 
satisfying liability arising from a section 4062(e) event. However, the 
proposed regulation would permit the continuation of PBGC's practice, 
as authorized by ERISA section 4067, of negotiating with affected 
employers in appropriate cases on the manner in which the liability is 
to be satisfied, with a view to accommodating employer interests to the 
extent consistent with protecting the plan, participants, and PBGC as 
contemplated by the statute. For example, in some cases section 4062(e) 
liability might be satisfied through additional plan funding 
contributions that would not be added to the plan's prefunding balance. 
Or, in appropriate cases, where a new, financially sound employer 
continues or resumes an operation, and the original employer's workers 
are employed by the new employer, the proposed regulation would enable 
PBGC to consider the original employer's liability satisfied through 
the new employer's adoption of the original employer's plan (or the 
portion of the plan covering the affected operation).

Recordkeeping and Waivers

    PBGC proposes to require that employers and plan administrators 
preserve records about potential section 4062(e) events that tend to 
show whether a section 4062(e) event in fact occurred and if so how 
much the resultant liability is. The recordkeeping provision would also 
permit PBGC to proceed on the basis of reasonable assumptions if 
employer or plan records were insufficient. The proposed record 
retention period would be five years, which matches the period for 
which the security provided by an employer with respect to a section 
4062(e) event can be held--and thus PBGC's window for enforcing section 
4062(e).
    New subpart B would also include a provision explicitly authorizing 
PBGC to grant waivers where warranted by the circumstances. PBGC's 
experience with section 4062(e) enforcement suggests that PBGC may 
encounter situations it does not now foresee, and this waiver provision 
is meant to provide a measure of flexibility in interpreting and 
applying the law.

Provisions Not in the Rule

    The proposal does not include an exemption for small plans. Such an 
exemption was suggested by a commenter on PBGC's 2006 rulemaking that 
codified the section 4062(e) liability formula. PBGC believes that the 
protection afforded by section 4062(e) is appropriate for small plans 
(and their participants) as well as for large plans. Furthermore, to 
the extent that small plans present less underfunding potential than 
large plans (and thus less potential exposure for the pension insurance 
system), the liability under section 4062(e) will also be less, and 
thus the burden of satisfying it should not be disproportionate. 
Finally, PBGC believes that the guidance in this proposed rule should 
make compliance relatively easy for small and large plans alike. These 
considerations militate against an exemption for small plans.
    The proposal also includes no exemption for well-funded plans. As 
noted above for small plans, the better a plan is funded, the lower 
(other things being equal) would be its liability for a section 4062(e) 
event under the formula provided in the regulation. If a plan were so 
well funded that it had no termination liability under ERISA section 
4062, its liability for a section 4062(e) event would be zero. But 
termination liability computations are complex, and PBGC would not 
expect plans to make such computations simply to claim exemption from 
the section 4062(e) event reporting requirement.
    The fact that a plan is undergoing a standard termination would 
likewise be ignored under the proposed rule. Until distributions 
pursuant to a standard termination are complete, there is the 
possibility that plan assets will be found insufficient to complete the 
standard termination process and that the plan will remain ongoing. 
However, PBGC might forbear to pursue section 4062(e) liability where a 
standard termination was in process. And if distributions under a 
standard termination are complete by the deadline for giving notice of 
a section 4062(e) event, PBGC generally would not enforce the notice 
requirement.

Effect on Prior Opinions

    PBGC has in the past issued a number of opinion letters dealing 
with ERISA section 4062(e).\10\ While this proposed regulation does not 
explicitly address all details relating to section 4062(e), PBGC's 
intent in issuing the regulation is to set forth all of its current 
section 4062(e) guidance, supported by the discussion in this preamble. 
Accordingly, the regulation would displace and supersede all of PBGC's 
prior opinion letter pronouncements addressing section 4062(e).
---------------------------------------------------------------------------

    \10\ See for example PBGC Opinion Letters 76-8, 76-52, 77-123, 
77-134, 77-147, 78-29, 82-29, 85-8, and 86-13.
---------------------------------------------------------------------------

Applicability

    PBGC proposes that the amendments made by this rule apply to 
section 4062(e) events with cessation dates on or after the effective 
date of the amendments.

Compliance With Rulemaking Guidelines

E.O. 12866

    The PBGC has determined, in consultation with the Office of 
Management and Budget, that this proposed rule is a ``significant 
regulatory action'' under Executive Order 12866. The Office of 
Management and Budget has therefore reviewed this proposed rule under 
E.O. 12866.

Regulatory Flexibility Act

    PBGC certifies under section 605(b) of the Regulatory Flexibility 
Act (5 U.S.C. 601 et seq.) that the amendments in this rule will not 
have a significant economic impact on a substantial number of small 
entities. Accordingly, as provided in section 605 of the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.), sections 603 and 604 do not 
apply. This certification is based on the fact that the proposed 
regulatory amendments require only the filing of notices and that the 
economic impact of filing is not significant. Furthermore, section 
4062(e) is generally not relevant for small employers. Small employers 
tend not to have multiple operations. For a small employer with a 
defined benefit pension plan, the cessation of an operation almost 
always would be

[[Page 48290]]

accompanied by plan termination. Section 4062(e) protection is only 
relevant when the plan is ongoing after the cessation of operations. 
Since publication of PBGC's 2006 final rule on calculation of liability 
under section 4062(e), only a handful of the potential section 4062(e) 
cases reviewed by PBGC involved plans with 100 or fewer participants.

Paperwork Reduction Act

    PBGC is submitting the information requirements under this proposed 
rule to the Office of Management and Budget for review and approval 
under the Paperwork Reduction Act. Copies of PBGC's request may be 
obtained free of charge by contacting the Disclosure Division of the 
Office of the General Counsel of PBGC, 1200 K Street, NW., Washington, 
DC 20005, 202-326-4040. The proposed information collection will also 
be available on PBGC's Web site.
    PBGC is proposing to require that notices of section 4062(e) events 
be filed using a PBGC form and include the following information:
     Identifying and contact information for the affected plan, 
the plan administrator, other plans covering affected participants, the 
contributing sponsor, and members of the contributing sponsor's 
controlled group.
     A description of current and proposed plan provisions 
dealing with lump sum options, shutdowns, and early retirement 
benefits.
     A description of any current or proposed plan termination 
proceedings, plan mergers, or changes in contributing sponsor or 
controlled group.
     A description of the affected operation and associated 
facility.
     A general description of the section 4062(e) event, 
including whether the affected operation is to be continued or resumed 
by the affected employer or a new employer at the same or another 
facility.
     The date used to calculate the active participant base, 
the date of any employer decision to cease the affected operation, the 
date (and nature) of any event that caused the cessation (other than an 
employer decision), the cessation date, and the date when the number of 
affected participants exceeded 20 percent of the active participant 
base.
     A copy of any press release or other announcement of the 
employer's cessation decision (including any notice issued pursuant to 
the Worker Adjustment and Retraining Notification (WARN) Act) and the 
date when it was issued.
     A description of any severance or retirement incentives 
offered since the date one year before the date of the employer 
decision to cease the operation.
     The active participant base.
     The number of affected participants as of the date when 
the filing was prepared.
     The number of participants in the affected plan who have 
not separated from employment as of the date when the filing was 
prepared but who the employer believes will separate from employment as 
a result of the section 4062(e) event.
     The number of active participants in the affected plan who 
had separated from employment as of the date when the filing was 
prepared but who were not counted as affected participants.
     The name and address of each union representing affected 
participants.
     A copy of each collective bargaining agreement covering 
affected participants.
     The affected plan's most recent adjusted funding target 
attainment percentage (AFTAP) certification and most recent actuarial 
valuation report, including or supplemented by all of the information 
described in Sec.  4010.8(a)(11) of PBGC's regulation on Annual 
Financial and Actuarial Information Reporting (29 CFR part 4010).
     A summary of plan amendments, significant changes in plan 
population, changes in plan assumptions, and amounts and dates of lump 
sums paid that are not reflected in the most recent actuarial valuation 
report.
     The market value of plan assets as of, or as close as 
possible to, the cessation date.
    PBGC needs this information to calculate the liability arising from 
a section 4062(e) event and decide how that liability should be 
satisfied. PBGC estimates that it will receive filings from about 200 
respondents each year and that the total annual burden of the 
collection of information will be about 1,000 hours and $350,000.
    Comments on the paperwork provisions under this proposed rule 
should be sent to the Office of Information and Regulatory Affairs, 
Office of Management and Budget, Attention: Desk Officer for Pension 
Benefit Guaranty Corporation, via electronic mail at OIRA_
DOCKET@omb.eop.gov or by fax to (202) 395-6974. Although comments may 
be submitted through October 12, 2010, the Office of Management and 
Budget requests that comments be received on or before September 9, 
2010 to ensure their consideration. Comments may address (among other 
things)--
     Whether the proposed collection of information is needed 
for the proper performance of PBGC's functions and will have practical 
utility;
     The accuracy of PBGC's estimate of the burden of the 
proposed collection of information, including the validity of the 
methodology and assumptions used;
     Enhancement of the quality, utility, and clarity of the 
information to be collected; and
     Minimizing the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, e.g., permitting 
electronic submission of responses.

List of Subjects

29 CFR Part 4062

    Employee benefit plans, Pension insurance, Reporting and 
recordkeeping requirements.

29 CFR Part 4063

    Employee benefit plans, Pension insurance.

    For the reasons given above, PBGC proposes to amend 29 CFR parts 
4062 and 4063 as follows.

PART 4062--LIABILITY FOR TERMINATION OF SINGLE-EMPLOYER PLANS

    1. The authority citation for part 4062 is revised to read as 
follows:

    Authority: 29 U.S.C. 1302(b)(3), 1303(a), 1362-1364, 1367, 1368.

    2. Section 4062.1 is revised to read as follows:


Sec.  4062.1  Purpose and scope.

    Subpart A of this part sets forth rules for calculation and payment 
of the liability incurred, under section 4062(b) of ERISA, upon 
termination of any single-employer plan and, to the extent appropriate, 
calculation of the liability incurred with respect to multiple employer 
plans under sections 4063 and 4064 of ERISA. Subpart B of this part 
sets forth rules under section 4062(e) of ERISA, including rules for 
reporting section 4062(e) events and for calculating and satisfying 
liability arising from such events.


Sec.  4062.3  [Amended]

    3. In Sec.  4062.3, paragraph (b) is amended by removing the 
reference ``Sec.  4062.9(c)'' and adding in its place the reference 
``Sec.  4062.8(c)''; and by removing the reference ``Sec.  4062.9(b)'' 
and adding in its place the reference ``Sec.  4062.8(b)''.

[[Page 48291]]

Sec.  4062.7  [Amended]

    4. In Sec.  4062.7, paragraph (a) is amended by removing the 
reference ``Sec.  4062.9'' and adding in its place the reference 
``Sec.  4062.8''.


Sec.  4062.8  [Removed]

    5. Section 4062.8 is removed.


Sec. Sec.  4062.9, 4062.10, and 4062.11  [Redesignated as Sec. Sec.  
4062.8, 4062.9, and 4062.10]

    6. Sections 4062.9, 4062.10, and 4062.11 are redesignated as 
Sec. Sec.  4062.8, 4062.9, and 4062.10 respectively.


Sec.  4062.1 through Sec.  4062.10  [Designated]

    7. Newly redesignated Sec. Sec.  4062.1 through 4062.10 are 
designated as subpart A with the heading ``Subpart A-- General 
Termination Liability Rules''.
    8. A new subpart B is added to read as follows:

Subpart B--Treatment of Substantial Cessation of Operations

Sec.
4062.21 Purpose and scope.
4062.22 Definitions.
4062.23 ``Section 4062(e) event.''
4062.24 ``Operation.''
4062.25 ``Facility'' or ``facility in any location.''
4062.26 ``Cease'' and ``cessation.''
4062.27 ``Separate'' and ``separation.''
4062.28 ``Result.''
4062.29 ``Active participant base.''
4062.30 PBGC investigations.
4062.31 Reporting requirement.
4062.32 Amount of liability.
4062.33 Manner of satisfying liability.
4062.34 Recordkeeping.
4062.35 Waivers.

Subpart B--Treatment of Substantial Cessation of Operations


Sec.  4062.21  Purpose and scope.

    This subpart B provides guidance about the applicability and 
enforcement of ERISA section 4062(e).


Sec.  4062.22  Definitions.

    For purposes of this subpart B:
    Active participant base has the meaning described in Sec.  4062.29.
    Affected employer means an employer that ceases an operation at a 
facility.
    Affected operation means the operation that an affected employer 
ceases.
    Affected participant means an employee of an affected employer who 
is a participant in an affected plan and who separates from employment 
with the affected employer as a result of the affected employer's 
ceasing the affected operation.
    Affected plan means a single-employer plan that is maintained by an 
affected employer, that is not a multiple employer plan, and that 
includes as participants employees of the affected employer who 
separate from employment as a result of the affected employer's ceasing 
the affected operation.
    Cease and cessation have the meaning described in Sec.  4062.26.
    Cessation date means the date when an employer ceases an operation 
at a facility as described in Sec.  4062.26.
    Employer has the meaning described in Sec.  4001.2 of this chapter.
    Facility and facility in any location have the meaning described in 
Sec.  4062.25.
    Operation has the meaning described in Sec.  4062.24.
    Result has the meaning described in Sec.  4062.28.
    Section 4062(e) event has the meaning described in Sec.  4062.23.
    Separate and separation have the meaning described in Sec.  
4062.27.


Sec.  4062.23  ``Section 4062(e) event.''

    (a) In general. A section 4062(e) event occurs if--
    (1) An employer maintains a single-employer plan that is not a 
multiple employer plan;
    (2) The employer ceases an operation at a facility in any location;
    (3) As a result of the cessation, one or more persons who are 
employees of the employer and participants in the plan are separated 
from employment; and
    (4) The number of such persons who are so separated is more than 20 
percent of the active participant base associated with the cessation.
    (b) Risk disregarded. Whether a section 4062(e) event has occurred 
is decided without regard to the existence or non-existence, when the 
event occurs or when the decision is made, of risk or apparent risk to 
a plan, its participants, or PBGC. However, PBGC may assess risk in 
making arrangements for satisfaction of liability for a section 4062(e) 
event.
    (c) Plan-by-plan application. This subpart B applies separately to 
each plan of an affected employer.


Sec.  4062.24  ``Operation.''

    An operation is a set of activities that constitutes an 
organizationally, operationally, or functionally distinct unit of an 
employer. Whether a set of activities is an operation may depend on 
whether it is (or similar sets of activities are) so considered or 
treated in the relevant industry, in the employer's organizational 
structure or accounts, in relevant collective bargaining agreements, by 
the employer's employees or customers, or by the public.


Sec.  4062.25  ``Facility'' or ``facility in any location.''

    The facility (or facility in any location) associated with an 
operation is the place or places where the operation is performed. A 
facility is typically a building or buildings. However, a facility may 
be or include any one or more enclosed or open areas or structures. The 
same facility may be associated with more than one operation.


Sec.  4062.26  ``Cease'' and ``cessation.''

    (a) Voluntary cessation. Unless paragraph (b) of this section 
applies, an employer is considered to cease an operation at a facility 
when the employer discontinues all significant activity at the facility 
in furtherance of the purpose of the operation.
    (b) Involuntary cessation.
    (1) Cessation caused by employee action. If a discontinuance of 
activity described in paragraph (a) of this section is caused by 
employee action such as a strike or sickout, then the employer is 
considered to cease the operation at the facility on the earlier of--
    (i) The date when the employee action ends, unless within one week 
after that date the employer has resumed significant activity at the 
facility in furtherance of the purpose of the operation, or
    (ii) The date when the employer decides not to resume significant 
activity at the facility in furtherance of the purpose of the 
operation.
    (2) Other involuntary cessation. If a discontinuance of activity 
described in paragraph (a) of this section is caused by a sudden and 
unanticipated event (other than an employee action) such as a natural 
disaster, then the employer is considered to cease the operation at the 
facility on the earlier of--
    (i) The date that is 30 days after the discontinuance, unless on 
that date the employer has resumed significant activity at the facility 
in furtherance of the purpose of the operation, or
    (ii) The date when the employer decides not to resume significant 
activity at the facility in furtherance of the purpose of the 
operation.
    (c) Follow-on operations disregarded. Whether an employer ceases an 
operation at a facility is decided without regard to whether--
    (1) The operation is continued or resumed--
    (i) At another facility, or
    (ii) By another employer; or
    (2) When the operation is discontinued, a different operation is 
undertaken.

[[Page 48292]]

Sec.  4062.27  ``Separate'' and ``separation.''

    (a) In general. An employee of an employer separates from 
employment when the employee discontinues the active performance, 
pursuant to the employee's employment relationship with the employer, 
of activities in furtherance of any of the employer's operations, 
unless, when the discontinuance occurs, it is reasonably certain that 
the employee will resume such active work for the employer within 30 
days. However, if the 30-day period passes and the employee has not 
resumed active work for the employer, the employee will be considered 
to have separated from employment when the discontinuance occurred.
    (b) Employees rehired or replaced. If an employer ceases an 
operation at a facility, the separation from employment of an employee 
who is a participant in the affected plan is disregarded in computing 
the number of affected participants if the separation is before the 
cessation date and, as of the cessation date, either--
    (1) The employee has been rehired and is an employee of the 
employer and a participant in the affected plan, or
    (2) The employee has been replaced and the replacement is an 
employee of the employer and a participant in the affected plan.


Sec.  4062.28  ``Result.''

    (a) In general. An employee separates from employment as a result 
of an employer's cessation of an operation at a facility if--
    (1) The employee separates from employment with the employer, and
    (2) The separation would not have occurred when it did if the 
employer's cessation of the operation at the facility had not occurred.
    (b) Circumstances not decisive. An employee's separation from 
employment may result from an employer's cessation of an operation at a 
facility--
    (1) Whether separation occurs before, on, or after the cessation 
date,
    (2) Whether or not the employee is employed in the operation that 
ceases, and
    (3) Whether or not the employee is employed at the facility 
associated with the operation that ceases.
    (c) Presumption; voluntary cessation; involuntary separation. An 
employee's separation from employment with an employer is presumed to 
be a result of the employer's cessation of an operation at a facility 
if--
    (1) The employee is employed by the employer in the operation,
    (2) The cessation is described in Sec.  4062.26(a) and not in Sec.  
4062.26(b), and
    (3) The employee involuntarily separates from employment with the 
employer on or after the date of the employer decision pursuant to 
which the cessation occurred.
    (d) Presumption; voluntary cessation; voluntary separation. An 
employee's separation from employment with an employer is presumed to 
be a result of the employer's cessation of an operation at a facility 
if--
    (1) The employee is employed by the employer in the operation,
    (2) The cessation is described in Sec.  4062.26(a) and not in Sec.  
4062.26(b), and
    (3) The employee voluntarily separates from employment with the 
employer on or after the earliest date when the employer decision 
pursuant to which the cessation occurred becomes known to the employee, 
to employees generally, or to the public.
    (e) Presumption; involuntary cessation. An employee's separation 
from employment with an employer is presumed to be a result of the 
employer's cessation of an operation at a facility if--
    (1) The employee is employed by the employer in the operation,
    (2) The cessation is described in Sec.  4062.26(b), and
    (3) The employee voluntarily or involuntarily separates from 
employment with the employer on or after the date of the event that 
causes the cessation.
    (f) Presumption; employment by new employer. An employee's 
separation from employment with an employer is presumed to be a result 
of the employer's cessation of an operation at a facility if--
    (1) The employee is employed by the employer in the operation,
    (2) Another employer (the ``new employer'') continues or resumes 
the operation at the same or another facility, and
    (3) The employee becomes employed by the new employer.


Sec.  4062.29  ``Active participant base.''

    (a) In general. The active participant base associated with a 
cessation is the total number of persons who, immediately before the 
applicable date in paragraph (b) of this section, were--
    (1) Participants in the affected plan, and
    (2) Employees of the affected employer either--
    (i) Engaged in the active performance, pursuant to their employment 
relationship with the employer, of activities in furtherance of the 
employer's operations, or
    (ii) Reasonably certain to resume such active work for the employer 
within 30 days, but a person is not counted in the active participant 
base under this paragraph (a)(2)(ii) if the 30-day period passes and 
the employee has not resumed active work for the employer.
    (b) Applicable date. For purposes of paragraph (a) of this section, 
the applicable date is--
    (1) For a cessation described in Sec.  4062.26(a) and not in Sec.  
4062.26(b), the date of the employer decision pursuant to which the 
cessation occurred, and
    (2) For a cessation described in Sec.  4062.26(b), the date of the 
event that caused the cessation.
    (c) ``Participant.'' For purposes of this subpart B, whether an 
individual is a participant in a plan at a particular time is decided 
without regard to whether the individual is accruing benefits under the 
plan at that time.


Sec.  4062.30  PBGC investigations.

    (a) In general. PBGC may make such investigations as it considers 
necessary to enforce section 4062(e) and this subpart B and in 
particular to discover whether section 4062(e) events have occurred and 
whether notices required under Sec.  4062.31 have been timely filed.
    (b) PBGC information requests. If PBGC requests from any person 
information about any event that may be a section 4062(e) event, the 
person must file the requested information within 45 days after PBGC's 
request or within a different time specified in the request. PBGC may 
specify a shorter time where it finds that the interests of PBGC, 
participants, or the pension insurance system may be prejudiced by a 
delay in the receipt of the information (for example, where timely 
enforcement of section 4062(e) of ERISA may be jeopardized).
    (c) Duty to update or correct. If a person that has filed 
information with PBGC pursuant to a request under paragraph (b) of this 
section discovers that any information so filed (including the number 
of affected participants) is materially erroneous or has become 
materially outdated, the person must promptly file with PBGC the 
correct or updated information.
    (d) PBGC determinations. On the basis of information gleaned from 
an investigation or otherwise obtained, PBGC may determine that a 
section 4062(e) event has occurred and determine the amount of 
liability arising from the event.


Sec.  4062.31  Reporting requirement.

    (a) Notice required; who must file. If a section 4062(e) event 
occurs, the plan administrator of the affected plan must file a notice 
of the event with PBGC. The filing of the notice constitutes a

[[Page 48293]]

request that PBGC determine the liability with respect to the event.
    (b) When to file.
    (1) In general. Notice of a section 4062(e) event must be filed 
with PBGC within 60 days after the later of--
    (i) The cessation date, or
    (ii) The date when the number of affected participants is more than 
20 percent of the active participant base.
    (2) Filing date; computation of time. See subparts C and D of part 
4000 of this chapter for information on ascertaining filing dates and 
computing periods of time.
    (c) How to file. See Sec. Sec.  4000.3 and 4000.4 of this chapter 
for information on how and where to file. Notice of a section 4062(e) 
event must be filed in accordance with PBGC's instructions for filing 
section 4062(e) event notices, posted on PBGC's Web site (http://www.pbgc.gov).
    (d) Additional information. If PBGC requests additional information 
from the plan administrator of an affected plan about a section 4062(e) 
event of which the plan administrator has given notice, the plan 
administrator must file the requested information within 45 days after 
PBGC's request or within a different time specified in the request. 
PBGC may specify a shorter time where it finds that the interests of 
PBGC, participants, or the pension insurance system may be prejudiced 
by a delay in the receipt of the information (for example, where timely 
enforcement of section 4062(e) of ERISA may be jeopardized).
    (e) Requirement for employer to provide information. An employer 
that may be an affected employer must timely provide to the plan 
administrator of any plan that may be an affected plan any information 
that the plan administrator needs--
    (1) To decide whether and when a section 4062(e) event has 
occurred, and
    (2) To file under this section.
    (f) Duty to update or correct. If the plan administrator of an 
affected plan discovers or is notified by the affected employer that 
any information filed with PBGC under this section (including the 
number of affected participants) is materially erroneous or has become 
materially outdated, the plan administrator must promptly file with 
PBGC the correct or updated information.
    (g) Disregarding certain affected participants for notice purposes. 
In deciding whether notice of a section 4062(e) event is required, the 
due date of the notice, and the number of affected participants to be 
reported in the notice (and any update or correction of the notice 
under paragraph (f) of this section), a plan administrator may 
disregard affected participants who were not employed at the facility 
associated with the affected operation. This provision does not apply 
to--
    (1) PBGC investigations under Sec.  4062.30, or
    (2) A request under paragraph (d) of this section for information 
about affected participants who were not employed at the facility 
associated with the affected operation (or any update or correction 
under paragraph (f) of this section of information provided in response 
to such a request).


Sec.  4062.32  Amount of liability.

    (a) Determination of liability. PBGC will determine the amount of 
liability with respect to a section 4062(e) event in accordance with 
this section.
    (b) Amount of liability. The amount of liability for a section 
4062(e) event is the amount that PBGC determines to be the amount 
described in section 4062 of ERISA for the entire affected plan, 
computed as if the plan had been terminated by PBGC immediately after 
the cessation date, multiplied by a fraction--
    (1) The numerator of which is the number of affected participants, 
and
    (2) The denominator of which is the active participant base.
    (c) Post-cessation changes disregarded. For purposes of paragraph 
(b) of this section, the amount described in section 4062 of ERISA for 
the entire affected plan is calculated without regard to any change in 
the affected plan's assets or benefit liabilities after the cessation 
date, such as an increase in assets due to receipt of contributions 
after the cessation date or an increase in liabilities due to accruals 
after that date.


Sec.  4062.33  Manner of satisfying liability.

    (a) In general. PBGC will decide in accordance with ERISA how the 
liability for a section 4062(e) event is to be satisfied. In general, 
PBGC will require that liability for a section 4062(e) event be 
satisfied either--
    (1) By paying the amount of the liability to PBGC to be held in 
escrow under section 4063(b) of ERISA, or
    (2) By furnishing a bond in an amount not exceeding 150 percent of 
the amount of the liability under section 4063(c)(1) of ERISA.
    (b) Other arrangements. PBGC may make arrangements for satisfaction 
of liability for a section 4062(e) event other than those in paragraph 
(a) of this section. For example, in appropriate cases:
    (1) PBGC may permit liability for a section 4062(e) event to be 
satisfied through one or more additional plan funding contributions 
that would not be added to the plan's prefunding balance.
    (2) If an affected operation is continued or resumed by another 
employer (the ``new employer''), and the new employer employs in the 
operation persons who were employed by the affected employer in the 
operation, PBGC may permit the liability for the section 4062(e) event 
to be satisfied by the new employer's adoption or maintenance of the 
affected plan or of a plan that holds substantially all of the 
liabilities and assets of the affected plan attributable to employees 
employed in the affected operation.


Sec.  4062.34  Recordkeeping.

    (a) Each employer that maintains a single-employer plan that is not 
a multiple employer plan, and the plan administrator of each such plan, 
must keep for five years, with respect to any discontinuance of all 
significant activity in furtherance of the purpose of an operation of 
the employer at a facility, all records that bear on whether there was 
a section 4062(e) event and on the calculation of liability with 
respect to the event.
    (b) If PBGC finds that an employer or plan administrator referred 
to in paragraph (a) of this section has failed to keep records 
sufficient to determine whether a section 4062(e) event has occurred or 
the amount of liability arising from such an event, PBGC may make such 
determination on the basis of reasonable assumptions not inconsistent 
with information that PBGC knows of and considers reliable.


Sec.  4062.35  Waivers.

    PBGC may waive any provision of this subpart B to accommodate the 
facts and circumstances of particular cases and promote the equitable 
and rational interpretation and application of title IV.

PART 4063--WITHDRAWAL LIABILITY; PLANS UNDER MULTIPLE CONTROLLED 
GROUPS

    9. The authority citation for part 4063 continues to read as 
follows:

    Authority:  29 U.S.C. 1302(b)(3).

    10. In section 4063.1, paragraph (a) is amended by revising the 
second sentence to read as follows:


Sec.  4063.1  Cross references.

    (a) * * * Part 4062 also sets forth rules under section 4062(e) of 
ERISA, including rules for reporting section 4062(e) events and for 
calculating and satisfying liability arising from such events.
* * * * *


[[Page 48294]]


    Issued in Washington, DC, August 4, 2010.
Joshua Gotbaum,
Director, Pension Benefit Guaranty Corporation.
[FR Doc. 2010-19627 Filed 8-9-10; 8:45 am]
BILLING CODE 7709-01-P