| 76-104 |
| August 27, 1976 |
| REFERENCE: |
| 4044(a) Allocation of Assets. Requirement of Following Statutory Allocation Provisions |
| OPINION: |
| This is in reference to your letter of August 3, 1976 commenting on a form letter used by the Pension Benefit Guaranty |
| Corporation (the "PBGC"). |
| As you know, the PBGC utilizes a special procedure to expedite the processing of certain terminated plans which appear to |
| have sufficient assets to satisfy all guaranteed benefits. The first step under this procedure involves the completion of a |
| Certification of Sufficiency (the * * * "Certification") by the plan administrator. The form letter referred to in your letter is |
| the cover letter which is sent along with the Certification. The cover letter briefly sets forth the steps involved in the |
| procedure including the basic terms of the Certification. |
| Based on your comments and those from other interested persons the PBGC has revised the Certification, a copy of |
| which is enclosed. As I'm sure you can appreciate, the cover letter to the Certification also will be revised. |
| The Certification in paragraphs 3, 4 and 7, as revised, now emphasizes, inter alia, not only that distribution of annuity |
| contracts is an acceptable "distribution of Plan assets" but that the purchase of annuity contracts is the preferred method |
| Your letter correctly states the PBGC's position concerning the distribution of annuity contracts. That is, the PBGC will not |
| approve the purchase and retention by the Trustees of individual or group annuity contracts, as opposed to the distribution |
| to participants. Rather, the PBGC requires that annuity contracts be distributed to participants. It is our opinion that this |
| requirement is the best method of guaranteeing that each participant will receive his or her retirement benefit. |
| The PBGC does not believe that a Trustee necessarily is better able to judge the best interests of a participant than that |
| participant himself. We also do not believe that a participant necessarily is not as capable as a Trustee of exercising any |
| available options under an annuity contract as and when necessary to suit his own needs. As a general matter, therefore, |
| we believe that a participant should be allowed to decide in what form and in what manner he receives and disposes of his |
| benefit entitlement under a terminated plan. In recognition of the fact that in some cases a Trustee may be better able to |
| protect and preserve a participant's benefits than that participant himself, however, the PBGC would have no objection if a |
| participant himself chose to receive his benefit in the form of an annuity to be held by a Trustee willing to do so. |
| Furthermore, the PBGC would not prohibit a Trustee, who is concerned that participants will dissipate their retirement |
| benefits, from providing to participants only those annuity contracts which would prevent such dissipation under the terms |
| We hope this information is of assistance to you. |
| Henry Rose |
| General Counsel |