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