[November 22, 1999 (Volume 64, Number 224)]

[Unified Agenda]

From the Federal Register Online via GPO Access [frwais.access.gpo.gov]

[DOCID:ua22no99_002-150]                         



[Page 64072-64073]

 

PENSION BENEFIT GUARANTY CORPORATION (PBGC)

 

PBGC



Statement of Regulatory and Deregulatory Priorities

PBGC Insurance Programs

The Pension Benefit Guaranty Corporation (PBGC) administers two 

insurance programs for private defined benefit plans under title IV of 

the Employee Retirement Income Security Act of 1974 (ERISA): A single-

employer plan termination insurance program and a multiemployer plan 

insolvency insurance program. The PBGC protects the pensions of nearly 

42 million working men and women in about 44,000 private defined 

benefit plans, including about 2,000 multiemployer plans.

Under the single-employer program, the PBGC pays guaranteed and certain 

other pension benefits to participants and beneficiaries if their plan 

terminates with insufficient assets (distress and involuntary 

terminations). At the end of fiscal year 1998, the PBGC was trustee of 

almost 2,700 plans and paid $848 million in benefits to about 209,000 

people during 1998. Another 263,000 people will receive benefits when 

they retire in the future.

Most terminating single-employer plans terminate with sufficient assets 

to pay all benefits. The PBGC has administrative responsibility for 

these terminations (standard terminations), but its role is limited to 

seeing that proper procedures are followed and participants and 

beneficiaries receive their plan benefits.

The multiemployer program (which covers about 8.8 million workers and 

retirees in about 2,000 insured plans) is funded and administered 

separately from the single-employer program and differs in several 

significant ways. The multiemployer program covers only collectively 

bargained plans involving more than one unrelated employer. The PBGC 

provides financial assistance (in the form of a repayable loan) to the 

plan if the plan is unable to pay benefits at the guaranteed level. 

Guaranteed benefits are generally less than a participant's full 

benefit under the plan (and less than the single-employer guaranteed 

benefit). PBGC financial assistance occurs infrequently.

The PBGC receives no funds from general tax revenues. Operations are 

financed by insurance premiums, investment income, assets from pension 

plans trusteed by the PBGC, and recoveries from the companies formerly 

responsible for the trusteed plans.

To carry out these functions, the PBGC must issue regulations 

interpreting such matters as the termination process, establishment of 

procedures for the payment of premiums, and assessment and collection 

of employer liability.

Objectives and Priorities

PBGC regulatory objectives and priorities are developed in the context 

of the statutory purposes of title IV: (1) To encourage voluntary 

private pension plans, (2) to provide for the timely and uninterrupted 

payment of pension benefits to participants and beneficiaries, and (3) 

to maintain the premiums that support the insurance programs at the 

lowest possible levels consistent with carrying out the PBGC's 

statutory obligations (ERISA section 4002(a)).

 The PBGC implements its statutory purposes by developing regulations 

designed: (1) To assure the security of the pension benefits of 

workers, retirees, and beneficiaries; (2) to improve services to 

participants; (3) to ensure that the statutory provisions designed to 

minimize losses for participants in the event of plan termination are 

effectively implemented; (4) to encourage the establishment and 

maintenance of defined benefit pension plans; (5) to facilitate the 

collection of monies owed to plans and to the PBGC, while keeping the 

related costs as low as possible; and (6) to simplify the termination 

process.

Legislative Initiatives

On December 8, 1994, the Retirement Protection Act of 1994 was enacted. 

The Retirement Protection Act (1) accelerates the funding of 

underfunded single-employer pension plans, (2) phases out the cap on 

the variable rate portion of the premium paid to the PBGC by 

underfunded single-employer plans, (3) provides the PBGC with better 

tools to prevent employers from escaping their plan funding obligations 

through corporate transactions, (4) requires better information to 

participants in underfunded plans on plan funding status and PBGC 

guarantees, and (5) helps assure that workers do not lose pensions 

because they have lost contact with a terminating pension plan covered 

by the PBGC.

In May 1996, the President submitted the Retirement Savings and 

Security Act (RSSA) to Congress. The RSSA would have expanded coverage, 

increased portability and worker protection, and simplified pension 

law. The proposal included an increase in the guarantees in the 

multiemployer insurance program to address inflation since 1980 and 

expansion of the PBGC's missing participant program to include 

terminating defined contribution plans and non-PBGC-covered defined 

benefit plans. The Small Business Job Creation Act of 1996 and the 

Taxpayer Relief Act of 1997 included many of the RSSA provisions but 

did not include the increase in the multiemployer guarantee or the 

expansion of the missing participant program. These provisions are 

contained in several bills that were introduced in the House and Senate 

in 1997, 1998, and 1999 and remain legislative objectives.

Many workers are not saving enough, through personal savings or a 

401(k) or other defined contribution plan, for a secure retirement. 

About half of all workers have no employment-based pension coverage. In 

businesses with fewer than 100 employees, only about 20 percent of 

workers are covered by any retirement plan. Traditional pension plans, 

i.e., defined benefit plans, provide a predictable lifetime benefit, 

guaranteed by the PBGC. Yet the defined benefit system is stagnating.

In early 1998, the Administration proposed a new, simplified defined 

benefit plan-the Secure Money Annuity or Retirement Trust (SMART)-for 

employers with 100 or fewer employees. SMART combines the advantages of 

traditional defined benefit plans and defined contribution plans, while 

removing some of the major obstacles that discourage small business 

from adopting defined benefit plans. (The SMART proposal is contained 

in the Income Security Enhancement Act of 1999 (S. 8), the Employee 

Pension Portability and Accountability Act of 1999 (H.R. 1213), and the 

Retirement Security Act of 1999 (H.R. 1590).) For workers, SMART 

provides predictable benefits for life, guaranteed by PBGC, 

portability, and a chance to share in favorable investment experience. 

For employers, SMART offers more predictable contributions and reduced 

administrative costs.

Additional Administration proposals to encourage defined benefit plans 

include reduced PBGC premiums for new plans and improved benefit 

guarantees for owners of small businesses (these can be severely 

limited under current law).

<bullet> Reduced premiums for newly established plans. For small 

            employers, a flat-rate per participant premium of $5 

            (rather than $19) and no variable rate premium during the 

            first five plan years of a plan



[[Page 64073]]



            established by a small employer. For larger employers, 

            phase-in of the variable rate premium ($9 per $1,000 of 

            unfunded vested current liability) in newly established 

            plans at 20% per year.

<bullet> Improved benefit guarantees for owners of small businesses. 

            For an owner with less than 50% ownership, the guarantee 

            limits would be the same as for non-owner participants. 

            After a plan has been in effect for ten years, owners with 

            a 50% or greater ownership interest would have the same 

            guarantee limits as other participants.

Regulatory and Deregulatory Initiatives

The PBGC issued regulations implementing the Retirement Protection Act 

through the end of 1996. In FY 1997 through FY 1999, the PBGC focused 

on changes that would simplify the rules and reduce regulatory burden. 

The PBGC:

<bullet> Reduced penalties for late premiums that are paid before the 

            PBGC notifies the plan of the delinquency (statement of 

            policy, December 2, 1996).

<bullet> Extended the time limits for various actions required to 

            terminate a fully funded single-employer plan in a 

            ``standard termination'' (final rule, November 7, 1997).

<bullet> Stopped the reduction of monthly benefits under its actuarial 

            recoupment method once the nominal amount of the benefit 

            overpayment is repaid (final rule, May 29, 1998).

<bullet> Provided participants with benefits valued up to $5,000 in 

            PBGC-trusteed plans with the choice of receiving their 

            benefit in the form of an annuity or a lump sum (final 

            rule, July 17, 1998).

<bullet> Proposed to simplify its valuation assumptions by adopting a 

            single set of assumptions for allocation purposes (proposed 

            rule, October 26, 1998).

<bullet> Extended the filing date for PBGC premiums to match the latest 

            Form 5500 filing date (final rule, December 14, 1998).

<bullet> Proposed to amend its premium regulation to encourage self-

            correction of premium underpayments by making it easier to 

            qualify for safe-harbor penalty relief (proposed rule, May 

            26, 1999).

The PBGC is continuing to review its regulations to look for further 

simplification opportunities.

The PBGC's regulatory plan for October 1, 1999, to September 30, 2000, 

consists of one significant regulatory action.

_______________________________________________________________________



                              -----------



                             Proposed Rule



                              -----------



146. ALLOCATION OF ASSETS IN SINGLE-EMPLOYER PLANS; VALUATION OF 

BENEFITS AND ASSETS

Priority:





Other Significant





Legal Authority:





29 USC 1302(b)(3); 29 USC 1341; 29 USC 1301(a); 29 USC 1344; 29 USC 

1362





CFR Citation:





29 CFR 4044 subpart B





Legal Deadline:





None





Abstract:





The Pension Benefit Guaranty Corporation is considering amending its 

benefit valuation and asset allocation regulations by adopting more 

current mortality tables and otherwise simplifying and improving its 

valuation assumptions and methods.





Statement of Need:





The PBGC's regulations prescribe rules for valuing a terminating plan's 

benefits for several purposes, including (1) determining employer 

liability and (2) allocating assets to determine benefit entitlements. 

The PBGC's interest assumption for valuing benefits, when combined with 

the PBGC's mortality assumption, is intended to reflect the market 

price of single-premium, nonparticipating group annuity contracts for 

terminating plans. In developing its interest assumptions, the PBGC 

uses data from surveys conducted by the American Council of Life 

Insurance. The PBGC currently uses a mortality assumption based on the 

1983 Group Annuity Mortality Table in its benefit valuation and asset 

allocation regulations (29 CFR parts 4044 and 4281).





In May 1995, the Society of Actuaries Group Annuity Valuation Table 

Task Force issued a report that recommends new mortality tables for a 

new Group Annuity Reserve Valuation Standard and a new Group Annuity 

Mortality Valuation Standard. In December 1996, the National 

Association of Insurance Commissioners adopted the new tables as models 

for determining reserve liabilities for group annuities. The PBGC is 

now considering incorporating the new tables into its regulations and 

making other modifications.





Summary of Legal Basis:





The PBGC has the authority to issue rules and regulations necessary to 

carry out the purposes of title IV of ERISA.





Alternatives:





Not yet determined.





Anticipated Cost and Benefits:





Cost estimates are not yet available. However, the PBGC expects that 

this regulation will not have a material effect on costs.





Risks:





Not applicable.





Timetable:

_______________________________________________________________________

Action                                 DFR Cite



_______________________________________________________________________

ANPRM           62 FR 12982                                    03/19/97

ANPRM Comment Period End                                       05/19/97

NPRM                                                           03/00/00

Regulatory Flexibility Analysis Required:





No





Government Levels Affected:





None





Agency Contact:

James L. Beller

Attorney

Pension Benefit Guaranty Corporation

Office of the General Counsel

1200 K Street NW.

Washington, DC 20005-4026

Phone: 202 326-4024

TDD Phone: 800 877-8339

Fax: 202 326-4112

RIN: 1212-AA55

BILLING CODE 7708-01-F







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