PBGC Issues Proposed Regulations on Owner-Participant Changes to Guaranteed Benefits and Asset Allocation | Practical Law

PBGC Issues Proposed Regulations on Owner-Participant Changes to Guaranteed Benefits and Asset Allocation | Practical Law

The Pension Benefit Guaranty Corporation (PBGC) issued proposed regulations that would amend current PBGC regulations on guaranteed benefits and asset allocation.

PBGC Issues Proposed Regulations on Owner-Participant Changes to Guaranteed Benefits and Asset Allocation

by Practical Law Employee Benefits & Executive Compensation
Published on 09 Mar 2018 • USA (National/Federal)
The Pension Benefit Guaranty Corporation (PBGC) issued proposed regulations that would amend current PBGC regulations on guaranteed benefits and asset allocation.
On March 6, 2018, the Pension Benefit Guaranty Corporation (PBGC) issued proposed regulations that would amend current PBGC rules on guaranteed benefits and asset allocation for terminated single-employer defined benefit plans (83 Fed. Reg. 9716 (Mar. 7, 2018)). Specifically, the proposed regulations would incorporate changes made by the Pension Protection Act of 2006 (PPA) to the phase-in rules for participants with certain ownership interests in a plan sponsor. The proposed regulations would:
  • Amend the PBGC's:
    • benefit payment regulations (29 C.F.R. §§ 4022.25 and 4022.26) by replacing the guarantee limitations applicable to substantial owners with a new guarantee limitation applicable to majority owners; and
    • asset allocation regulation (29 C.F.R. § 4044.10) by prioritizing funding of all other benefits in priority category 4 ahead of the benefits that would be guaranteed but for the new owner-participant limitation.
  • Clarify that plan administrators may continue to use the simplified calculation in the existing rule to estimate benefits funded by plan assets.
  • Provide new examples in DOL Reg. Sections 4022.62 and 4022.63 to aid in implementation (29 C.F.R. §§ 4022.62 and 4022.63).
The proposed regulations would also remove the term "substantial owner" from the reportable events regulations (29 C.F.R. § 4043.2) (see Practice Notes, Reportable Events for Pension Plans Under ERISA Occurring On or After January 1, 2016 and Reportable Events for Pension Plans Under ERISA Occurring Before January 1, 2016).

Practical Implications

The PBGC has implemented the PPA's changes to guaranteed benefits and asset allocation for owner-participants of terminated single-employer plans since they became effective. The proposed regulations would conform the PBGC's regulations to the PPA. Additionally, the PBGC stated that it intends to increase transparency into its operations and provide guidance for plan administrators on the impact of the statutory changes.
Plan administrators should be aware that the proposed rule allows them to continue to use the simplified calculation in the existing rule to estimate benefits funded by plan assets.