The 2015 final regulations added DOL Regulation Section 4043.9 (29 C.F.R. § 4043.9), under which an entity determines whether it qualifies for the low-default-risk safe harbor once during an annual financial reporting cycle, on a "financial information date" (see Practice Note, Reportable Events for Pension Plans Under ERISA Occurring On or After January 1, 2016: New Waivers Provided by the 2015 Final Regulations: Company Low-Default-Risk Safe Harbor).

The low-default-risk safe harbor provides a waiver from reporting for five reportable events (which are referred to in the preamble to the 2015 final regulations as Category 1 events; for a list of those events, see Practice Note, Reportable Events for Pension Plans Under ERISA Occurring On or After January 1, 2016: New Waivers Provided by the 2015 Final Regulations: Company Low-Default-Risk Safe Harbor).

Reporting is waived under the low-default-risk safe harbor for an entity (a company) that has adequate capacity to meet its financial obligations in full and on time as of a financial information date (the qualifying date), based on satisfying several criteria, such as the commercial measures criterion which is satisfied if the company's probability of default on its financial obligations is no more than 4% over the next 5 years or .4% over the next year, as determined on the basis of widely available financial information on the company's credit quality (29 C.F.R. § 4043.9(e)(1)). The proposed regulations would amend DOL Regulation Section 4043.9 to make clear that a plan must use third-party financial information for this safe harbor, not information that the company generates.

A reportable event occurs when there is a reduction in the number of active participants in the plan caused by either a single-cause event (such as a business reorganization, discontinuance of operations, natural disaster, mass layoff, or early retirement) or an attrition event (general employee attrition during a plan year) (29 C.F.R. § 4043.23(a); for a detailed explanation of this event and when reporting is not required, see Practice Note, Reportable Events for Pension Plans Under ERISA Occurring On or After January 1, 2016: Active Participant Reduction).

The preamble explains that since the publication of the 2015 final regulations, the PBGC has received questions regarding whether a plan administrator or contributing sponsor that reports an active participant reduction due to a single-cause event must also file an attrition event notice at a later date due to the same active participant reduction. Although the PBGC recognizes that the regulation could be interpreted in that way, the PBGC did not intend that result.

Therefore, the proposed regulations amend DOL Regulation Section 4043.23(a)(2) (29 C.F.R. § 4043.23(a)(2)) to change how active participants are counted when determining whether an attrition event has occurred. Specifically, an attrition event would be based on the sum of the total number of active plan participants at the end of the plan year plus the number of individuals who ceased to be active participants during the same plan year that were reported to the PBGC in connection with a single-cause event. This would prevent duplicative reporting by disregarding the earlier single-cause event that was already reported to the PBGC.

The PBGC is proposing numerous other amendments to the regulation governing the active participant reduction reportable event.

DOL Regulation Section 4043.23(a)(1)(i) (29 C.F.R. § 4043.23(a)(1)(i)) would be revised to clarify that each single-cause event that occurs during the plan year must be reported separately. Each time a new single-cause event results in an active participant reduction greater than 20 percent over the number of active participants at the beginning of the plan year, the plan would have to report the event to the PBGC (by filing a new Form 10; see Practice Note, Reportable Events for Pension Plans Under ERISA Occurring On or After January 1, 2016: PBGC Notice Forms: Form 10).

The definition of a single-cause event would be revised in a non-substantive way to provide that "as a result of a new single cause, the ratio of the aggregate number of individuals who ceased to be active participants because of that single-cause, to the number of active participants at the beginning of such plan year, exceeds 20 percent." The PBGC believes this is a clearer formula than what is currently provided in DOL Regulation Section 4043.23(a)(1).

The proposed regulations would eliminate the two-year lookback requirement to ease the compliance burden, and they would waive notice of the two-year lookback under ERISA Section 4043(c)(3) (29 U.S.C. § 1343(c)(3)).

The proposed regulations would clarify, in DOL Regulation Section 4043.23(b)(2) (29 C.F.R. §4043.23(b)(2)), that an "active participant" includes a plan participant who is "receiving compensation from any member of the plan's controlled group for work performed for any member of the plan's controlled group." This change is intended to dispel any confusion about participants who leave the employ of one controlled group member and go to work for another member of the group.

To prevent duplicative reporting of the same event, the proposed regulations provide that a plan need not report a reduction in the number of active participants under DOL Regulation Section 4043.23 (29 C.F.R. § 4043.23) if the reduction is reported under ERISA Section 4062(e) or 4063(a) (29 U.S.C. §§ 1362 or 1363) before the filing of a notice is due under Section 4043.23.

The proposed regulations would include additional examples of the interplay of single cause and attrition events, as well as a single-cause event that occurs over a period of time.

Under the 2015 regulations, a reportable event occurs when a plan is currently unable or is projected to be unable to pay benefits, except if the failure is caused solely by, among other things, "any other administrative delay," including the need to verify a person's eligibility for benefits, that is less than the shorter of two months or two full benefit payment periods (29 C.F.R. § 4043.26(a)(1); see Practice Note, Reportable Events for Pension Plans Under ERISA Occurring On or After January 1, 2016: Inability to Pay Benefits When Due).

The proposed regulations would not place a time limit on the need to verify a person's eligibility for benefits; employers may need more time than the shorter of two months or two full benefit payment periods to verify a person's eligibility for benefits. An exception would remain for any other administrative delay that is less than the shorter of two months or two full benefit payment periods.

Currently, the regulations provide that a reportable event occurs when a transaction results or will result in at least one person ceasing to be a member of the plan's controlled group, other than by a merger involving members of the same controlled group (29 C.F.R. § 4043.29(a)) (see Practice Note, Reportable Events for Pension Plans Under ERISA Occurring On or After January 1, 2016: Contributing Sponsor or Controlled Group Changes).

The proposed regulations would clarify the regulatory definition of this event to provide that a reportable event occurs when one or more persons cease to be either a contributing sponsor of a plan or a member of the plan's controlled group (other than by a merger involving members of the same controlled group). The PBGC has received inquiries over the scope of the current regulation because the heading mentions contributing sponsor changes but the text of the regulation does not discuss changes in contributing sponsors.

Currently, the regulations provide that this event is not reportable if it results solely in a reorganization involving a mere change in identity, form, or place of organization. This exception to the reporting requirement would be narrowed under the proposed regulations to apply only to changes to the controlled group because the PBGC needs to know about any change to a contributing sponsor, which provides the primary support of a pension plan.

The proposed regulations would also revise and add several examples to the existing regulation.

The PBGC also seeks to clarify when the liquidation reportable event occurs.

The proposed regulation would expand DOL Regulation Section 4043.30(a)(1) (29 C.F.R. § 4043.30(a)(1)). Currently, that paragraph provides that a reportable event occurs for a plan when a member of the plan's controlled group "is involved in any transaction to implement its complete liquidation (including liquidation into another controlled group member)" (see Practice Note, Reportable Events for Pension Plans Under ERISA Occurring On or After January 1, 2016: Liquidation).

The proposed regulation would provide that a reportable event occurs when a member of the plan's controlled group decides to cease operations; specifically, when that member "resolves to cease all revenue-generating business operations, sell substantially all its assets, or otherwise effect or implement its complete liquidation (including liquidation into another controlled group member) by decision of the member's board of directors (or equivalent body such as the managing partners or owners) or other actor with the power to authorize such cessation of operations, sale, or a liquidation," unless the event would be reported under another event described in Section 4043.30(a) (for example, there is a proceeding to dissolve the entity or the entity liquidates under the Bankruptcy Code).

This proposed definition links the reporting obligation to the time the entity decides to cease operations; the PBGC believes this will be the most protective of the plan participants and the pension system because it would provide more time to preserve plan assets.

PBGC has included in the proposed regulations additional examples that discuss how the reportable events requirements apply to a liquidation.

The PBGC is also proposing a reporting waiver for companies that liquidate as a result of insolvency. This waiver would eliminate the need to report both the liquidation under DOL Regulation Section 4043.30 and the insolvency under DOL Regulation Section 4043.35 (29 C.F.R. § 4043.35), as they are currently required to do. Instead, there would be parallel waivers in both sections that would waive notice if it had already been provided to the PBGC for the same event under the other section.

The preamble to the proposed regulations explains that the PBGC does not intend to compel public company plan sponsors to disclose liquidations on a Form 10 before notifying the public. Therefore, the proposed regulation includes an extension under DOL Regulation Section 4043.35(c) to file the post-event reportable events notice until the earlier of the timely filing of an SEC Form 8-K disclosing the event or the issuance of a press release discussing it. The PBGC seeks public comments on whether and how it should make this extension available for foreign private issuers.

Currently, the reportable events regulations include a reporting waiver for public companies that experience one of five specified events (referred to as Category 1 events) and timely file an SEC Form 8-K and disclose the event on the Form 8-K other than under Item 2.02 (Results of Operations and Financial Condition) or Item 9.01 (Financial Statements and Exhibits) (see Practice Note, Reportable Events for Pension Plans Under ERISA Occurring On or After January 1, 2016: Expansions of Existing Waivers). This waiver was added to the reportable events regulations in 2015.

The PBGC is not at this time proposing changes to the public company waiver. However, it is requesting comments on whether the waiver should be expanded to apply when a parent company timely files a Form 8-K but is not a contributing sponsor to the plan. The PBGC seeks comments on whether this would provide it adequate information regarding each of the five events to which the waiver applies.