PBGC's Revised Collection of Information Will Require Additional Reporting from Defined Benefit Plans Offering a Lump Sum Window | Practical Law

PBGC's Revised Collection of Information Will Require Additional Reporting from Defined Benefit Plans Offering a Lump Sum Window | Practical Law

The Pension Benefit Guaranty Corporation (PBGC) has notified the public that it is requesting the Office of Management and Budget (OMB) to approve a revised collection of information relating to single employer defined benefit plans.

PBGC's Revised Collection of Information Will Require Additional Reporting from Defined Benefit Plans Offering a Lump Sum Window

by Practical Law Employee Benefits & Executive Compensation
Published on 01 Nov 2019 • USA (National/Federal)
The Pension Benefit Guaranty Corporation (PBGC) has notified the public that it is requesting the Office of Management and Budget (OMB) to approve a revised collection of information relating to single employer defined benefit plans.
On October 29, 2019, the Pension Benefit Guaranty Corporation (PBGC) issued a notice that it is seeking approval from the Office of Management and Budget (OMB) for a revised information collection under its regulation on the payment of pension termination insurance premiums (84 Fed. Reg. 58181 (Oct. 30, 2019)). The information collection amends the 2020 PBGC insurance premium filing instructions by requiring single employer defined benefit plans that offer lump sum windows to separately report the number of participants in pay status who were offered and elected a lump sum.

Lump Sum Windows for Defined Benefit Plans

Some defined benefit plans provide a limited window of time during which certain retirees receiving joint and survivor, single-life, or other life annuity payments may elect to convert the annuity into a lump sum that is payable immediately (see Practice Note, Defined Benefit Plans: Lump-Sum Windows).
By reducing the number of participants entitled to receive benefits from the plan, lump sum windows are one option for defined benefit plan sponsors that want to "derisk" their plans. By accelerating the annuity payments, lump sum windows transfer longevity and investment risk from the plan to the retirees. In some cases, the addition of these programs has been treated as a permissible increase in benefits under Treasury Regulation Section 1.401(a)(9)-6, A-14(a)(4) (26 C.F.R. § 1.401(a)(9)-6, A-14(a)(4)).

IRS Actions

In Notice 2015-49, the IRS stated that it intended to amend the required minimum distribution (RMD) regulations under Section 401(a)(9) of the Internal Revenue Code (Code) to prohibit qualified defined benefit plans from accelerating annuity payments by replacing any joint and survivor, single-life, or other annuity with a lump sum payment or other accelerated form of distribution (see Legal Update, IRS Notice 2015-49 Prohibits Plans from Offering Lump Sum Risk Transferring Programs for Participants in Pay Status). However, in March 2019, the IRS announced in Notice 2019-18 that it will not issue regulations prohibiting defined benefit plans from offering lump sum windows (see Legal Update, IRS Notice 2019-18 Allows for Lump Sum Risk Transferring Programs for Participants in Pay Status).

PBGC Information Collection

In response to Notice 2019-18, the PBGC issued a notice of its intent to request OMB approval of the revised collection of information in August 2019 (84 Fed. Reg. 37694 (Aug. 1, 2019)). The PBGC then issued a notice of its request of OMB approval of the revised collection of information (information collection) on October 29, 2019.

PBGC Insurance Premiums

ERISA Sections 4006 and 4007 provide that plans insured under Title IV of ERISA must pay premiums to the PBGC (29 U.S.C. §§ 1306 and 1307). Under regulations issued under Section 4007, the plan administrator must submit the payment and required information annually. The premium filings must include the following information:
  • The flat-rate premium and related data (all plans).
  • The variable-rate premium and related data (single employer plans).
  • Additional data such as identifying information and miscellaneous plan-related or filing-related data (all plans).
This information is helpful to the PBGC to operate its plan termination insurance program.

Modifications to Filing Instructions

Under the revised information collection, the PBGC is:
  • Modifying the 2020 premium filing instructions to require defined benefit plans offering a lump sum window to separately report the number of plan participants in pay status who were offered and elected a lump sum.
  • Changing the reporting period for risk transfer activity, including lump sum windows and annuity purchases, to be the prior premium payment year, rather than the period falling between 60 days before the prior filing and 60 days before the current filing.
  • Modifying the premium payment filing instructions to require a defined benefit plan to complete a coverage determination request when the plan reports that a premium filing will be the last for the plan and checks the cessation of covered status box as the reason. Currently, such a plan must explain why coverage has ceased, which is then verified by the PBGC.
The PBGC also announced that it is:
  • Updating the premium rates.
  • Making conforming, clarifying, and editorial changes to the premium filing instructions.
OMB approved the collection of information through June 30, 2021. The PBGC is requesting that OMB approve the revised collection of information for three years. The PBGC seeks comments from the public, which are due November 29, 2019.

Practical Implications

Administrators of single employer defined benefit plans that offer lump sum windows should be aware that the PBGC's revised information collection imposes additional reporting requirements and changes the reporting period for risk transfer activity.