Active Participant Reduction Reportable Events

This Technical Update 17-1 provides Pension Benefit Guaranty Corporation (“PBGC”) guidance on compliance with the active participant reduction event requirements of section 4043(c)(3) of the Employee Retirement Income Security Act of 1974 (“ERISA”) and PBGC’s regulation on Reportable Events and Certain Other Notification Requirements (29 CFR part 4043.23(a)).

PBGC is providing an alternative method for determining whether reporting an attrition event to PBGC is required under § 4043.23(a)(2) to avoid possible duplicative reporting.

I. Background and Discussion

ERISA section 4043 and subparts A through C of the reportable events regulation require that PBGC be notified of certain “reportable events” that may present a risk to a sponsor’s ability to continue a plan. 

On September 11, 2015, PBGC issued a final rule on Reportable Events and Other Notification Requirements under section 4043 of ERISA that revised, among other things, the active participant reduction event described in § 4043.23 of the regulation.  This event occurs when, as a result of a single cause (such as a reorganization or layoff), or through employee attrition, the number of active participants in a plan is reduced below 80 percent of the number at the beginning of the year or below 75 percent of the number at the beginning of the prior year.

Interpretation of § 4043.23

Since publication, PBGC has received questions from practitioners about whether the regulatory text requires a plan that files a single-cause event notice to file an “attrition event” notice at a later date due to the same active participant reduction.  This was not PBGC’s intent.

PBGC plans to issue a new proposal to clarify this and avoid duplicative reporting.  Because PBGC has not yet issued a rule, there is a need for interim guidance to avoid duplicative reporting while complying with the existing (unamended) regulation.

II. Guidance

To determine whether reporting is required for an attrition event for a plan year, a potential filer may disregard any cessations of active participant status reported to PBGC for single-cause events during the plan year or preceding plan year.  Specifically: 

• When determining whether the number of active plan participants at the end of the plan year is less than 80 percent of the number of active participants at the beginning of the plan year, plans may include in the year-end active participant count participants who ceased to be active participants during the plan year due to a reported single-cause event.
   
• When determining whether the number of active plan participants at the end of the plan year is less than 75 percent of the number of active participants at the beginning of the preceding plan year, plans may include in the year-end active participant count participants who ceased to be active participants during the current or prior plan year because of a reported single-cause event.

Example

Assume:

• Plan A has a calendar year plan year
• Plan A had 1,000 active participants at the beginning of 2015 and 1,100 active participants at the beginning of 2016.
• On 2/1/2016, 230 active participants ceased to be active participants as a result of a single-cause event.  This event represents more than a 20 percent reduction since the beginning of 2016, so Plan A was required to (and did) submit a single-cause event notice (i.e., Form 10) to PBGC.
• At the end of 2016, Plan A had 720 active participants.

To determine whether an attrition event must be reported for 2016, the 230 participants reported to have ceased active participant status are added to the 12/31/2016 active participant count.  On that basis, the number of active participants at 12/31/2016 is 950 (720 + 230).  Because the applicable one-year attrition percentage is not less than 80 percent (i.e., 950/1,100= 86%)[1] and the applicable two-year attrition percentage is not less 75 percent (i.e., 950/1,000 = 95%), there is no reportable attrition event for 2016.

Effect of final rule. As noted above, PBGC plans to issue a new rule to amend the reportable events regulation.  When PBGC publishes a final rule amending the reportable events regulation, this Technical Update will be superseded with respect to reportable events to which the final rule applies, except to the extent that the final rule provides otherwise.

III. Further Guidance and Other Effect

This Technical Update updates the guidance provided in the instructions to the PBGC Form 10.

This Technical Update has no effect on any other requirements under other PBGC regulations other than the reportable events regulation.

IV. Disclaimer

This guidance represents PBGC’s current thinking on this topic.  It does not create or confer any rights for or on any person or operate to bind the public.  If an alternative approach satisfies the requirements of the applicable statutes and regulations, you may use that approach.  If you want to discuss an alternative approach (which you are not required to do), you may contact PBGC.

V. Contact Information

For questions about this Technical Update 17-1, contact Daniel S. Liebman, Acting Assistant General Counsel for Legal Policy, Office of the General Counsel at Liebman.Daniel@PBGC.gov, or by calling 202-229-4400 ext. 6510; or Kristina Archeval, Senior Advisor of the Corporate Finance and Restructuring Department at Archeval.Kristina@PBGC.gov, or by calling 202-229-4070 ext. 4189.

The example in this technical update was revised on 9/15/2017.