Technical Update 95-1 (issued January 26, 1995) provides guidance on the information necessary to satisfy the new statutory requirements for reportable events. This Technical Update provides additional guidance relating to enforcement of reportable events, including reporting by fully funded plans.
Pending the issuance of regulations or other guidance, a contributing sponsor, plan administrator or plan may rely on the guidance in this Technical Update. If future guidance is more restrictive, that guidance will be applied without retroactive effect. This Technical Update is not intended to be all-inclusive on matters that may arise in complying with Title IV of ERISA. No inference should be drawn regarding any matters that are not addressed.
I. Background
The Retirement Protection Act of 1994 (the "RPA") was enacted on December 8, 1994 as part of the General Agreement or Tariffs and Trade legislation, Public Law No. 103-465, 108 Stat. 4809. The RPA, among other things, expanded the list of events that plan sponsors and plan administrators must report to the Pension Benefit Guaranty Corporation (the "PBGC").
Section 4043 of ERISA requires plan administrators to provide notice to the PBGC for a number of reportable events (see ERISA section 4043(c)(1)-(8)). By regulation, the PBGC waived reporting in certain cases and specified several additional reporting events (referred to as "ERISA Reportable Event(s)").
Section 771 of the RPA added four new reportable events (referred to as "New Reportable Event(s)") which apply when:
(1) as a result of an event such as a sale of a subsidiary, a controlled group member ceases to be a member of the controlled group (new section 4043(c)(9));
(2) a contributing sponsor or member of a contributing sponsor's controlled group liquidates (new section 4043(c)(10));
(3) in any 12-month period, a contributing sponsor or controlled group member (a) declares an extraordinary dividend or (b) redeems 10 percent or more of the total combined voting power or total value of shares of all classes of stock of the entire controlled group (new section 4043(c)(11));
(4) in any 12-month period, 3 percent or more of the benefit liabilities of a PBGC-covered plan are transferred to a plan maintained by a sponsor who is outside the controlled group (new section 4043(c)(12)).
In addition, the RPA renumbered, as new section 4043(c)(13), the PBGC's general regulatory authority to specify other reportable events.
Contributing sponsors and plan administrators are responsible for complying with the information requirements that apply to reportable events. Plan administrators or contributing sponsors must give the PBGC notice of the New Reportable Events for events that occur on or after February 6, 1995 (60 days after the enactment of the RPA). The plan administrator or contributing sponsor must notify the PBGC no later than 30 days after an event occurs.
In certain circumstances, the contributing sponsor (but not the plan administrator) must notify the PBGC at least 30 days in advance of the occurrence of the New Reportable Events and any other reportable event specified by regulation. This advance notice applies only to privately held companies that are members of a controlled group that maintain plans with aggregate unfunded vested benefits of more than $50 million and an aggregate funded vested benefit percentage of less than 90 percent. For this purpose, a company is considered privately held unless the company or its parent makes filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934. Requirements for advance reporting notices were discussed more fully in Technical Update 95-1. Until the PBGC issues regulations on these New Reportable Events, companies generally can comply by using the framework of the regulations (see 29 CFR 2615.1 et seq.) for reporting events.
Failure to provide the PBGC with any notice or other material information in a timely manner, including the reporting requirements of the RPA, will result in a penalty of up to $1,000 per day. See section 4071 of ERISA and Assessment of Penalties for Failure to Provide Required Information, 57 Fed.Reg. 7,605 (March 3, 1992).
II. Guidance
Pending the issuance of regulations under section 4043, as revised by the RPA, the following questions and answers explain the manner in which the PBGC will enforce the statutory requirements.
Q-1: How will the PBGC apply the reportable event requirements to events that are both ERISA Reportable Events and New Reportable Events?
A-1: In the case of events that are both ERISA Reportable Events and New Reportable Events (see 29 CFR 2615.19 and .23), existing PBGC waivers of ERISA Reportable Events ("Existing Waivers") do not apply to the New Reportable Events.
Example 1 On May 21, 1995, Plan A transferred assets and benefit liabilities to Plan B, a plan maintained by a sponsor outside Plan A's controlled group. The liabilities transferred represented 10 percent of Plan A's benefit liabilities.
An ERISA Reportable Event occurred when a plan merged, consolidated or transferred its assets to another plan (section 4043(b)(8) of ERISA). However, the PBGC waived the requirement that plan administrators notify the PBGC of these spinoff transactions (29 CFR 2615.19). A New Reportable Event occurs when, in any 12-month period, 3 percent or more of the benefit liabilities of a PBGC- covered plan are transferred to a plan maintained by a sponsor who is outside the controlled group (see section 4043(c)(12) of ERISA). The Existing Waiver does not apply to this New Reportable Event, so either the contributing sponsor or plan administrator of Plan A must notify the PBGC no later than 30 days after the spinoff occurs.
Q-2: How will the PBGC apply the new post-event reporting requirements to fully funded plans?
A-2: The PBGC will not apply a penalty for failure to satisfy the New Reportable Event requirements if (1) a plan is fully funded and (2) the notice is due after the event. A plan will be considered to be fully funded if it has no unfunded vested benefits (valued using PBGC-required assumptions and methods for purposes of the variable rate premium) as of the last day of the preceding plan year (see section 4006(a)(3)(E) of ERISA and 29 CFR 2610.23). This exception does not limit an Existing Waiver that applies to an ERISA Reportable Event.
Example 2 On March 25, 1995, Plan C transferred assets and benefit liabilities to Plan D, a plan maintained by a sponsor outside Plan C's controlled group. Plan C had no unfunded vested benefits as of December 31, 1994, the last day of the preceding plan year. Because Plan C had no unfunded vested benefits as of the last day of the prior plan year, it is considered to be fully funded. Accordingly, the PBGC will not apply a penalty for failure to satisfy the New Reportable Event requirement.
Q-3: Will the exception for fully funded plans apply to the advance reporting requirements?
A-3: No, the exception will not apply. Until the PBGC issues further guidance, companies subject to 30-day advance reporting must report all transactions including those involving fully funded plans.
Q-4: Do the Existing Waivers for plan administrators (see 29 CFR 2615.1 etseq.) also apply to contributing sponsors?
A-4: Yes. For ERISA Reportable Events, the PBGC will treat the Existing Waivers as applicable to contributing sponsors as well as to plan administrators.
Q-5: Does the PBGC waiver of the reportable event requirements for multiemployer plans apply to the New Reportable Events?
A-5: Yes. The PBGC will extend the Existing Waiver for multiemployer plans (29 CFR 2615.1) to the New Reportable Events for both pre-event and post-event notification. Multiemployer plans are not subject to any of the reportable events requirements of section 4043.
Q-6: Does the PBGC waiver of the requirement that the plan administrator give notice of reportable events in the Annual Report on PBGC Form 1 also apply to the New Reportable Events?
A-6: Yes. The PBGC will extend the Existing Waiver of reporting on PBGC Form 1 (29 CFR 2615.4) to the New Reportable Events. Neither plan administrators nor contributing sponsors will be required to give notice of any reportable events on PBGC Form 1.