PBGC changes reportable event rules for DB plans

Effective January 1, 2016, the Pension Benefit Guaranty Corporation altered the reportable event rules for defined benefit pension plans. Under new final regulations, the PBGC substantially reduced the reporting requirements for pension plan administrators, sponsors and contributing employers. In fact, the PBGC estimates that the final regulations will allow 82% of pension plans with more than 100 participants to utilize a reporting waiver. 

As background, the reportable event rules require pension plan administrators, sponsors and contributing employers to notify the PBGC either 30 days before or 30 days after a specified event occurs, including events such as extraordinary dividends or stock redemptions; changes in the controlled group or plan sponsor; termination or partial termination of a pension plan; active participant reductions; loan default; distributions to substantial owners; missed contributions; inability to pay benefits when due; application for a minimum funding waiver; insolvency; and transfers of benefit liabilities.

The new rules, however, reduce the reporting burden in many of these circumstances. PBGC reporting now is automatically waived for certain reportable events if any of the following conditions are met: (1) the well-funded plan waiver, (2) the public company waiver, (3) the low-risk default waiver, and (4) small plan, foreign entity and de minimis waivers.  In addition to these waivers, the new PBGC rules modify the definition of certain events that must be reported, and require electronic filing of all event notices. These new reportable event rules apply to post-event reports for events occurring on or after Jan. 1, 2016, and apply to advance reports due on or after Jan. 1, 2016.

Well-funded plan waiver

During the plan year in which certain reportable events occur, a pension plan may utilize this waiver if no variable rate premium is due for the plan year prior to the reportable event. Generally, only a pension plan that is fully funded on an on-going basis (without smoothing) can avoid paying a variable rate premium to the PBGC. For example, if a pension plan does not pay a variable rate premium in 2016, the plan qualifies for the well-funded plan waiver for reportable events that occur in 2017 even if the plan is required to pay a variable rate premium in 2017.

Public company waiver

The public company waiver is available for certain reportable events if any contributing employer to the plan is a public company and files a SEC Form 8-K disclosing the reportable event. The waiver does not apply if the SEC Form 8-K disclosure is made under Item 2.02 (results of operations and financial condition) or under Item 9.01 (financial statements and exhibits).

Low-default risk waiver 

The low-default risk waiver is based on financial metrics that are readily available for most employers that contribute to a pension plan. Specifically, a pension plan’s contributing employer and highest level U.S. parent (collectively, the company) can satisfy the low-default risk waiver for certain reportable events if either: (1) the company meets both of the first two below factors, or (2) the company meets at least four of the below seven factors:

• The probability that the company will default on its financial obligations is not more than 4% over the next five years or not more than 0.4% over the next year, based on widely available financial information of credit worthiness
• The company’s secured debt (with some exceptions) does not exceed 10% of its total asset value
• The company’s ratio of total-debt-to-earnings before interest, taxes, depreciation and amortization (EBITDA) is 3.0 or less
• The company’s ratio of retained-earnings-to-total-assets is 0.25 or more
• The company has positive net income for the two most recent completed fiscal years
• The company has not experienced any loan default event in the past two years, regardless of whether reporting was waived
• The sponsor has not experienced a missed contribution event in the past two years unless reporting was waived

Source: Employee Benefit Adviser