DRIVING THE PENSION PRACTICE 

SINCE 1975 

March 25-28, 2012 

Enrolled Actuaries Meeting 

Marriott Wardman Park Hotel, Washington DC 

TM Consulting Actuaries

Conference of 

2012 Blue Book 

Questions to the PBGC 

and Summary of their Responses 

March 2012 

enrolledactuaries.org
 
Summary of Discussions between the Enrolled Actuaries Program Committee
 

and Staff of the Pension Benefit Guaranty Corporation
 

on February 1, 2012
 

The following pages set forth the questions posed to staff of the Pension Benefit 

Guaranty Corporation at discussions on February 1, 2012, with representatives of the 

Enrolled Actuaries Program Committee. Included also are summaries of the 

responses to those questions. The summary responses to the questions are intended 

to reflect as accurately as possible the statements made by the government 

representatives. However, those responses are merely the current views of the 

individuals and do not represent the positions of the Pension Benefit Guaranty 

Corporation or of any other governmental agency and cannot be relied upon by any 

person for any purpose. Moreover, PBGC has not in any way approved this booklet or 

reviewed it to determine whether the statements herein are accurate or complete. 

The following representatives of the Enrolled Actuaries Program Committee took part 

in the discussions: 

Harold J. Ashner, Keightley & Ashner LLP

Susan L. Breen-Held, The Principal Financial Group©

Bruce A. Cadenhead, Mercer 

Eric A. Keener, Aon Hewitt 

Ellen L. Kleinstuber, The Savitz Organization

Jeffrey S. Litwin, Sibson Consulting, a Division of Segal 

Marjorie R. Martin, Plan Synergies, LLC 

John H. Moore, Aon Hewitt 

Jay P. Rosenberg, Buck Consultants 

Maria M. Sarli, Towers Watson 

Donald J. Segal 

The following representatives of the Pension Benefit Guaranty Corporation took part in 

the discussions: 

James J. Armbruster, Assistant Chief Counsel, Office of the Chief Counsel 

Kenneth Cooper, Assistant General Counsel, Office of the General Counsel 

David Gustafson, Director, Policy, Research and Analysis Department

Catherine Klion, Manager, Regulatory and Policy Division, Legislative and 

Regulatory Department

Grace Kraemer, Attorney, Legislative and Regulatory Department

Daniel Liebman, Attorney, Legislative and Regulatory Department

Deborah C. Murphy, Attorney, Legislative and Regulatory Department

Neela Ranade, Chief Negotiating Actuary, Corporate Finance & Restructuring 

Department

Peggy Thibault, Actuary, Policy, Research and Analysis Department

Amy Viener, Senior Policy Actuary, Policy, Research and Analysis Department 

The Program Committee would like to thank the practitioners who submitted questions 

for this booklet. 
INDEX 

Subject Matter	 Questions 

1. Premiums.................................................................................................................................... 1 - 6 

2. Standard Terminations............................................................................................................... 7 -10 

3. Distress or Involuntary Terminations ...................................................................................... 11 - 14
 

4. Reportable Events .................................................................................................................. 15 - 16 

6. Other Reporting ........................................................................................................................ 17-18 

7 ERISA § 4062 and § 4063...................................................................................................... 19 - 20 

8. Other ....................................................................................................................................... 21 - 27 
 

 

 

 

QUESTION 1 

Premiums: Administration Proposal 

The Administration has proposed that PBGC be allowed to set its own premiums based on the financial 

health of the employer and the circumstances of the individual plan. Please provide an update on this 

proposal, including anything you can share about the issues and options under consideration. 

RESPONSE 

On February 13, 2012, the President released his Fiscal Year 2013 federal budget. Included in the 

budget is a proposal to provide the PBGC Board of Directors the authority to adjust premiums and to 

direct PBGC to take into account the risks that different sponsors pose to their retirees and to PBGC.1 

The proposal provides safeguards that would ensure that reforms are undertaken responsibly during 

challenging economic times, including the requirement for a year of study and public comment before any 

implementation, and the gradual phasing-in of any premium increases. 

In February 2, 2012 testimony2

 before the Health, Employment, Labor and Pensions Subcommittee, 

House Committee on Education and the Workforce, PBGC Director Josh Gotbaum explained the basis of 

the premium reform proposal as follows: 

“Unfortunately, neither the level nor the form of premiums has kept up with changes in 

retirement plans. For some companies and plans, our premiums are far lower than any 

private insurance company would charge. . . . 

But what's just as disturbing is that financially sound companies are asked to make up 

the difference. And if Congress were to increase those premiums just to cover the actions 

of other companies, it would make the situation worse. Think how hard it is to convince 

companies to keep their plans while you're asking them to pay for the losses of others. 

We recognize that there are many issues involved in making PBGC responsible for 

establishing premiums that are both fair and financially sufficient. The Administration 

proposed a range of safeguards to allay the legitimate concerns of businesses and plans 

that rates might rise too quickly or unfairly. No increases at all would be permitted until 

after a year of consultation with the affected constituencies. No increases would be 

allowed without a vote of PBGC's board. The increase on any individual company or plan 

would be strictly limited and all increases would be phased in over a period of years as 

the Board may determine. Furthermore, unlike the current variable rate premium, the 

Board would be charged, to the extent feasible, with setting premiums to minimize 

increases during times when the economy or markets are weak.” 

1 http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/labor.pdf (page 147) 2 http://www.pbgc.gov/news/testimony/page/tm020212.html 

1 
 2 

QUESTION 2 

Premiums: Refunds Based on Recharacterization of Contributions 

In a policy statement3

 issued on December 22, 2011 (76 Fed. Reg. 79714), PBGC stated that it “has 

received a number of amended premium filings, showing increased assets and decreased Variable Rate 

Premiums (VRPs), supported by amended Schedules SB (or B) that reflect recharacterization of 

contributions, and submitted with a view to obtaining premium refunds,” and that “PBGC has in practice 

accepted such amended filings and granted the refunds.” PBGC then stated that, “upon further 

consideration of the matter, however, PBGC has concluded that in general, such amendments should be 

rejected and the associated premium refunds denied,” but also made clear that “PBGC's consideration of 

amended premium filings takes into account the facts and circumstances of each case.” 

The following questions relate to that policy statement: 

(a) Will the new policy of generally rejecting such amendments and denying the associated premium 

refunds apply to requests made before the new policy was announced? 

RESPONSE — Refund requests that were pending on December 22, 2011 will generally be denied. 

PBGC has no plans to recoup amounts that were already refunded. Similarly, if, in lieu of requesting 

a refund, the plan established a credit and has already used it (e.g., to offset the 2011 VRP that was 

due October 15, 2011), PBGC has no plans to retroactively revoke that credit. 

(b) If the reason for a recharacterization of contributions is not to obtain a premium refund, but rather to 

ensure that a violation of minimum funding rules does not retroactively arise after discovering an 

error, would PBGC accept the recharacterization of contributions as valid and accept an amended 

filing and grant a request for an associated premium refund? 

RESPONSE — The policy statement was focused on situations where the purpose of the amended 

filing was to obtain a refund, not on this hypothetical situation. As stated in the policy statement, 

“PBGC’s consideration of amended premium filings takes into account the facts and circumstances 

of each case.” If you believe there are circumstances that PBGC should consider in reviewing the 

amended filing, you should include that information in your filing4

. Although PBGC is not prepared 

to speculate on the outcome of a hypothetical situation in this area, we expect most amended 

premium filings based on recharacterized contributions will be rejected. 

(c) Assume that the reason for a recharacterization of contributions is not to obtain a premium refund, 

but rather to offset what would otherwise be a newly-identified premium underpayment for that same 

year. Under these circumstances, would PBGC accept the recharacterization of contributions as 

valid and treat the associated reduction in the premium amount owed as an offset against an 

unrelated increase in the premium amount owed that is reported to PBGC as part of the same 

amended filing? 

RESPONSE — The answer is the same as (b). However, we note that in this scenario, the 

recharacterization was done solely to reduce the amount of premium owed, which is the type of 

situation the policy statement was focused on. 

 

 

3

 http://www.pbgc.gov/documents/2011-32804.pdf 4

 When an amended filing results in a premium decrease, the plan is required to provide an explanation (see line 

19c of illustrative form).
 

 

(d) If a Schedule B (or SB) for a plan year is amended to increase assets as a result of recharacterized 

contributions and the premium filing for that same plan year is not amended accordingly, should 

actuaries or plan administrators be concerned about the discrepancies in the asset values between 

the two filings? 

RESPONSE — PBGC has no intention of challenging the validity of a premium filing solely because 

the asset value does not match the asset value reported on an amended Schedule B (or SB) that 

reflects recharacterized contributions. However, IRS has told PBGC that they have concerns about 

recharacterized contributions. No inference should be made from our response as to whether the 

Schedule SB amendment noted above would be acceptable. 

(e) Does the policy statement apply to a situation where Schedule SB is amended to report additional 

contributions that have not previously been reported on a different year's Schedule SB? 

For example, suppose the 2011 valuation was not yet final when the 2010 Schedule SB was filed 

and that contributions made in April and July 2011 were not reported on the 2010 SB, and thus not 

included in plan assets for purposes of the 2011 Comprehensive Premium Filing. When the 

valuation is finalized in November 2011, it turns out the April and July contributions were larger than 

necessary to satisfy the 2011 quarterly contribution requirement. The sponsor wants to treat the 

excess as 2010 contributions instead of 2011 contributions, so the Enrolled Actuary amends the 

2010 Schedule SB in November 2011. At that time, the 2011 Comprehensive Premium has already 

been filed, but the 2011 Schedule SB has not. If an amended 2011 Comprehensive Premium Filing 

is submitted to reflect the final 2011 asset value, will PBGC reject the amended filing? 

RESPONSE — The policy statement does not apply to the scenario described above. In the 

example provided, the contributions made in April and July 2011 weren’t "recharacterized" because 

those contributions hadn’t previously been "characterized". 

QUESTION 3 

Premiums: Treatment of “At-Risk” Load in Determining Variable Rate Premium (VRP) 

If a plan is in at-risk status for two of the prior four years, the funding target for purposes of IRC 430 

includes a load equal to four percent (4%) of the funding target plus $700-per-participant. Does that load 

apply when determining the premium funding target for purposes of determining the VRP? If the answer 

is “yes”, is the load for premium purposes the same or different from the load included for IRC 430 

purposes? 

RESPONSE 

Yes, the load applies. The $700-per-participant part of the load included in the premium funding target is 

the same amount that is included in the funding target for IRC 430 purposes. The 4% part of the load is 

applied only to the premium funding target, so in general, that part of the load will generally be lower for 

premium purposes than it is for funding purposes. 

3 
 

QUESTION 4 

Premiums: Death Benefits in Vested Benefits for Variable Rate Premium (VRP) Purposes 

Are the following benefits vested, and therefore included in the premium funding target? 

(a) An ancillary pre-retirement death benefit that pays $10,000 on death while active or terminated 

vested? 

(b) An ancillary pre-retirement death benefit that pays $10,000 on death while active? 

RESPONSE 

(a) The premium regulation provides that, with the exception of the return of mandatory employee 

contributions, a participant's pre-retirement lump-sum death benefit is not vested if the participant is 

living. In Q&A 3 of the 2010 Blue Book, PBGC staff explained that the reason for that provision is 

because there are circumstances in which that death benefit will not be paid (for example, if the 

participant survives until retirement.) So, the answer depends on whether there’s a similar death 

benefit that would be paid after the participant starts receiving retirement benefits. For example, if 

the plan also provides an ancillary post-retirement death benefit that pays $10,000 on death, then 

the value of the pre-retirement death benefit is included in the premium funding target. But, if the 

death benefit is paid only if the participant dies while still actively employed, then it is not. 

Note – Q&A 26 discusses how/where on Schedule SB to report the non-vested portion of the funding 

target for inactive participants 

(b) The same concept applies. The value of the ancillary pre-termination death benefit described in (b) 

above is not included in the premium funding target unless there is a similar ancillary death benefit 

payable in the event of death after termination regardless of whether death occurs before or after 

benefits commence. 

QUESTION 5 

Premiums: Mid-Year Amendments in Vested Benefits for Variable Rate Premium (VRP) Purposes 

2010 Blue Book Q&A 3 provides that if a calendar-year plan is amended in 2010 to provide a 10% ad hoc 

cost-of-living adjustment (COLA), effective July 1, 2011, that COLA is treated as a vested benefit for 2011 

VRP) purposes if it is included in the January 1, 2011 funding target (which it typically would be unless 

prevented from taking effect by §436), because retirees must do nothing more than survive from January 

1, 2011 to July 1, 2011 to receive the COLA. 

Would the answer be different if the amendment had been adopted in 2011 (after the valuation date) 

instead of 2010? The amendment may be reflected in the 2011 §430 funding target, because the plan 

sponsor may have made a §412(d)(2) election to reflect it or because it may have been required to be 

reflected under the special rule of §1.430(d)-1(d)(2). 

RESPONSE 

No. The answer would not be different if the amendment had been adopted after the valuation date. 

4 
 

 

 

QUESTION 6 

Premiums: My PAA Enhancements 

Has have there been any MyPAA enhancements since last year that would be of interest to Enrolled 

Actuaries? 

RESPONSE 

One new validation/warning message may be of particular interest to Enrolled Actuaries — If the 

alternative premium funding target is being used to determine the variable-rate premium and the plan 

uses 24-month smoothed segment rates (as opposed to the full yield curve), My PAA now validates 

whether the reported segment rates are acceptable given the reported UVB valuation date. For example, 

if the reported UVB valuation date is January 1, 2012, the system checks to see if the three segment 

rates reported are the three smoothed segment rates for January 2012, December 2011, November 

2011, October 2011, or September 2011 and issues a warning message if other rates are reported. 

In addition, the error checking features available for filings imported into My PAA after being created 

using private sector software have been expanded and are now similar to those used for filings created 

directly in My PAA (i.e., screen-prepared filings). Uploaded filings continue to bypass the error checking 

features within My PAA. 

Last, but not least, system performance has been improved (e.g., screens load more quickly). 

QUESTION 7 

Standard Terminations: Referrals to Other Federal Agencies 

When PBGC reviews a Standard Termination Notice (Form 500) or conducts a standard termination 

audit, it may identify a possible plan qualification defect or violation of other legal requirements. Under 

what circumstances, if any, does PBGC refer the matter to another Federal agency, such as IRS or the 

Employee Benefits Security Administration? Please provide examples, if any, of situations in which such 

a referral took place. 

RESPONSE 

Referrals to other agencies are made on a case-by-case basis and depend on the specific facts and 

circumstances. 

5 
 

 

 

QUESTION 8 

Standard Terminations: Forfeiture of Benefits for Missing Participants 

Regulation §1.411(a)-4(b)(6) provides that a benefit that is payable is not treated as forfeitable merely 

because the benefit is forfeitable on account of the inability to find the participant or beneficiary to whom 

payment is due, provided that the plan provides for reinstatement of the benefit if a claim is made for the 

forfeited benefit. If a plan provides for forfeiture of benefits in accordance with this regulation and the plan 

administrator has been unable to locate a participant despite making a diligent effort, how is the benefit 

handled upon standard plan termination? 

RESPONSE 

The plan administrator must treat the participant or beneficiary as a missing participant under Part 4050 

of PBGC’s regulations. Accordingly, the plan administrator must either: 

 Pay the PBGC a designated benefit for the missing participant, or 

 Purchase from an insurer an irrevocable commitment to pay the missing participant’s benefit. 

In either case, the plan administrator must provide information to PBGC as required under the regulation. 

This is done by filing Schedule MP with Form 501. 

QUESTION 9 

Standard Terminations: Distribution Processing Fees 

Is it permissible to deduct processing fees from participants' benefits under defined benefit plans covered 

under Title IV of ERISA? 

RESPONSE 

No. Participants of a defined benefit plan covered under Title IV of ERISA must receive their full plan 

benefits [refer to Section 4041(b)(3)(A)]. Any administrative expenses that are paid from Plan assets may 

not reduce a participant’s benefit under such a plan. 

6 
QUESTION 10 

Standard Terminations: Automatic Rollovers for Missing Participants 

Under The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), a plan administrator 

must set up an Individual Retirement Account (IRA) for the automatic rollover of any cash-out distribution 

in excess of $1,000 for a participant that does not elect either a direct payment or a direct rollover of his 

benefit. If a plan terminates in a standard termination, may the plan administrator set up an IRA for the 

automatic rollover of a missing participant? 

RESPONSE 

No. A distribution may only be made in the form of a rollover to an IRA if the plan administrator is able to 

locate the participant. In the case of a missing participant in a standard termination, the plan administrator 

must either pay PBGC a designated benefit for the missing participant, or purchase from an insurer an 

irrevocable commitment to pay the missing participant’s benefit. See Section 4050 of ERISA and 29 

CFR Part 4050. 

QUESTION 11 

Distress or Involuntary Terminations: Maximum Benefits under Optional Forms 

Pursuant to §4022.23 the PBGC provides guidance for determining optional form factors for situations not 

covered by the regulations. Which of the following are correct? 

(a) Adjustments to joint-life factors due to age differences greater than those specified in §4022.23(e) 

should be extended as follows. The 1% and 1⁄2% adjustment rates (depending on whether the coannuitant is younger or older than the participant) are multiplied by 50% at 20 years of age 

difference. For example, for a co-annuitant 30 years younger the maximum amount otherwise 

payable is multiplied by 75.00% (100% - 1%*20 – 0.5%*10). However, the adjusted joint-life factors 

must not exceed 100%. 

(b) For purposes of the joint-life factors, the age differences are calculated using age-nearest-birthday 

for the participant and beneficiary. In computing the difference in ages, years over 65 years of age 

are not counted. For example, if the participant is age 70 and the spouse is age 64, the participant 

is treated as age 65 and the spouse is treated as age 64. 

(c) Assume a joint and survivor annuity (J&S, in the customary “contingent” form in which the benefit 

does not decline if the co-annuitant dies first) includes a certain period. The benefit during the 

certain period may be “nonreducing” (i.e., equal to the amount payable to the retiree) or “reducible” 

(i.e., the amount payable after both recipients are deceased is the amount being paid to the recipient 

who died last.) Before adjusting for age differences, the factors used for these options are all based 

on interpolations or extrapolations of the following six factors: 

.8640 (50% J&S with nonreducing 10C&C) 

.7920 (100% J&S with nonreducing 10C&C) 

.8727 (50% J&S with reducible 10C&C) 

.7920 (100% J&S with reducible 10C&C) 

.9000 (50% J&S, no certain period) 

.8000 (100% J&S, no certain period) 

RESPONSE 

All of the information shown above is correct. 

7 
 

 

 

QUESTION 12 

Distress or Involuntary Terminations: Referrals to Other Federal Agencies 

When PBGC reviews a Distress Termination Notice of Intent to Terminate (Form 600), a Distress 

Termination Notice (Form 601), or otherwise reviews or evaluates the circumstances surrounding a plan 

involved in a distress or involuntary termination, it may identify a possible plan qualification defect or 

violation of other legal requirements. Under what circumstances, if any, does PBGC refer the matter to 

another Federal agency, such as IRS or the Employee Benefits Security Administration? Please provide 

examples, if any, of situations in which such a referral took place 

RESPONSE 

Referrals to other agencies are made on a case-by-case basis, and depend on the specific facts and 

circumstances of the specific case. 

QUESTION 13 

Distress or Involuntary Terminations: PBGC Review of Compliance with §436 

When PBGC becomes statutory trustee of a pension plan that underwent a distress or involuntary 

termination, does PBGC review the plan’s compliance with the rules governing benefit restrictions under 

§436? If PBGC believes that these rules were not complied with, what action, if any, does PBGC take? 

RESPONSE 

PBGC does take the §436 restrictions into account. For example, if no AFTAP calculation has been 

certified, PBGC will apply the §436 funding status presumptions, which could result in a benefit freeze 

prior to termination. If the plan did not comply with the §436 rules, PBGC will adjust benefits and take any 

other appropriate actions. 

QUESTION 14 

Distress or Involuntary Termination: Applicability of Appeal Right to Benefit Cutback Mandated by 

PBGC Regulations 

Assume that a plan has filed a distress termination application with a proposed termination date of March 

31, 2011. PBGC’s regulations at §4022.61–.63, require the plan administrator to reduce benefits to 

estimated Title IV levels effective beginning with the April 1, 2011 monthly check for those participants in 

pay status with benefits exceeding PBGC limits. Is such a benefit reduction an “adverse benefit 

determination” for which the plan administrator must provide any affected participant with a right to 

appeal? 

RESPONSE 

This is a DOL issue that was addressed in Q&A 7 of the 2010 Green Book (which can be obtained from 

the Conference of Consulting Actuaries). 

8 
 

 

 

QUESTION 15 

Reportable Events: Funding-Related Waiver and Extension Look-Back Rules 

PBGC Technical Updates 10-45

 and 11-16 provide guidance on how to perform certain waiver or 

extension tests under PBGC’s reportable events regulation (29 CFR Part 4043) in light of changes made 

by the Pension Protection Act of 2006 (which aren’t yet reflected in the regulation). These tests are 

based on data used to calculate variable-rate premiums (VRPs); for example, some tests are based on 

the ratio of plan assets to the value of vested benefits (the “VRP funding percentage”). 

Consider Plan A, a calendar-year plan. Assume that a substantial owner receives a reportable 

distribution from Plan A in 2012. Under the principles of Technical Updates 10-4 and 11-1: 

(a) Which year’s VRP funding percentage would be used to determine if reporting is waived under the 

80-percent funding test in §4043.27(c)(2)(iii)? 

(b) If reporting is not waived, which year’s VRP funding percentage would be used to determine if the 

due date for reporting is extended under the “Form 1” extension test in §4043.27(d)? 

(c) If the “Form 1” extension applies, what is the reporting due date? 

RESPONSE: 

(a) 2011. The assets and liabilities used for this determination would be reported in the 2011 

Comprehensive Premium Filing. 

(b) 2010. The assets and liabilities used for this determination would be reported in the 2010 

Comprehensive Premium Filing. 

(c) 30 days after the 2012 VRP is due. If the plan in question is considered “small” for 2012 premium 

purposes, the VRP is due April 30, 2013, so the extended §4043 reporting date would be May 30, 

2013. If the plan is not considered “small”, the VRP due date is October 15, 2012, so the extended 

§4043 reporting due date is November 14, 2012. 

These responses are based on the guidance in Technical Updates 10-4 and 11-1, which represent 

PBGC’s current thinking on this matter. They do not create or confer any rights for or on any person or 

operate to bind the public. Any approach that satisfies the requirements of the statute (as amended by 

the Pension Protection Act of 2006) and regulation is acceptable. To discuss an alternative approach 

(which is not required), contact PBGC at 800-736-2444. 

5 http://www.pbgc.gov/res/other-guidance/tu/tu10-4.html 6 http://www.pbgc.gov/res/other-guidance/tu/tu11-1. html 

 9 
QUESTION 16 

Reportable Events: Lookback for Funding-Related Waivers under Technical Update 11-1 

In response to Question 13 in the 2011 Blue Book -- which involved a January 1, 2011 merger of Plan B 

into Plan A with a reportable event occurring for Plan A on February 1, 2011 -- PBGC stated that it 

“seems reasonable to read [Technical Update 10-4] as being consistent with a look-back to the surviving 

plan’s Variable Rate Premium (VRP) values alone.” The guidance in Technical Update 10-4 provided for 

a one-year lookback to determine whether a funding-related waiver test is met under the reportable 

events regulation for a reportable event occurring in the 2011 plan year. That guidance has been 

extended by Technical Update 11-1 to apply to reportable events occurring in the 2012 plan year. 

Assume that calendar-year Plan X was spun off, effective January 1, 2012, from Plan Y, and that a 

reportable event occurs for Plan X on February 1, 2012. Does PBGC agree that it is reasonable to read 

Technical Update 11-1 as being consistent with a look-back for Plan X to Plan Y’s VRP values, as of Plan 

Y’s funding valuation date for the 2011 plan year—which at that time, included assets and liabilities that 

later were spun off to new Plan X, along with other assets and liabilities—to determine whether a fundingrelated waiver test is met? 

RESPONSE 

No. The response to Question 13 in the 2011 Blue Book noted that the Technical Update “guidance is 

not explicit regarding a situation where one plan merges into another” but reasoned that “if applied 

literally, the guidance would indicate that the ‘look-back’ is to the prior-year VRP values of the plan 

involved in the reportable event, which in the case of a pre-event merger would be the surviving plan.” In 

the spinoff case described, the transferor plan (Plan Y) is not the plan involved in the reportable event. 

Accordingly, the reasoning of the response to Question 13 in the 2011 Blue Book does not fit the spinoff 

case. It seems more reasonable to analogize the spunoff plan to a new plan, which has no prior year. 

The guidance in Technical Update 11-1 represents PBGC’s current thinking on this matter. It does not 

create or confer any rights for or on any person or operate to bind the public. Any approach that satisfies 

the requirements of the statute (as amended by the Pension Protection Act of 2006) and regulation is 

acceptable. To discuss an alternative approach (which is not required) or a reporting waiver, contact 

PBGC at 800-736-2444. 

10
 
 

QUESTION 17 

Other Reporting: ERISA §4010 Filing for Controlled Groups with Terminated Plans 

Company A, which has a calendar year fiscal year, sponsors Plan A, a calendar year plan. Company A 

intends to terminate the plan in a standard termination with a proposed termination date of July 1, 

2010. In November 2011, Plan A received a favorable determination letter from IRS on the plan as 

amended as of July 1, 2010. Company A can now move forward with distributing benefits; however the 

distribution won’t be completed by December 31, 2011. There are sufficient assets in the plan to do this 

(including the value of any commitment to make the plan sufficient for termination signed by the 

contributing sponsor or a controlled group member on or prior to December 31, 2011). 

No valuation has been performed for 2011. The last valuation was as of January 1, 2010, and at that time 

the FTAP was at least 80%. Because the plan termination date was before January 1, 2011, minimum 

funding standards do not apply for 2011. Similarly, there’s no need to calculate the liabilities for benefit 

restriction purposes because §1.436-1(a)(3)(ii) provides a special rule regarding the application of benefit 

restrictions after plan termination. 

Must the 2011 FTAP be calculated solely for purposes of determining whether a §4010 filing is required 

for the 2011 Information Year? 

RESPONSE 

We appreciate that for a plan that has already received a favorable determination letter regarding a 

standard termination calculating the 2011 FTAP might be impractical and unduly burdensome. However, 

a literal reading of the statute and regulation indicates that the 2011 FTAP would need to be calculated to 

determine whether a §4010 filing is required for the 2011 Information Year. We suggest that plans in this 

situation contact our Corporate Finance & Restructuring Department at 202-326-4100 or 

ERISA.4010@pbgc.gov before year-end to request a filing waiver. 

11
 
 

 

QUESTION 18 

Other Reporting: ERISA §4010 Filing for Plan Years Ending in the Last Half of 2011 

In early March 2012, PBGC published two Federal Register documents slightly revising certain interest 

assumptions under ERISA section 4044 as shown below: 

,Changes to ERISA section 4044 Interest Factors 

Measurement Date 

July - September 2011 

October - December 2011 

As Originally Published Revised 

Select 

Rate 

Select 

Period 

Ultimate 

Rate 

4.21% 25 years 4.34% 

4.07% 20 years 4.28% 

Select 

Rate 

4.22% 

4.09% 

Select 

Period 

20 years 

20 years 

Ultimate 

Rate 

4.34% 

4.30% 

In some cases, 4010 filings including benefit liabilities determined using the originally-published factors 

have already been submitted. Do such filings need to be amended to reflect benefit liabilities determined 

using the revised assumptions? Does the answer change if such liabilities were calculated using the 

originally-published factors in preparation for a 4010 filing due that has not yet been submitted (e.g., a 

filing due April 15, 2012)? 

RESPONSE 

No. The changes are very minor and will have very little impact on benefit liabilities. If you have already 

calculated benefit liabilities using the originally-published interest factors, you do not need to redo those 

calculations, regardless of whether the filing has already been submitted. In such cases, the interest 

factors actually used (i.e., the originally-published interest factors) must be reported on Schedule P of the 

4010 filing. 

For further information, contact our Corporate Finance & Restructuring Department at 202-326-4070 or 

ERISA.4010@pbgc.gov. 

12
 
 

 

 

QUESTION 19 

ERISA §4062 and §4063: §4062(e) Status of Regulation and Enforcement Policy 

ERISA provides for reporting of and liability for certain substantial cessations of operations by employers 

that maintain single-employer plans, specifically when an employer ceases operations at a facility in any 

location and as a result more than 20 percent of employers who are participants in a plan sponsored by 

the employer are separated. In August 2010, PBGC proposed a regulation providing guidance on 

4062(e). Please describe the status of that regulation and PBGC’s enforcement of pending cases. 

RESPONSE 

In light of comments on the 2010 proposal and regulatory review, PBGC has announced it will re-propose 

the 4062(e) regulation in 2012. See PBGC’s Fall Regulatory Agenda (available on www.reginfo.gov). In 

the interim, PBGC has begun to consider changes in its 4062(e) enforcement program. 

In his February 2, 2012 testimony7

 before the Health, Employment, Labor, and Pensions Subcommittee of 

the House Committee on Education and the Workforce, PBGC Director Joshua Gotbaum stated: 

“PBGC is also being more responsive to companies and plans in enforcing ERISA section 

4062(e) - a statutory provision that imposes liability in certain situations when plan sponsors 

downsize. In light of comments, the agency plans to issue a re-proposed regulation on 

4062(e). We have also begun to consider changes in how resources are directed within the 

4062(e) enforcement program, in order to focus on the real threats to the retirement security of 

people in traditional pension plans.” 

7 http://www.pbgc.gov/news/testimony/page/tm020212.html 

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QUESTION 20 

ERISA §4062 and §4063: Settlements in Advance of Triggering Event 

Assume that an employer is considering whether to take some action (e.g., closing a plant or engaging in 

a going-concern asset sale) that PBGC would view as triggering liability under §4062(e), and that the 

employer, for valid business reasons, is not willing to take the action without knowing in advance how its 

exposure under §4062(e) will be addressed. 

(a) If the employer approached PBGC in advance of taking this action, would PBGC be willing to 

negotiate an appropriate settlement agreement with the employer to resolve any §4062(e) liability 

before the §4062(e) event occurs? 

(b) Assume that the action the employer is contemplating would clearly serve to strengthen the 

employer and thereby enhance the employer’s ability to fund its PBGC-covered pension plan(s), and 

that the employer, for valid business reasons, is not willing to take the action unless PBGC agrees 

not to pursue collection of any resulting §4062(e) liability. Under what circumstances, if any, would 

PBGC be willing to agree not to pursue such collection? 

RESPONSE 

(a) Yes. PBGC has authority under §4067 to reach a settlement with an employer regarding its §4062(e) 

liability in advance of the time the liability arises, and would be happy to pursue such negotiations 

with interested employers. 

(b) It depends on the facts and circumstances of a particular case, so we cannot provide a general 

answer. Employers are encouraged to contact the agency to discuss specific cases. 

QUESTION 21 

Other: Requests for Revocation of Pension Relief Act Elections 

Under the Pension Relief Act, an employer may revoke an election to use an alternative amortization 

schedule only with the approval of IRS, in consultation with PBGC. What are the issues PBGC considers 

in connection with such consultations? In particular, what are the kinds of reasons PBGC might have to 

oppose a revocation? 

RESPONSE 

To date, PBGC has been consulted on only one request, which was straight-forward and approved. 

Because we’ve seen only one case, we cannot speculate as to what kinds of reasons PBGC might think a 

revocation was inappropriate. If additional revocation requests are submitted, PBGC will consider the 

facts and circumstances of each case as part of the consultation process. 

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QUESTION 22 

Other: Allocation of Combined PBGC Recoveries 

In its response to Question 12 at the 2011 JCEB-PBGC meeting8

, PBGC staff stated that PBGC’s thencurrent policy for allocating its recoveries among various claims and plans (“PBGC Operating Policy 

8.2-1: Valuation and Allocation of Recoveries”) was “currently under review” and that PBGC was following 

its old policy pending the issuance of a new or revised policy. Please provide an update as to the status 

of this policy. 

RESPONSE 

The policy is still under review. Currently PBGC is not in a position to advise when a new or revised 

policy may be issued. 

QUESTION 23 

Other: “Risk Mitigation Program” 

Technical Update 00-39

 states that PBGC “contacts a company for further information about a transaction 

only if certain screening criteria are met (emphasis added), but PBGC staff’s response in the 2011 Blue 

Book suggests that companies that don’t meet those criteria are sometimes contacted. Does PBGC have 

any plans to revise/update Technical Update 00-3? In the interim, what employers does PBGC contact 

under its Early Warning Program? 

RESPONSE 

The criteria listed in Technical Update 00-3 represented PBGC's thinking on the Early Warning Program 

at the time the Technical Update was issued. Some of those criteria incorporate pre-PPA funding 

concepts and are no longer applicable given the enactment of PPA. Currently, PBGC contacts employers 

under its Early Warning Program if it appears a transaction or situation has arisen that may weaken the 

financial support for a pension plan. The criteria taken into account include, but are not limited to, the 

nature of the transaction or situation, plan funding, plan size, and company financial health (which may 

include an employer’s bond rating and/or other indicia of financial condition). PBGC is considering 

whether to revise Technical Update 00-3 or provide guidance in another form. 

8 http://www.americanbar.org/content/dam/aba/events/employee_benefits/2011_pbgc_qas_final.authcheckdam.pdf 

9 http://www.pbgc.gov/res/other-guidance/tu/tu00-3.html 

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QUESTION 24 

Other: Litigation Issues 

Please describe PBGC litigation in the past year that has established precedent that would be of interest 

to enrolled actuaries. 

RESPONSE 

Stephens v. US Airways Group, Inc., 644 F.3d 437 (D.C. Cir. 2011), pet. for certiorari filed (Dec. 13, 2011) 

– A group of retirees brought suit while the plan was ongoing, asserting that the company’s payment of 

lump sum benefits without interest up to 45 days after the benefit commencement date specified in the 

plan violated both the plan’s benefit commencement provision and ERISA’s actuarial equivalence 

provision. After the plan terminated, PBGC assumed defense of the case. The district court ruled for 

PBGC on all grounds. The D.C. Circuit held that the participants’ lump sum benefits were the actuarial 

equivalent of their annuitized benefits under their pension plan, but that they may be entitled to interest to 

the extent of any unreasonable delay in paying their lump sum benefits. The court also held that the 

participants were not entitled to attorneys’ fees against PBGC. The case was remanded to the district 

court for further proceedings. 

Carter v. Pension Plan of A. Finkl & Sons Co. For Eligible Office Emps., 654 F.3d 719 (7th Cir. 2011), 

aff’g 2010 WL 1930133 (N.D. Ill. May 12, 2010) – A plan sponsor gave notice to participants and PBGC of 

its intent to complete a standard termination of its pension plan, and amended the plan to allow 

participants, upon plan termination, to receive their pension benefits before retiring. The sponsor 

subsequently withdrew its standard termination application and adopted a second plan amendment 

nullifying the first amendment. Participants demanded immediate distribution of the plan’s assets and 

sued the sponsor under ERISA’s anti-cutback provision, section 204(g). The district court granted 

summary judgment to the sponsor, holding that the second plan amendment did not violate the anticutback provision, and that, because the pension plan did not terminate, active participants were not 

entitled to immediate payment of their benefits. The court of appeals agreed with PBGC, appearing as 

amicus curiae, and affirmed the district court’s decision, reaffirming the longstanding principle that Title IV 

of ERISA provides the exclusive means by which an employer can voluntarily terminate its plan. 

Cox Enterprises, Inc. v. Pension Ben. Guar. Corp., 2012 WL 11015 (11th Cir. Jan. 4, 2012) – The 

Eleventh Circuit confirmed that debt comes before equity, and that PBGC’s claim for pension 

underfunding was therefore senior to a former shareholder’s statutory right to a buyout. The court agreed 

with PBGC that the Florida corporations statute prohibits distribution to a shareholder if it would render 

the corporation insolvent, even where the shareholder is entitled to a buyout and has been awarded that 

relief. Cox Enterprises, a minority stockholder in a newspaper company, won a judgment against the 

company’s directors and officers for corporate waste. Under state law, Cox was entitled to a buyout, but 

the newspaper defaulted on the buyout and the court appointed a receiver to oversee its 

liquidation. PBGC terminated the newspaper’s pension plan, and sought recovery of its underfunding. 

The receiver recommended that Cox receive all of the company’s assets and the district court approved. 

PBGC appealed, and prevailed in the court of appeals. 

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Deppenbrook v. PBGC, 2011 WL 1045765 (W.D. Pa. Mar. 17, 2011) – A group of participants brought 

suit in Pennsylvania, seeking recalculation of their benefits under a terminated plan. PBGC moved to 

dismiss or transfer venue to the District of Columbia, as no termination proceedings were pending in 

Pennsylvania. The court granted that motion. The court also dismissed without prejudice the claims of 

any participant who had failed to exhaust administrative remedies. 

Davis v. PBGC, 2011 WL 4536888 (D.D.C. Sept. 30, 2011) – A group of participants brought a 12-count 

suit challenging two PBGC Appeals Board decisions regarding their benefits. They moved for summary 

judgment on one of their claims, relying on documents that they filed with the court but had not submitted 

to PBGC. PBGC filed a cross-motion for summary judgment, relying on its administrative record. The 

court denied both motions, holding that it could not fairly adjudicate them because the participants had 

improperly relied on extra-record material. The court also rejected the participants’ argument that PBGC 

functions under a conflict of interest, affecting the standard of review, and affirmed the presumption that 

the agency properly designated the administrative record. The court invited the parties to re-file motions 

citing only to the administrative record. 

FBOP Corp. v. PBGC, No. 11-C-2782 (N.D. Ill. Oct. 5, 2011) – PBGC issued to a plan sponsor notice of 

the agency’s determination that the plan should be terminated under section 4042 of ERISA. PBGC also 

issued a notice indicating that it intended to set off the plan’s unfunded benefit liabilities against the 

sponsor’s anticipated income tax refund. PBGC withdrew the setoff notice after learning that the refund 

would be delayed. The sponsor refused to terminate consensually, and instead sued PBGC for a 

judgment declaring that the plan should not be terminated and an injunction against any setoff. PBGC, in 

turn, sued the sponsor for an order terminating the plan, and moved to dismiss the sponsor’s suit. The 

court granted the motion to dismiss, holding that the sponsor’s suit for declaratory judgment was 

duplicative of PBGC’s termination suit, and that, because PBGC had withdrawn the setoff notice, the 

court lacked subject-matter jurisdiction over it. 

PBGC v. Ferfolia Funeral Homes, Inc., 2011 WL 2971043 (N.D. Ohio July 20, 2011) – PBGC received a 

post-distribution certification from the sponsor of a pension plan stating that it had completed a standard 

termination and made distributions to the participants. PBGC selected the pension plan for postdistribution audit, and determined that the lump-sum distributions were not calculated in accordance with 

applicable law. The plan sponsor disputed the determination. PBGC filed suit under section 4003(e)(1) of 

ERISA to enforce the determination and to recover the additional distributions allegedly owed the plan 

participants and beneficiaries. The sponsor moved to dismiss the complaint, arguing that PBGC’s suit 

was barred by the statute of limitations under section 4003(e)(6)(A)(i) of ERISA, as the complaint was 

dated more than six years from the plan termination date. The court denied the motion, agreeing with 

PBGC that the statute of limitations begins to run when a company commits a noncompliant act – like 

making deficient distributions – and not on the plan termination date. 

US Airline Pilots Association v. PBGC, No. 1:09-cv-01675 (FJS) (D.D.C. Mar. 14, 2011) – The court 

denied USAPA’s renewed motion for preliminary injunction. USAPA, a union representing participants in 

a terminated pension plan, sued PBGC alleging that the agency had failed to investigate and to rectify 

possible wrongdoings by former plan fiduciaries. USAPA moved in 2009 for a preliminary injunction to 

have a “special trustee” appointed to fulfill the duties that PBGC allegedly refused to perform. The court 

denied that motion. USAPA filed a renewed motion for preliminary injunction, asserting that discovery 

had provided further evidence to support its claims. In again ruling for PBGC, the court held that USAPA 

had failed to show a substantial likelihood of success on the merits, given that an agency’s enforcement 

decisions are presumptively unreviewable. The court also found no irreparable harm, noting that the first 

$510 million of any litigation recovery would accrue to PBGC rather than the plan. Finally, the court held 

that appointing a special trustee would unduly disrupt the agency’s operations and would not be in the 

public interest. 

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In re Wolverine Proctor & Schwartz, LLC, No. 10-1334 (1st Cir. Apr. 20, 2011), aff’g 436 B.R. 253 (D. 

Mass. 2010), aff’g 2009 WL 1271953 (Bankr. D. Mass. May 5, 2009) – The First Circuit affirmed the lower 

courts’ decisions upholding PBGC’s settlement of its claims for termination liability with the plan sponsor’s 

liquidating trustee. A creditor objected to the settlement, arguing that the so-called “prudent investor” rate 

should have been used to calculate PBGC’s claim for unfunded benefit liabilities. Following Raleigh v. 

Illinois Dep’t of Rev., the bankruptcy court held that the substantive non-bankruptcy law – here, ERISA 

and PBGC’s regulations – controlled the amount of liability. Rejecting the argument that PBGC could not 

recover more than its original proof of claim, the court found that PBGC had reserved the right to amend 

it. The district court and the court of appeals affirmed, holding that the bankruptcy court did not abuse its 

discretion in approving the settlement agreement, but rather, correctly applied the relevant legal standard. 

QUESTION 25 

Other: PBGC Corporate Governance 

There has been significant discussion about changing PBGC’s corporate governance. Please explain the 

various proposals and what their aims are. 

RESPONSE 

PBGC’s Board consists of three Cabinet Secretaries – the Secretaries of Labor, Commerce, and the 

Treasury. The Secretary of Labor is the Chairman. In 2007, after looking at other government 

corporations, GAO issued a report that, among other things, concluded that the small size of the Board 

was a constraint on good governance. The current structure makes it difficult to have typical board 

committees such as audit and investment committees. GAO thought such committees were necessary 

and that the Board should also have outside expertise. GAO was also concerned that a change in 

administration results in 100% turnover on the Board. 

Congress has taken up the issue. Senator Kohl introduced the PBGC Governance Improvement Act of 

2010. The bill provides for four new Board members (including one representative for employers and one 

for employees), and provides that only two of the four new members could belong to the same party. The 

bill also provides for staggered four year terms. During an oversight hearing, HELP committee members 

have also expressed interest in changing PBGC’s governance. PBGC Director Joshua Gotbaum has 

indicated that he would be comfortable with the current structure or a new one. There is no Administration 

position on this issue. 

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QUESTION 26 

Other - Schedule SB - Non-Vested Benefits for Inactive Participants 

If a plan has non-vested benefits for inactive participants, how should this be disclosed on the Schedule 

SB? For example, if a plan provided a flat $3,000 death benefit to terminated vested participants who die 

before retirement, that benefit would be non-vested in accordance with §4006.4(d)(3). 

RESPONSE 

According to Schedule SB instructions, the entire funding target (vested and non-vested) for terminated 

vested participants is entered column 2 of line 3b. Although it would be more helpful from a premium audit 

perspective if non-vested benefits for terminated vested participants were included in the non-vested 

active line, we don’t have the authority to ask people to disregard the Schedule SB instructions. The 

instructions should be followed as written. 

We are looking into the feasibility of modifying Schedule SB in the future so that the funding target is 

broken down between vested and non-vested benefits as it was before PPA. In the meantime, we are 

aware that, in some cases, the Alternative Premium Funding Target reported on the Comprehensive 

Premium Filing will not be the same as the amount derived by subtracting the non-vested funding target 

for active participants from the total funding target. 

QUESTION 27 

Other: ERISA 4044 Retirement Assumptions: Extended XRA tables 

Where on PBGC’s website can I find the XRAs for participants with unreduced retirement ages below age 

60 or above age 70 (i.e., the extended XRA tables)? 

RESPONSE 

PBGC recently added a section to the practitioner’s page entitled “ERISA 4044 Retirement 

Assumptions”10. This page provides links to the “high, medium, and low” XRA tables for unreduced 

retirement ages from 40 to 80. In addition, this page also provides links to each year’s retirement rate 

categories, which previously were accessible only by pulling up each year’s amended regulation. 

Please note - the format of the practitioner’s home page has been modified slightly to accommodate for 

this new page. The XRA page described above can be found under a heading called “Mortality, 

Retirement and PV Max Guarantee”. 

10 http://www.pbgc.gov/prac/mortality-retirement-and-pv-max-guarantee/erisa-section-4044-retirementassumptions.html 

19