.' 

"VA 

Protecting 

PBGC America's Pensions Pension Benefit Guaranty Corporation 

1200 K Street, N. W., Washington, D.C. 20005-4026 

August 17, 2010 

Re: I Case 202057, Horizon NR, LLC 

Employee Pension Plan (the "Horizon Plan" or the "Plan") 

Dear I "---__ _ 

This Appeals Board decision responds to your appeal of PBGC's March 20, 2009 

determination of the PBGC benefit payable to your client, 1 I under the 

Horizon Plan. For the reasons we state below, the Appeals Board decided that it must 

deny I I request for a lump-sum payment of his total benefit. But, if I 

submits proofof a Social Security Disability Award ("SSDA") with a disability onset date 

on or before October 1, 2009, PBGC wili allow I I the opportunity to elect a 

retroactive Annuity Starting Date. Such an election would, however, result in smaller 

monthly retirement benefits for I I (and a smaller monthly survivor benefit for 

I I because PBGC would have to reduce the monthly amount of his benefit, in 

accordance with the Horizon Pian's provisions, to account ·for the longer period of 

payment. 

PBGC;s Benefit Determination and Your Appeal 

In PBGC's March 20, 2009 determination letter, PBGC informed I I that 

he was entitled to a monthly benefit of $856.77 payable as a Straight Life Annuity 

("SLA") starting on November 1, 2019 (age 60), 

In your April 27,. 2009 letter, you requested that I I be allowed to take a 

lump-sum payment of his vested pension benefit because he is 49 years old, and past 

the age of eligibility (45) under the Horizon Plan. Your letter suggested that, in the 

alternative, I I ~hould be allowed to elect an annuity starting at age 45 that 

would provide a survivor benefit for his wife. 

In accordance with PBGC's established procedures, the Appeals Board referred 

your letter to the Benefits Administration and Payment Department ("BAPD" alsO known 

as the Insurance Operations Department) for a response. In its May 18, 2009 

I 
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response, BAPD told 1 1 that he could retire as early as November 1, 2009 

(age 50), in which case he would receive an actuarially reduced benefit of $430.18 per 

month if paid as a SLA .. The letter .said that I I would be able to decide the form 

of his benefit at the time he obtains an application for PBGC Pension Benefrts. 

Concerning 1 1 request for a lump-sum payment, BAPD's letter noted that 

1 1 received a brochure explaining that PBGC may pay a lump sum to a 

participant if the present value of his benefit is $5,000 or less. The letter concluded that, 

as the present value ofl I benefit is greater than $5,000, he is not eligible to 

receive a lump-sum payment of his benefit. The letter gave 1 145 days to file an 

appeal if he did not agree with BAPD's explanation. 

Your June 12, 2009 appeal letter claimed that BAPD's May 18, 2009 response 

was "an exact replica of the first determination letter." You stated that I I wishes 

to appeal "the amount of benefits, the starting date, the way in which the benefits are 

paid, as well as the form of benefits." You then restated all of the same points that were 

in your April 27, 2009 letter. 

On Octoper 12, 2009,1 lapplied to PBGC to begin receiving his benefit in 

the Plan's Automatic Form for a Married Participant with an Annuity Starting Date of 

November 1, 2009. The Horizon Plan's Automatic Form for a Married Participant is a 

Joint and 50% Survivor. Annuity ("J&50%SA"). PBGC began paying 1 1 his 

monthly benefit of $412.55 asa J&50%SA in December 2009, with .one backpayment 

for November 2009 .. Under the J&50%SA, if I I dies first, his current spouse will 

receive $206.28 for the remainder of her life. 

Discussion 

1. Background 

PBGC provides pension insurance in accordance with the Employee Retirement 

Income Security Act of 1974, as amended ("ERISA"). If a plan sponsor is unable to 

support its pension plan, PBGC becomes trustee of the plan and pays benefits as 

defined in the plan, subject to the limitations and requirements set by Congress under 

ERISA and by PBGC's regulations. 

PBGC's records.,show that the Horizon Plan terminated on March 31, 2004 and 

PBGC became the Plan's trustee on June 24, 2004. 

As you noted in your appeal letter, section 4022(a) of ERISA provides that, 

subject to certain limitations, PBGC will guarantee the payment of all nonforfeitable 

benefits under a covered plan that terminates. ERISA § 4001 (a)(8) defines a 

"nonforfeitable benefit" as n. . . a benefit for which a participant has satisfied the 

conditions for entitlement und~r the plan or the requirements of [ERISA] (other than 

submission of a formal application, retirement, completion of a required waiting period, 

or death in the case of a benefit which returns all or a portion of a participant's 

accumulated mandatory employee contributions upon the participant's death), ... " 
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When Congress enacted ERISA in 1974, it created the PBGC1 and gave PBGC 

the authority to adopt "rules and regulations as may be necessary to carry out the 

purposes of this title."2 PBGC published in the Federal Register ("FR") on June 5, 1975 

its first proposed regulation3 regarding guaranteed benefits for public comment. After 

the comment period, PBGC published its first final regulation regarding guaranteed 

. benefits on September 22, 19754

• 

In its 1975 guaranteed-benefits regulation, PBGC clarified the benefits that 

PBGC would guarantee in accordance with ERISA's provisions. In particular,' 29 Code 

of Federal Regulations ("CFR") § 4022.3 explains what benefits PBGC will guarantee as 

follows: 

§ 4022;3 Guaranteed benefits. 

Except as otherwise provided in this part, the PBGC will guarantee the amount, 

as of the termination date, of a benefit provided under a plan to the extent that 

the benefit does not exceed the limitations in ERISA and in subpart B, if-

(a) The benefit is, on the termination date, a nonforfeitable benefit; 

(b) The benefit qualifies as a pension benefit as defined in § 4022.2; and 

(c) The participant is entitled to the benefit under§ 4022.4. 

As shown above in § 4022.3, the regulations also provide definitions of "pension 

benefit" in 29 CFR § 4022.2 and "entitlement" in 29 CFR § 4022.4. Of particular 

pertinence to your appeal is the definition of a "pension benefit." Section 4022.2defines 

a "pension benefit" as follows: 

Pension benefit means a benefit payable as an annuity, or one or more 

payments related thereto, to a participant who permanently leaves or has 

permanently left covered employment, or to a surviving beneficiary, which 

payments by themselves or in combination with Social Security, Railroad 

Retirement, or workmen's compensation benefits provide a substantially level 

income to the recipient. 

In response to comments that PBGC received regarding the 1975 proposed 

regulation, the Preamble to the September 22, 1975 final rule stated as follows: 

1 See ERISA § 4002 .. 2 ERISA § 4002(b)(3). 

3. 40 FR 24206, June 5, 1975. 

4 See 40 FR 13509. As Originally published, the guaranteed.,benefits regulation appeared at 29 

Code of Federal Regulations ("CFR") Part 2605. It was republished and moved to 29 CFR Part 

2613 on June 24, 1981; and republished and moved to its current location at 29 CFR Part 4022 

on July 1, 1996. For simplicity, we refer to all sections of the original (1975) guaranteed-benefits 

regulation as if they were always located in 29 CFR Part 4022, Subpart A. PBGC's guaranteedbenefits regulation is currently available online at http://www.pbgc.gov/practitionersJlawregulations.,informal-auidahcelcontenUpage 14758. html. 
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Guaranteed benefits. One of the important issues raised by· the comments 

concerned the propriety of the definition of pension benefit in [§ 4022.2] of the 

. proposal and the limitation· of guaranteed benefits contained in [§ 4022.4(a)(1)] of 

the proposal. As noted in the proposal, the PBGC has determined that [ERISA] 

requires the guarantee of basic nonforfeitable pension benefits. Thus, in general, 

to be guaranteed, a benefit provided under a plan must be (a) payable in periodic 

installments, (b) designed to provide income for the life of the participant or for 

his beneficiaries, and (c) nonforfeitable on the date of the termination of the plan. 

Although Congress has amended ERISA many times since 1974, the clarification 

of "guaranteed benefits" as provided in § 4022.3 above has remained the same since it 

was first published on September 22, 1975 and has always been the starting pOint for 

PBGC's determinations of guaranteed benefrts. 

2. 'pBGC's Regulations Do Not Allow PBGG to Pay I I his Benefits in the 

Form of a Lump Sum 

In general, PBGC does not guarantee the payment of benefits in other than a 

plan's automatic annuity form for single participants or the plan's automatic annuity form 

for married participants. Per regulationS, however, PBGC offers optional forms of 

benefit for participants who were not already receiving benefits at the time their plan 

terminated. A lump-sum benefit is not one of PBGC's available optional benefit forms. 

In the case of benefits payable under a plan's terms in a single installment (that 

is, lump sums), section 4022.76 of PBGC's regulations specifically provides as follows: 

§ 4022.7 Benefits payable in a single installment. 

(a) Alternative benefit. If a benefit that is guaranteed under this part is 

payable in a single installment or substantially so under the terms of the plan, or 

an option elected under the plan by the partiCipant, the benefit will not be 

guaranteed or paid as such, but the PBGC will guarantee the alternative benefit, 

if any, in the plan which provides for the payment of equal periodic installments· 

for the life of the recipient. If the plan provides more than one such annuity, the 

recipient may within 30 days after notification of the proposed termination of the 

plan elect to receive one of those annuities. If the plan does not provide such an 

annuity, the PBGC will guarantee an actuarially equivalent life annuity. 

(b) (1) . Payment in lump sum .. NotWithstanding I paragraph (a) of this 

section: 

(i) In general. If the lump sum value of a benefit (or of an estimated benefit) 

payable by the PBGC is $5,000 or less and the benefit is not yet in pay status, 

the benefit (or estimated benefit) may be paid in a lump sum. 

S See 29 CFR § 4Q22.8(c). 

6 29 CFR § 4022.7. 
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Based on the valuation assumptions for plans that terminated in 2004 set out in . 

PBGC's regulations7 PBGC's actuaries calculated the lump-sum value as of the Horizon 

Plan's termination date (March 31, 2004) of the $412.55 annuity benefit that I I 

is currently receiving to be $74,201. As· the lump-sum value of I I annuity 

benefit is greater than $5,000, section 4022.7 of PBGC's regulations does not allow 

PBGC to pay I I his benefit as a lump-sum. As the Appeals Board has no 

authority to change PBGC's regulations, the Appeals Board cannot change PBGC's 

determination insofar as it finds that I I PBGC benefit is payable only as an 

annuity. 

3. I Did Not Meet the Horizon Plan's Requirements for Entitlement to a 

Disability Pension Benefit under Plan Section 7.1 

.As you claimed in your appeal letter, ERISA requires PBGC to guarantee the 

payment of a nonforfeitable disability retirement benefit if a participant has satisfied the 

conditions for entitlem.ent under the plan other than the "completion of a required waiting 

period." 

A typical disability retirement provision found in many plans requires that the 

participant (1) attain age 45; (2) complete 15 years of service; and (3) incur a disability 

while in the employment of the plan's.sponsoL Such plans typically define disability as 

an injury or illness that is total and likely to be permanent and that has lasted at least six 

months. Under SU9h a plan definition, PBGC would guarantee the benefit so long as 

(1) the participant attained age 45 on or before the plan's termination date; (2) the 

. participant completed at least 15 years of service as of the plan's termination date; and 

(3) the participant became disabled on or before. the plan's termination date. In such a 

case,. PBGC would allow the participant to retire six months after the onset of the 

disability, even ifthe six-month waiting period ended after the plan's termination date. 

The disability pension provision of section 7.1 of the Horizon Plan, on the other 

. hand, provides as follows: 

Upon attaining age 45, a Participant who is receiving a disability 

accrual under section 4.6 or a prior pension plan that was merged into 

this Plan may elect to terminate his disability accruals and commence 

receiving a pension benefit (including a lump sum) beginning on the first 

day of the month following the month in which the Participant has elected 

to terminate employment.. ... 

Based rn the re~uirements set out in section 7.1 quoted above, we have 

concluded that is not entitled to a disability penSion benefit under the Horizon 

Plan because (1) he did not meet the age requirement of 45 on or before the plan's 

termination date; and (2) he did not establish his Plan disability status on or before the 

Plan's termination date .. 

7 See Appendices A and B of 29CFR Part 4022. 
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4. PBGC Determined that the Earliest PBGC Retirement Date under § 4022.11 of 

PBGe's Regulations for Cash Balance Participants of the Plan is the First of the 

Month on or after Attainment of Age 50 

As you noted in your appeal letter, defined-benefit pension plans that allow for 

early retirement have historically set the earliest retirement age to be age 55. In more 

recent years, however, cash-balance plans and other plans have allowed former 

employees to start receiving their vested benefits as annuities at any age. Thus, for 

example, in the Horizo~ Plan, cash-balance participants with c;tt least five years of 

service were allowed to terminate their employment and start receiving annuity benefits 

immediately regardless of their age when they terminated employment or at any age 

thereafter in accordance with section 5.10 (Deferred C~sh Balance Annuity) and 

section 9.1 (Benefits on Termination of Employment). 

When Congress enacted ERISA in 1974, it prescribed a detailed set of six priority 

Categories that PBGC'sactuaries must use to allocate the assets remaining in a plan's 

trust on the plan's termination to benefits payable under the plan. The Enclosure is a 

standard PBGC information sheet. It describes ERISA's six priority Categories. 

In determining benefits payable by PBGC, PBGC's actuaries first calculate each 

participant's benefit payable under the provisions of the participant's terminated plan as 

of the plan's termination date and then apply the legal limitations on guaranteed 

benefits8 to determine the participant's guaranteed benefit. 

The second step in determining what benefits are payable by PBGC is the 

allocation of assets. For plans that do not have Category 1 and Category 2 benefits 

(benefits based on employee contributions rather than employer contributions), PBGC's 

actuaries start by allocating the plan's assets to Category 3 benefits. As described in 

the Enclosure, Category 3 benefits generally are benefits payable to participants who 

were retired or could have retired three years before the plan terminated . 

. The third step in determining what benefits are payable by PBGC is comparing 

the results of the first two steps. That is, Congress decided in ERISA that, if the funded 

portion of a participant's benefit in Category 3 is ·greater than the participant's 

guaranteed benefit, then PBGC. should pay the participant the funded Category 3 

benefit instead ofthe lower guaranteed benefit. . 

Based on the above considerations, PBGC determined that it must decide which 

of a terminated pension plan's prescribed annuity commencement dates should be 

treated as retirement dates for purposes of ERISA and PBGC payments so as not to 

frustrate Congress's design of the asset-allocation process (Step 2 above). 

8 For example, the Maximum Guaranteed Benefit limit, the Accrued-at-Normal-Retirement limit, 

and the Five-YearPhase-ln limit. 
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To formalize PBGC's decision-making process for determining a plan 

participant's Earliest PBGC Retirement Date ("EPRD"), PBGC published a proposed 

rule9 and solicited comments on December 26, 2000. PBGC published the final rule10 

regarding Earliest PBGC Retirement Dates on April 8, 2002. Section 4022.1011 of 

PBGC's regulations provides in pertinent part as follows: 

§ 4022.10 Earliest PBGe Retirement Date. 

The Earliest PBGC Retirement Date for a participant is the earliest date 

on which the participant could retire under plan provisions for purposes of section 

4044(a)(3)(B) of ERISA. The Earliest PBGC Retirement Date is determined in 

accordance with this § 4022.10. For purposes of this § 4022.10, "age" means 

the participant's age as of his or her last birthday (unless otherwise required by 

the context). 

(a) 

(b) Immediate annuity before age 55. Ifthe earliest date on which a 

participant could separate from service with the right to receive an immediate 

annuity is qefore the date the participant reaches age 55, the Earliest PBGC 

Retirement Date for the participant is the date the participant reaChes age 55 

(except as provided in paragraph (c) of this section). 

(c) Facts and circumstances. If a participant could separate from 

service with the right to receive an immediate annuity before the date the 

partiCipant reaches age 55, the PBGC will make a determination, under the facts 

and circumstances, as to whether the participant could retire under plan 

provisions for purposes of section 4044(a)(3)(B) of ERISA on an earlier date. If 

the PBGC determines, under the facts and tircumstances, that the participant 

could retire under plan provisions for those purposes on an earlier date, that 

earlier date is the Earliest PBGC Retirement Date for the participant. In making 

this determination, the PBGC will take into account plan provisions (e.g., the 

general structure of the provisions, the extent to which the benefit is subsidized, 

and whether eligibility for the benefit is based on a substantial service or ageand-service requirement), the age at which employees customarily retire (under 

the particul~r pian or in the particular company or industry, as appropriate), and 

all other relevant considerations. Neither a plan's reference to a separation from 

service at a particular age as a "retirement" nor the ability of a participant to 

receive an immediate annuity at a particular age necessarily makes the date the 

partiCipant reaches that age the Earliest PBGC Retirement Date for the 

participant. The Earliest PBGC Retirement Date. determined by the PBGC under 

this paragraph (c) will never be earlier than the earliest date the participant could 

separate from service with the right to receive an immediate annuity. 

(d) Examples. The following examples illustrate the operation of the 

rules in paragraphs (a) through (c) of this section. 

(1) 

9 65 FR 81456, December 26, 2000. 

10 67 FR 16950, April 8, 2002. 

11 29 CFR § 4022.10. 
" 

-8-

(2) 

(3) Separation at any age. A plan's normal retirement age is age 

65. The plan specifies an early retirement age of 60 but offers an immediate 

annuity upon separation regardless of age. The Earliest PBGC Retirement Date 

for a participant who, as of the plan's termination date, is age 35 is the date the 

participant reaches age 55, unless the PBGC determines under the facts and 

circumstances that the participant could "retire" for purposes of ERISA section 

4044(a)(3)(B) on an earlier date, in which case the participant's Earliest PBGC 

Retirement Date would be that earlier date. 

In accordance with the regulation, PBGC reviewed the ages of the Horizon Plan's 

participants Who began receiving benefits more than two years before the Horizon 

Plan's termination date. We have summarized that retirement data in the following 

table: 

Number of Annuities Starting 

Age at Annuity on and after 1/1/1992 and 

Starting Date before 3/31/2002 

55 and older 187 

50-54 23 

45-49 9 

40-44 15' 

" 

35.;39 15 

., . 30-34 7 

29 and younger 1 ,.' 

Total: 257 

The table shows that more than 80%12 of the participants began receiving 

annuities at or after age 50. Based on this data and all of the facts and circumstances, 

PBGC determined that most of the Horizon Plan's participants retired at or after age 50. 

Based on our review of all of the records as a whole, the Appeals Board 

concluded that your appeal did not provide a sufficient basis for changing PBGC's 

determination of the ~PRD for cash.,balance participants and the Appeals Board has, 

therefore, decided to accept PBGC's determination of age 50 as a reasonable EPRD for 

cash-balance participants of the Horizon Plan. 

12 The data in the table shows toat 210 of the 257 participants started receiving annuities at or after 

age 50. Thus, 81.71% started their annuities at or after age 50, where 81.71% is equal to 210 

divided by 257 and 210 is equal to 187 plus 23. ' 
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5. If I I Submits Sufficient Evidence that He is Disabled under the Social 

Security Act. PBGC Will Allow Him to Elect a Retroactive Annuity Starting Date 

No Earlier than the First of the Month On or After the Onset Date of his Disability 

(as determined by the Social Security Administration) 

Based on the following facts and circumstances of this case, the Appeals Board 

has decided that PBGe will allow I ~he opportunity to elect an Annuity Starting 

Date ("ASD") that is earlier than his current ASD (November 1, 2009) if he submits a 

Social Security disability award showing that his actual disability onset date is on or 

before October 1, 2009: 

a. The only annuity benefit for which I I has satisfied all of the Plan's 

eligibility requirements on or before the Plan's termination date is the 

termination benefit payable under Plan § 9.1(b); 

b. In accordance with section 5.10 of the Plan, the benefit payable to 

I I under Plan § 9.1 (b) is actuarially equivalent to the benefit he 

would receive if he waited until his Normal Retirement Age (age 60) to 

start receiving his benefit; 

c. As a result of paragraph b, there is no additional actuarial cost to PBGC in 

providing the benefit starting at an earlier age than there is in providing the 

benefit starting at age 50 because the Plan reduces the monthly benefit 

amount to account for the longer period of payment; 

d. Idid not satisfy the Plan's eligibility conditions for a disability 

retirement benefit under Plan § 7.1 before the Plan terminated and, 

therefore, his PBGC benefit is subject to the non-disability Maximum 

Guaranteed Benefit limit and the Accrued-at-Normal-Retirement limit; and 

e. Idid not satisfy the Plan's eligibility conditions for a disability 

retirement benefit under Plan § 7.1 before the beginning of the three-year 

period that ended on the Plan's termination date and, therefore, no portion 

of I I PBGC benefit is a Category 3 benefit. 

Accordingly, the Board found thatl learliest possible ASD would be the 

first of the month coincident with or next following the onset date of his disability as 

determined by the Social Security Administration. As we noted above, however, if 

I I submits the described documentation and he thereafter elects an earlier 

ASD, his monthly benefit will be smaller than the monthly benefit he is currently 

receiving due to the longer period of payment. For example, if ~ I submits 

documentation from the Social Security Administration showing that his disability onset 

date was October 31, 2004, then his earliest ASD would be November 1, 2004. If he 

elected to change his ASD to November 1, 2004, his monthly PBGC benefit would be 

reduced to $305.86 ::: $856.77 x 0.3684 x 0.9686, where 0.3684 is the early 

commencement factor for a benefit starting at age 45 and 0.9686 is the form conversion 
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factor for a J&50%SA for a participant age 45 and a spouse age 43. Thus, if 

November 1, 2004 were I I new ASD, I I monthly survivor benefit 

would decrease from $206.28 to $152.93. 

Decision 

Having applied Horizon Plan provisions, the law, and PBGC's rules to the facts of 

this case, the Appeals Board decided that it must deny I I request fora lumpsum payment of his total benefit. . But, if I Isubmits proof of a Social Security 

Disability Award with a disability onset date on or before October 1, 2009, PBGC will 

allow I Ithe opportunity to elect a retroactive Annuity Starting Date. Such an 

election would, however, result in smaller monthly retirement benefits for l I(and 

a smaller monthly survivor benefit fori Ibecause PBGC would have to reduce 

the morithlyamount of his benefit, in accordance with the Horizon Plan's provisions, to 

account for the longer period of payment. 

This decision is PBGC's final action regarding PBGC's March 20, 2009 

determination ietter. If I I wishes, he· may seek review of this decision in an 

appropriate federal district court. 

If I Ineeds·other info~ation from PBGC, he may call PBGC's Customer 

Contact Center at 1-800-400-7242 and ask to speak to the authorized representative 

assigned to the Horizon Plan (Case 202057). 

Sincerely, 

Michel Louis 

Appeals Board Member 

Enclosure 

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