34590 Federal Register / Vol. 76, No. 114 / Tuesday, June 14, 2011 / Rules and Regulations 

a change of control transaction without 

alerting an issuer or the marketplace of 

these intentions. We believe, however, 

that the benefits of our readopted rules 

justify these costs. 

The impact, if any, of the rule 

readoption on capital formation should 

be insignificant. Compliance costs 

arising under the beneficial ownership 

reporting regime based on the purchase 

or sale of a security-based swap are not 

expected to redirect capital that 

otherwise could have been allocated to 

capital formation. Capital formation 

should not be affected by a possible 

decline in the use of security-based 

swaps resulting from the application of 

our rules to a person who purchases or 

sells a security-based swap, given that 

capital formation ordinarily is not 

dependent upon the proceeds from 

transactions in security-based swaps. 

V. Regulatory Flexibility Act 

Certification 

We certified pursuant to 5 U.S.C. 

605(b) that this readoption of our rules 

would not have a significant economic 

impact on a substantial number of small 

entities. This rulemaking relates to 

beneficial ownership reporting and 

reporting by insiders of their 

transactions and holdings. Readoption 

does not amend existing rules or 

introduce new rules, and relates only to 

the readoption of existing rules. For this 

reason, it does not change the regulatory 

status quo and therefore should not 

have a significant economic impact on 

a substantial number of small entities. 

The proposing release encouraged 

written comment regarding this 

certification. None of the commentators 

addressed the certification or described 

any impact that this readoption would 

have on small entities. 

VI. Statutory Authority 

The readoption of rules contained in 

this release is made under the authority 

set forth in Sections 3(a)(11), 3(b), 13, 

16, 23(a) of the Exchange Act and 

Sections 30 and 38 of the Investment 

Company Act of 1940. 

List of Subjects in 17 CFR Part 240 

Reporting and recordkeeping 

requirements, Securities. 

Text of the Amendments 

For the reasons set out in the 

preamble, the Commission amends Title 

17, chapter II, of the Code of Federal 

Regulations as follows: 

PART 240—GENERAL RULES AND 

REGULATIONS, SECURITIES 

EXCHANGE ACT OF 1934 

■ 1. The general authority citation for 

Part 240 is revised and the following 

citations are added in numerical order 

to read as follows: 

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 

77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, 

77sss, 77ttt, 78c, 78d, 78e,78f, 78g, 78i, 78j, 

78j–1, 78k, 78k–1, 78l, 78m, 78n, 78n–1, 78o, 

78o–4, 78p, 78q, 78s, 78u–5, 78w, 78x, 78ll, 

78mm, 80a–20, 80a–23, 80a–29, 80a–37, 80b– 

3, 80b–4, 80b–11, and 7201 et seq.; 18 U.S.C. 

1350; and 12 U.S.C. 5221(e)(3), unless 

otherwise noted. 

* * * * * 

Section 240.13d–3 is also issued 

under Public Law 111–203 § 766, 124 

Stat. 1799 (2010). 

Section 240.16a–1(a) is also issued 

under Public Law 111–203 § 766, 124 

Stat. 1799 (2010). 

* * * * * 

Dated: June 8, 2011. 

By the Commission. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2011–14572 Filed 6–13–11; 8:45 am] 

BILLING CODE 8011–01–P 

PENSION BENEFIT GUARANTY 

CORPORATION 

29 CFR Parts 4001, 4022, and 4044 

RIN 1212–AA98 

Bankruptcy Filing Date Treated as Plan 

Termination Date for Certain Purposes; 

Guaranteed Benefits; Allocation of 

Plan Assets; Pension Protection Act of 

2006 

AGENCY: Pension Benefit Guaranty 

Corporation. 

ACTION: Final rule. 

SUMMARY: This final rule implements 

section 404 of the Pension Protection 

Act of 2006. Section 404 amended Title 

IV of ERISA to provide that when an 

underfunded, PBGC-covered, singleemployer pension plan terminates while 

its contributing sponsor is in 

bankruptcy, sections 4022 and 

4044(a)(3) of ERISA are applied by 

treating the date the sponsor’s 

bankruptcy petition was filed as the 

termination date of the plan. Section 

4022 determines which benefits are 

guaranteed by PBGC, and section 

4044(a)(3) determines which benefits 

are entitled to priority in ‘‘priority 

category 3’’ in the statutory hierarchy 

for allocating the assets of a terminated 

plan. Thus, under the 2006 

amendments, when a plan terminates 

while the sponsor is in bankruptcy, the 

amount of benefits guaranteed by PBGC 

and the amount of benefits in priority 

category 3 are fixed at the date of the 

bankruptcy filing rather than at the plan 

termination date. In most cases, this 

reduces the amount of guaranteed 

benefits and the amount of benefits in 

priority category 3. 

DATES: Effective July 14, 2011. See 

Applicability in SUPPLEMENTARY

INFORMATION. 

FOR FURTHER INFORMATION CONTACT: John 

H. Hanley, Director, or Gail Sevin, 

Manager, Legislative and Regulatory 

Department; or James J. Armbruster, 

Assistant Chief Counsel, Office of Chief 

Counsel; 1200 K Street, NW., 

Washington, DC 20005–4026. Mr. 

Hanley and Ms. Sevin may be reached 

at 202–326–4024; Mr. Armbruster at 

202–326–4020, extension 3068. (TTY/ 

TDD users may call the Federal relay 

service toll-free at 1–800–877–8339 and 

ask to be connected to 202–326–4024 or 

202–326–4020.) 

SUPPLEMENTARY INFORMATION: 

Background 

The Pension Benefit Guaranty 

Corporation (‘‘PBGC’’) administers the 

single-employer pension plan 

termination insurance program under 

Title IV of the Employee Retirement 

Income Security Act of 1974 (‘‘ERISA’’). 

The program covers private-sector, 

single-employer defined benefit plans, 

for which premiums are paid to PBGC 

each year. Covered plans that are 

underfunded may terminate either in a 

distress termination under section 

4041(c) of ERISA or in an involuntary 

termination (one initiated by PBGC) 

under section 4042 of ERISA. When 

such a plan terminates, PBGC typically 

is appointed statutory trustee of the 

plan, and becomes responsible for 

paying benefits in accordance with the 

provisions of Title IV. 

The amount of benefits paid by PBGC 

under a terminated, trusteed plan is 

determined by several factors. The 

starting point is the plan itself: PBGC 

pays only those benefits that were 

provided under the plan and that have 

been earned by the participant under 

the plan’s terms. 

But PBGC does not guarantee all 

benefits earned under a terminated plan. 

There are statutory and regulatory limits 

on PBGC’s guarantee, which are 

discussed below. On the other hand, a 

participant may sometimes receive from 

PBGC more than his guaranteed 

benefits, if either the allocation under 

section 4044 of ERISA of the plan’s 

assets or the allocation under section 


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Federal Register / Vol. 76, No. 114 / Tuesday, June 14, 2011 / Rules and Regulations 34591 

4022(c) of PBGC’s recoveries, or both, 

results in additional benefits being 

payable. 

When a plan terminates, a termination 

date must be established in accordance 

with section 4048 of ERISA. If the plan 

is underfunded and terminates in a 

distress or involuntary termination, the 

termination date is the date agreed upon 

by the plan administrator and PBGC or, 

if they do not agree, the date set by a 

United States district court. 

The termination date is a critical date 

for many purposes under Title IV of 

ERISA. For example, it is the date as of 

which a plan sponsor’s liability to the 

PBGC for a terminated plan’s unfunded 

benefit liabilities is determined under 

section 4062(b) of ERISA. Most relevant 

to this final regulation, the termination 

date—under prior law—was the date 

that governed the amount of benefits 

participants in the terminated plan 

would receive. The amount of benefits 

guaranteed by PBGC under section 4022 

of ERISA and the amount of any 

additional benefits payable from the 

plan’s assets under section 4044 or from 

PBGC’s recoveries under section 4022(c) 

were all determined as of the 

termination date. 

Many single-employer pension plans 

that terminate in a distress or 

involuntary termination do so while the 

plan sponsor is in bankruptcy. Indeed, 

two of the criteria for a distress 

termination are based on the sponsor’s 

liquidating or reorganizing in 

bankruptcy. See ERISA section 

4041(c)(2)(B)(i), (ii). 

A persistent problem for the PBGC 

insurance program has been that the 

funded status of plans often deteriorates 

significantly while the plan sponsor is 

in bankruptcy. Many sponsors have 

failed to make minimum funding 

contributions to their plans during the 

bankruptcy, while the plan continues to 

pay retiree benefits as usual and 

employees continue to earn additional 

benefits. Because the termination date 

often comes after the sponsor has been 

in bankruptcy for some time, the result 

has been that PBGC’s losses often 

increase substantially during the course 

of a bankruptcy proceeding. 

Congress sought to address this 

problem in the Pension Protection Act 

of 2006 (‘‘PPA 2006’’), which was 

signed into law on August 17, 2006. 

Section 404 of PPA 2006 provides 

generally that, if a PBGC-insured plan 

terminates while its contributing 

sponsor is in bankruptcy, PBGC’s 

guarantees and the amount of benefits 

entitled to priority in ‘‘priority category 

3’’ in the ERISA section 4044 allocation 

of the plan’s assets are determined as of 

the date that the sponsor’s bankruptcy 

petition was filed (the ‘‘bankruptcy 

filing date’’) rather than as of the 

termination date. This means, for 

example, that benefits earned by 

participants after the bankruptcy filing 

date are not guaranteed. The changes 

generally reduce the amount of benefits 

guaranteed by PBGC and the amount of 

benefits receiving priority treatment in 

the section 4044 asset allocation. By 

protecting PBGC from growth in its 

liabilities during bankruptcy 

proceedings, these changes reduce 

claims on PBGC’s funds and thereby 

strengthen the PBGC insurance program. 

The changes are described more fully 

below. 

PPA 2006 provided that the changes 

made by section 404 of PPA 2006 are 

effective for plan terminations that 

occur during the bankruptcy of the plan 

sponsor, if the bankruptcy filing date 

was on or after September 16, 2006 (the 

date that is 30 days after PPA’s 

enactment). The terminations to which 

the changes apply are referred to in this 

preamble and in the final regulation as 

‘‘PPA 2006 bankruptcy terminations.’’ 

Of course, if a plan’s termination date is 

the same as the bankruptcy filing date, 

then the plan is unaffected by the 

changes made by section 404. 

On July 1, 2008 (at 73 FR 37390), 

PBGC published in the Federal Register 

a proposed rule to implement section 

404 of PPA 2006. PBGC received 

comments on the proposed rule from 

four commenters—three labor 

organizations and one individual. The 

individual commenter opposed the 

proposed rule changes in their entirety 

on the ground that PBGC ‘‘should not 

shore up its finances on the backs of 

workers.’’ Rather, the commenter stated, 

Congress has a responsibility to address 

the solvency of the PBGC insurance 

program either by raising taxes or 

increasing PBGC premiums, or by 

forcing employers to fully fund their 

pensions. This comment should be 

addressed to Congress; PBGC has no 

authority to disregard the statutory 

changes made by PPA 2006. The other 

comments are discussed below with the 

topics to which they relate. 

Overview of Final Rule Changes 

The final regulation implements the 

statutory changes, described above, 

made by section 404 of PPA 2006. 

The final regulation amends PBGC’s 

regulations on Terminology, 29 CFR 

part 4001; Benefits Payable in 

Terminated Single-Employer Plans, 29 

CFR part 4022; and Allocation of Assets 

in Single-Employer Plans, 29 CFR part 

4044. The amendments establish rules 

for PPA 2006 bankruptcy terminations, 

the most important of which are: 

• A participant’s guaranteed benefit is 

based on the amount of his service and 

the amount of his compensation (if 

applicable) as of the bankruptcy filing 

date. 

• The Title IV guarantee limits—the 

maximum guaranteeable benefit, the 

phase-in limit, and the accrued-atnormal limit—are all determined as of 

the bankruptcy filing date. 

• Only benefits that are nonforfeitable 

as of the bankruptcy filing date are 

guaranteed. Thus, for example, early 

retirement subsidies and disability 

benefits to which a participant became 

entitled after the bankruptcy filing date 

are not guaranteed. 

• Participants who retired under a 

subsidized early retirement benefit (or a 

disability or other benefit) to which they 

became entitled between the bankruptcy 

filing date and the termination date will 

continue in pay status, or may go into 

pay status if they are not already 

receiving a benefit, but the amount of 

the benefit is reduced to reflect that the 

subsidy (or other benefit) is not 

guaranteed. 

• The benefits in priority category 3 

under section 4044(a) of ERISA are 

benefits in pay status, or that could have 

been in pay status, three years before the 

bankruptcy filing date, generally taking 

into account only benefit increases that 

were in effect throughout the period 

beginning five years before the 

bankruptcy filing date and ending on 

the termination date. 

• Benefits under section 4022(c) of 

ERISA are based on (among other 

things) the value of a plan’s unfunded 

nonguaranteed benefits. Because section 

404 of PPA 2006 has changed 

guaranteed benefits and benefits in 

priority category 3, the unfunded 

nonguaranteed benefits are changed and 

therefore the section 4022(c) benefits are 

also changed. 

• Where a plan has more than one 

contributing sponsor and all 

contributing sponsors did not file for 

bankruptcy on the same date, PBGC 

determines the date to treat as the 

bankruptcy filing date, based on the 

facts and circumstances. 

Although the bankruptcy filing date 

thus displaces a plan’s termination date 

as the controlling date for certain 

purposes, the termination date 

continues to be important for other 

purposes. For example, although the 

monthly amount of benefits guaranteed 

and the monthly amount of benefits in 

priority category 3 will be determined 

by reference to the bankruptcy filing 

date, the value of those benefits is 

determined—as before PPA 2006—as of 

the plan’s termination date. The value of 

a terminated plan’s assets, too, is 


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34592 Federal Register / Vol. 76, No. 114 / Tuesday, June 14, 2011 / Rules and Regulations 

determined as of the termination date. 

Also, determinations under sections 

4062(a) and (b) of ERISA of the parties 

liable for a plan’s unfunded benefit 

liabilities and the amount of those 

liabilities are made as of the termination 

date. 

The final regulation is nearly the same 

as the proposed regulation, with only a 

few minor differences. Those 

differences are discussed below with the 

topics to which they relate. And, like 

the proposed regulation, the final 

regulation makes some minor changes 

unrelated to PPA 2006. 

A detailed discussion of the final 

regulation follows. 

Guaranteed Benefits 

Prior Law 

PBGC’s guarantee is limited, under 

section 4022(a) of ERISA, to 

nonforfeitable benefits under a 

terminated plan. Before PPA 2006, the 

crucial date for determining guaranteed 

benefits was the plan’s termination date, 

established under section 4048 of 

ERISA. PBGC had to determine the 

amount of benefits participants had 

earned under the plan, and whether 

those benefits were nonforfeitable, as of 

the termination date. 

In addition, PBGC’s guarantee is 

subject to two important limitations 

under section 4022(b) of ERISA: The 

maximum guaranteeable benefit 

(sometimes referred to as the maximum 

guarantee limit or the maximum 

insurance limit) under section 

4022(b)(3), and the phase-in limit under 

sections 4022(b)(1) and 4022(b)(7). The 

maximum guaranteeable benefit 

essentially places a ceiling, or cap, on 

the amount of a participant’s guaranteed 

benefit. The maximum monthly 

guaranteeable benefit under section 

4022(b)(3)(B) was $750 per month for a 

65-year-old participant receiving a 

straight-life annuity in a plan that 

terminated in 1974. (The maximum 

guaranteeable benefit may be lower, 

under section 4022(b)(3)(A), depending 

on the participant’s average monthly 

gross income, but this limitation rarely 

applies, and the discussion and 

examples in this regulation assume that 

it does not apply.) The $750 monthly 

figure is adjusted each year based on the 

contribution and wage base under the 

Social Security Act; for example, for a 

plan whose termination date was in 

2005 the maximum monthly amount at 

age 65 payable as a straight-life annuity 

was $3,801.14. The maximum 

guaranteeable benefit for an individual 

participant depends on his age at the 

later of the plan’s termination date or 

the date he begins receiving his benefit 

from PBGC, and on the form in which 

the benefit is paid. For example, the 

maximum guaranteeable benefit is lower 

if the participant begins receiving 

benefits from PBGC before age 65, or if 

the benefit form will provide a survivor 

benefit after the participant dies. 

The phase-in limit under sections 

4022(b)(1) and 4022(b)(7) of ERISA 

provides that PBGC’s guarantee of a 

benefit increase resulting from 

amendment of an existing plan or 

adoption of a new plan is phased in 

over a five-year period. PBGC’s 

guarantee is equal to the number of full 

years before the termination date that 

the increase was in effect multiplied by 

the greater of (i) 20% of the monthly 

increase or (ii) $20 per month (but the 

guarantee is never more than the 

amount of the increase). For example, 

PBGC would guarantee $50 of a $125 

monthly benefit increase that was in 

effect more than two years but less than 

three years before the termination date 

(40% of $125 = $50, which is greater 

than $40). A benefit increase is 

considered to be in effect beginning on 

the later of its adoption date or its 

effective date. 

There is a third limitation on PBGC’s 

guarantee that the agency adopted when 

it issued its initial guaranteed-benefits 

regulation. (40 Fed. Reg. 43509, Sept. 

22, 1975.) Under § 4022.21 of PBGC’s 

regulation, PBGC’s guarantee is 

generally limited to the amount of the 

participant’s benefit payable as a 

straight-life annuity commencing at 

normal retirement age. The effect of this 

provision, often referred to as the 

‘‘accrued-at-normal’’ limit, is that PBGC 

generally does not guarantee temporary 

supplemental benefits payable to a 

participant who retires before normal 

retirement age. Consider, for example, a 

participant who was entitled under his 

plan to receive $1,000 per month as a 

straight-life annuity starting at his 

normal retirement date but who could 

retire early under certain conditions 

with an unreduced benefit of $1,000 

plus a supplement of $400 per month 

payable until age 62. If the participant 

retires early, PBGC generally will not 

guarantee more than $1,000 per month. 

Before PPA 2006, the maximum 

guaranteeable benefit, the phase-in 

limit, and the accrued-at-normal limit 

were all calculated as of the termination 

date of a plan. Accordingly, before PPA 

2006, a participant’s guaranteed benefit 

would be the amount of the 

nonforfeitable plan benefit to which the 

participant was entitled as of the 

termination date, subject to the 

guarantee limits applicable as of that 

date. 

PPA 2006 Changes 

Section 404 of PPA 2006 changed the 

way in which the amount of guaranteed 

benefits is determined in PPA 2006 

bankruptcy terminations. Section 404(a) 

of PPA 2006 added a new subsection (g) 

to section 4022 of ERISA. New section 

4022(g) provides as follows: 

Bankruptcy Filing Substituted for 

Termination Date.—If a contributing sponsor 

of a plan has filed or has had filed against 

such person a petition seeking liquidation or 

reorganization in a case under title 11, 

United States Code, or under any similar 

Federal law or law of a State or political 

subdivision, and the case has not been 

dismissed as of the termination date of the 

plan, then this section shall be applied by 

treating the date such petition was filed as 

the termination date of the plan. 

The ‘‘section’’ referred to is section 4022 

of ERISA, which as explained above 

determines the amount of a participant’s 

guaranteed benefit. Thus, for a plan that 

terminates while its contributing 

sponsor is in bankruptcy, section 

4022(g) requires that a participant’s 

guaranteed benefit be determined by 

treating the date the sponsor’s 

bankruptcy petition was filed (the 

‘‘bankruptcy filing date’’) as if it were 

the termination date of the plan. 

This change has a number of 

important consequences. First, it means 

that a participant’s guaranteed benefit 

can be no greater than the amount of his 

plan benefit as of the bankruptcy filing 

date. Even though the plan in many 

cases will have continued after the 

bankruptcy filing date and (in the 

absence of a plan freeze) participants 

will have continued to accrue benefits 

after that date, those post-bankruptcy 

accruals are not guaranteed. Thus, 

under the change, a participant’s 

guaranteed benefit is calculated by 

reference to the amount of his service 

and the amount of his compensation (or 

the amount of the plan’s benefit 

‘‘multiplier,’’ depending on how the 

plan calculates benefits) as of the 

bankruptcy filing date. 

Second, only benefits that were 

nonforfeitable as of the bankruptcy 

filing date are guaranteed. For example, 

in a plan that has five-year ‘‘cliff’’ 

vesting, a participant with less than five 

years of service as of the bankruptcy 

filing date has no guaranteed benefit, 

even if his benefit becomes vested by 

the section 4048 termination date. 

Similarly, if a participant becomes 

entitled to a disability retirement benefit 

or an early retirement subsidy after the 

bankruptcy filing date but before the 

termination date, that disability benefit 

or subsidy is not guaranteed. 

One commenter suggested that PBGC 

should not apply the rule described in 


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Federal Register / Vol. 76, No. 114 / Tuesday, June 14, 2011 / Rules and Regulations 34593 

the previous paragraph to participants 

who become disabled after the 

bankruptcy filing date but before the 

termination date. The commenter noted 

that the effects could be especially harsh 

in the case of disability, and that a 

different rule ought to apply because 

becoming disabled is not a choice over 

which a participant has control and is 

subject to verification. PBGC has not 

adopted this suggestion. Under ERISA 

and PBGC’s rules, disability retirement 

benefits are treated the same as other 

benefits in determining 

nonforfeitability: They are 

nonforfeitable (and thus guaranteed) 

only if the condition for entitlement, 

such as the disabling event, occurred on 

or before the termination date. PPA 

2006 changed the date for determining 

entitlement to a guaranteed benefit from 

the termination date to the bankruptcy 

filing date, but did not otherwise change 

the guarantee rules. Thus, PBGC 

believes it would not be appropriate to 

make the suggested change. 

Third, the PBGC guarantee limits—the 

maximum guaranteeable benefit, the 

phase-in limit, and the accrued-atnormal limit—will all be determined as 

of the bankruptcy filing date (subject to 

the refinement described below). For 

example, if the sponsor’s bankruptcy 

filing date is in 2008 and the plan’s 

termination date is in 2010, the 

maximum guaranteeable benefit for all 

plan participants will be based on the 

2008 limit. Also, an individual 

participant’s maximum guaranteeable 

benefit will be based on his age and 

form of benefit as of the later of the 

bankruptcy filing date or the date he 

begins to receive his benefit. Similarly, 

the phase-in rule will be applied by 

counting the number of full years before 

the bankruptcy filing date that a benefit 

increase has been in effect. The accruedat-normal limit, too, will be determined 

based on the facts as of the bankruptcy 

filing date. 

The final rule modifies PBGC’s 

regulations to reflect the changes 

described above for PPA 2006 

bankruptcy terminations. In most cases, 

the final regulation (like the proposed 

regulation) simply provides that in a 

PPA 2006 bankruptcy termination, 

‘‘bankruptcy filing date’’ is substituted 

for ‘‘termination date’’ each place that 

‘‘termination date’’ appears in a 

specified section or paragraph of the 

regulation. The final regulation provides 

a number of examples to clarify what 

this means in various situations. In 

response to a comment, the final 

regulation provides a second example 

(in addition to the one in the proposed 

rule) to illustrate the workings of the 

accrued-at-normal limit. Except for a 

few minor items discussed below, the 

regulations are unchanged for plans to 

which the PPA 2006 amendments do 

not apply (‘‘non-PPA 2006 bankruptcy 

termination’’; the final rule adds this 

term to the definitions in § 4001.2). 

The final regulation contains one 

refinement that was not addressed in 

the proposed regulation. The proposed 

regulation provided that PBGC would 

determine the guarantee limits based on 

the age of the participant and the form 

of benefit that was being paid at the 

later of the bankruptcy filing date and 

the date the participant begins to receive 

his benefit from PBGC. The final 

regulation adopts this rule, but with a 

slight modification that applies 

primarily in cases in which there has 

been a death before termination that 

affects the form of benefit being paid at 

termination. PBGC has decided that the 

guarantee limits should be applied 

based on the form of benefit that was 

being paid (or was payable) and the 

person who was receiving or was 

entitled to receive a benefit from PBGC 

as of the termination date, not the 

bankruptcy filing date. For example, if 

as of the bankruptcy filing date a 

participant was receiving a benefit in 

the form of a joint-and-survivor annuity, 

but by the termination date the 

participant has died and his spouse is 

receiving a survivor annuity, PBGC will 

determine the maximum guaranteeable 

benefit for the surviving spouse based 

on the spouse’s age as of the bankruptcy 

filing date but based on the straight-life 

benefit form being paid to the spouse at 

the termination date rather than on the 

joint-and-survivor benefit form that was 

being paid as of the bankruptcy filing 

date. Similarly, if the benefit in pay 

status as of the bankruptcy filing date 

was a ‘‘pop up’’ annuity (a joint-andsurvivor annuity under which the 

benefit amount ‘‘pops up’’ to the 

straight-life amount if the beneficiary 

dies before the participant) and the 

beneficiary dies before the termination 

date, PBGC will determine the 

maximum guaranteeable benefit based 

on the participant’s age as of the 

bankruptcy filing date but based on the 

straight-life benefit form being paid to 

the participant at the termination date 

rather than on the joint-and-survivor 

‘‘pop up’’ form that was being paid as 

of the bankruptcy filing date. 

The final rule adopts this refinement, 

which will generally increase 

guaranteed benefits for the affected 

individuals, to reduce the complexity 

and difficulty of computing benefits. 

When a plan terminates, the plan 

records often do not reflect the full 

history of a specific benefit. For 

example, the records may show only 

that an individual is receiving so many 

dollars per month at termination and 

that no survivor benefit is payable; they 

may not show whether the person 

receiving that benefit is the original plan 

participant or a beneficiary. An 

additional example has been added to 

§ 4022.23(g) to illustrate this principle. 

Aggregate Limit on Benefits Guaranteed 

Title IV of ERISA includes an 

additional limitation on PBGC’s 

guarantee that applies only when a 

participant receives benefits under two 

or more trusteed plans. Section 4022B of 

ERISA provides that, in such a situation, 

the sum of the guaranteed benefits 

payable from PBGC funds with respect 

to all such plans may not exceed the 

maximum guaranteeable benefit payable 

‘‘as of the date of the last plan 

termination.’’ 

PPA 2006 made no change to this 

provision. PBGC therefore is making no 

change to part 4022B of its regulations, 

and will continue to calculate the 

aggregate limit by reference to a 

participant’s maximum guaranteeable 

benefit as of the section 4048 

termination date of the latestterminating plan. 

Benefits Payable Under the Section 

4044 Allocation 

Prior Law 

PPA 2006 also made an important 

change to the allocation of a terminated 

plan’s assets under section 4044 of 

ERISA. To understand this change, it is 

important to understand how the 

section 4044 allocation worked before 

the PPA 2006 amendment. 

As noted above, a participant may 

receive more than his guaranteed benefit 

from PBGC, depending on the amount of 

the plan’s assets and whether his 

benefits are entitled to priority under 

ERISA’s allocation scheme. Section 

4044 of ERISA specifies how a plan’s 

assets are to be allocated among various 

classes of guaranteed and 

nonguaranteed benefits of participants. 

Part 4044 of PBGC’s existing regulations 

provides detail about how assets and 

benefits are valued, and how the assets 

are allocated to the benefits. (Section 

4022(c) of ERISA may provide 

additional benefits, as discussed below.) 

The first step in the section 4044 

allocation is to assign each participant’s 

plan benefits to one or more of six 

‘‘priority categories’’ that are described 

in paragraphs (1) through (6) of section 

4044(a) of ERISA. Before PPA 2006, the 

benefits in each priority category were 

as follows: 

Priority category 1: The portion of a 

participant’s accrued benefit derived 


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34594 Federal Register / Vol. 76, No. 114 / Tuesday, June 14, 2011 / Rules and Regulations 

from the participant’s voluntary 

contributions. 

Priority category 2: The portion of a 

participant’s accrued benefit derived 

from the participant’s mandatory 

contributions. 

Priority category 3: The portion of a 

participant’s benefit that was in pay 

status as of the beginning of the threeyear period ending on the termination 

date of the plan, or that would have 

been in pay status at the beginning of 

such three-year period if the participant 

had retired before the beginning of the 

three-year period and had commenced 

receiving benefits (in the normal form of 

annuity under the plan) as of the 

beginning of such period. In either case, 

however, the benefits in this category 

are limited to the lowest annuity benefit 

payable under the plan provisions at 

any time during the five-year period 

ending on the termination date (e.g., 

disregarding benefit increases in the 

five-year period). 

Priority category 4: All other 

guaranteed benefits, and benefits that 

would be guaranteed but for the 

aggregate limit of section 4022B of 

ERISA and the stricter phase-in limit 

that applies to business owners. 

Priority category 5: All other 

nonforfeitable benefits under the plan. 

Priority category 6: All other benefits 

under the plan. 

PBGC’s regulations make a distinction 

between a participant’s ‘‘gross’’ benefit 

in a priority category and his ‘‘net’’ 

benefit in that category (although the 

regulations do not use these terms). The 

gross benefit is the total amount of the 

participant’s benefit that would be in a 

priority category, if benefits in higher 

priority (i.e., lower numbered) 

categories were not subtracted. The net 

benefit is the amount in the priority 

category after subtracting amounts in 

higher priority categories. For example, 

a participant’s net benefit in priority 

category 4 generally excludes any 

portion of his guaranteed benefit that 

was allocated to priority categories 2 or 

3. See 29 CFR 4044.10(c). Descriptions 

of benefits in a priority category usually 

refer to the net benefits in that category, 

and the discussion below generally 

follows that usage, unless otherwise 

indicated. 

Once the benefits of each participant 

have been assigned to the applicable 

priority category or categories, the 

benefits of all participants are valued, 

using the rules in PBGC’s valuation 

regulation, 29 CFR part 4044, subpart B. 

The terminated plan’s assets are also 

valued (at fair market value). The 

valuation of both the plan benefits and 

the plan assets is done as of the 

termination date. 

After the plan benefits and assets are 

valued, the assets are ‘‘poured through’’ 

the priority categories, beginning with 

priority category 1. If the assets are 

sufficient to pay all benefits in priority 

category 1, then they pour into priority 

category 2, and so on until either all 

benefits in all categories have been 

covered or until the assets are 

insufficient to pay all benefits within a 

category. Where assets are insufficient 

to pay all benefits within a category, 

they are allocated among the benefits in 

that category according to the rules in 

part 4044 of PBGC’s regulations. 

It is important to note that benefits in 

priority category 3—which may or may 

not be guaranteed—come ahead of 

guaranteed benefits in priority category 

4 in the section 4044 asset allocation. 

Thus, for example, if a terminated plan’s 

assets are sufficient to cover all benefits 

in priority category 3, those benefits will 

be paid, regardless of whether they are 

guaranteed. 

PPA 2006 Changes 

Section 404 of PPA 2006 made an 

important change to priority category 3 

in the asset allocation, similar to the 

change to guaranteed benefits. Section 

404(b) added a new subsection (e) to 

section 4044, which provides as follows: 

Bankruptcy Filing Substituted for 

Termination Date.—If a contributing sponsor 

of a plan has filed or has had filed against 

such person a petition seeking liquidation or 

reorganization in a case under title 11, 

United States Code, or under any similar 

Federal law or law of a State or political 

subdivision, and the case has not been 

dismissed as of the termination date of the 

plan, then subsection (a)(3) shall be applied 

by treating the date such petition was filed 

as the termination date of the plan. 

Subsection (a)(3) of section 4044 

describes the benefits assigned to 

priority category 3. As explained above, 

before PPA 2006 the benefits in priority 

category 3 were the benefits that were in 

pay status as of the beginning of the 

three-year period ending on the 

termination date, or that would have 

been in pay status as of that date if the 

participant had retired—but based on 

the plan provisions during the five years 

before the termination date under which 

the benefit would be the least. See 29 

CFR 4044.13. In the proposed rule, 

PBGC stated that it interpreted new 

section 4044(e) to mean that these threeyear and five-year periods are the threeyear and five-year periods before the 

bankruptcy filing date rather than before 

the termination date. The proposed rule 

stated that the benefits in priority 

category 3 will be benefits in pay status, 

or that could have been in pay status, 

three years before the bankruptcy filing 

date, but generally taking into account 

only benefit increases that were 

effective throughout the five-year period 

ending on the bankruptcy filing date. 

(The proposed rule also stated that the 

exception in § 4044.13(b)(5) for certain 

‘‘automatic’’ benefit increases would 

apply to applicable benefit increases in 

the fourth and fifth years preceding the 

bankruptcy filing date.) 

The final rule adopts these proposals, 

but with a slight modification that will 

apply only in limited circumstances. 

The three-year period, as under the 

proposed rule, is the three-year period 

before the bankruptcy filing date. But 

for the five-year period, PBGC realized 

that it would not be appropriate to 

simply substitute the bankruptcy filing 

date for the termination date. Although 

that formulation would present no 

problems in the case of a benefit that 

increased during the years before a 

bankruptcy filing, it could have 

anomalous results in the case of a 

benefit that decreased between the 

bankruptcy filing date and the 

termination date. (A benefit might 

decrease, for example, due to the 

expiration of a temporary supplement or 

a plan amendment eliminating an 

ancillary benefit that is not protected by 

section 411(d)(6) of the Internal 

Revenue Code.) Not taking account of 

such a decrease could mean that a 

participant’s priority category 3 benefit 

would be larger than the participant’s 

total benefit as of the termination date. 

It makes no sense to provide priority 

treatment for an amount larger than the 

amount of the participant’s entire 

benefit as of termination. 

To address that anomaly, the final 

rule creates a new term in 

§ 4044.13(c)(1)—the ‘‘applicable pretermination period’’—to describe the 

period that includes the five years 

before the bankruptcy filing date plus 

the additional time between the 

bankruptcy filing date and the 

termination date. The final rule 

provides that the benefit in priority 

category 3 is limited to the lowest 

annuity benefit payable under the plan 

provisions at any time during the 

applicable pre-termination period. 

In addition, the changes made by PPA 

2006 section 404(a) to the way 

guaranteed benefits are determined 

necessarily affect the gross benefits that 

are assigned to priority category 4. As 

explained above, the gross benefits 

assigned to priority category 4 are 

guaranteed benefits (and benefits that 

would be guaranteed but for the 

aggregate limit of section 4022B and the 

stricter phase-in limit that applies to 

business owners). Because section 

404(a) of PPA 2006 has modified 


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PBGC’s guarantee, the gross benefits 

assigned to priority category 4 in a PPA 

2006 bankruptcy termination are those 

benefits guaranteed under new section 

4022(g), not the benefits that would be 

guaranteed absent that provision. In 

other words, the guaranteed benefits in 

priority category 4 will be the plan 

benefits that were both accrued and 

nonforfeitable as of the bankruptcy 

filing date, based on the guarantee limits 

as of that date. In addition, the PPA 

2006 changes to benefits in priority 

category 3 necessarily affect the net 

benefits in priority category 4 as well; 

some guaranteed benefits that 

previously would have been in priority 

category 3 will now fall into priority 

category 4. The final rule reflects this 

treatment. 

PPA 2006 did not amend the other 

priority categories of section 4044. 

Therefore, the gross amount of a 

participant’s benefit in those categories 

will be unaffected by the changes 

discussed above. For example, the gross 

amount of a participant’s benefit in 

priority category 5 is all of the 

participant’s benefit that is 

nonforfeitable as of the plan’s 

termination date. See ERISA section 

4044(a)(5); 29 CFR 4044.15. Thus, a 

benefit that is not guaranteed because it 

was forfeitable as of the bankruptcy 

filing date will be treated as 

nonforfeitable for purposes of priority 

category 5 if the participant satisfied the 

conditions for entitlement to the benefit 

between the bankruptcy filing date and 

the plan’s termination date. 

The net amount of a participant’s 

benefit in priority category 5, however, 

is necessarily affected by the changes to 

the benefits in priority categories 3 and 

4. For example, benefits that are not 

guaranteed because they became 

nonforfeitable between the sponsor’s 

bankruptcy filing date and the plan’s 

termination date will not be in priority 

category 4 but will be in priority 

category 5. Thus, a participant in that 

situation will have a smaller guaranteed 

benefit in priority category 4 and 

therefore a larger net benefit in priority 

category 5. (Benefits in priority category 

5 are divided into subcategories, based 

on whether they would have been 

payable based on the plan provisions in 

effect five years before the plan’s 

termination date, or became payable due 

to subsequent plan amendments. See 

ERISA section 4044(b)(4) (before PPA 

2006, section 4044(b)(3)); 29 CFR 

4044.10(e). Because PPA 2006 did not 

amend this provision, PBGC interprets 

the five-year period in section 

4044(b)(4) of ERISA—and in 

§ 4044.10(e) of PBGC’s regulation—as 

still being the five-year period before the 

termination date. No change in the 

regulation is needed to embody this 

interpretation.) 

Like the changes to the guarantee 

provisions, the PPA 2006 changes to the 

ERISA section 4044 asset allocation 

apply to PPA 2006 bankruptcy 

terminations—plan terminations 

occurring during a bankruptcy 

proceeding initiated on or after 

September 16, 2006. 

The PPA 2006 changes, as explained 

above, require PBGC to determine the 

amount of a participant’s monthly 

benefit in priority category 3 and 

priority category 4 by reference to the 

bankruptcy filing date rather than the 

termination date. Valuing benefits in the 

priority categories is a different matter. 

PBGC has always valued benefits and 

plan assets as of the plan’s termination 

date, and section 4044(e) does not 

dictate a change to that approach for 

priority category 3. Although section 

4044(e) might be read to suggest that a 

valuation should be done as of the 

bankruptcy filing date for purposes of 

priority category 3, PBGC believes that 

the better interpretation is that the 

valuation should still be done as of the 

termination date. Subsection (a)(3) of 

section 4044, which is to be ‘‘applied’’ 

by treating the bankruptcy filing date as 

the termination date, describes only the 

kind of benefits that fall into priority 

category 3, not the time or manner of 

valuing those benefits or plan assets. 

Moreover, because section 4044(e) 

applies only to priority category 3, 

benefits and plan assets will still be 

valued as of the termination date for all 

other categories. Using a different 

valuation date for priority category 3 

than for all the other priority categories 

would be complex to administer, 

difficult to explain to participants, and 

anomalous in its results. In the absence 

of a clear statutory mandate of that 

intricate approach, PBGC is taking the 

simpler and more coherent approach of 

valuing benefits and assets as of the 

termination date for all priority 

categories. 

Accordingly, PBGC is making no 

change to PBGC’s existing rules in this 

regard. Under § 4044.10(c), benefits in a 

trusteed plan will still be valued as of 

the termination date. The tables in 

Appendix D to part 4044 used to 

determine a participant’s expected 

retirement age are also unchanged, and 

continue to be based on the year in 

which the plan’s termination date 

occurs. (PBGC’s determination of a 

participant’s expected retirement age 

may be affected by the new PPA 2006 

rules, however, because, as explained 

above, those rules may change the 

amount of a participant’s guaranteed 

benefit, and a change in the guaranteed 

benefit in some cases affects the 

expected retirement age.) A terminated 

plan’s assets, too, will still be valued as 

of the termination date under 

§ 4044.3(b). 

Benefits Payable Under Section 4022(c) 

of ERISA 

Prior Law 

Under section 4022(c) of ERISA, 

PBGC pays additional benefits to 

participants and beneficiaries, beyond 

guaranteed benefits and benefits 

provided by the plan’s assets. The 

amount of section 4022(c) benefits 

depends on PBGC’s recoveries of 

unfunded benefit liabilities under 

section 4062 (or, in some circumstances, 

under sections 4063 or 4064). Sections 

4062(a) and (b) of ERISA provide that, 

when a plan terminates in a distress 

termination or an involuntary 

termination, the contributing sponsor of 

the plan and all members of the 

contributing sponsor’s controlled group 

are liable to PBGC for the ‘‘total amount 

of the unfunded benefit liabilities (as of 

the termination date) to all participants 

and beneficiaries under the plan.’’ The 

amount of unfunded benefit liabilities, 

defined in section 4001(a)(18) of ERISA, 

is the excess of the value of the plan’s 

benefit liabilities over the value of the 

plan’s assets—i.e., the amount of the 

shortfall in the plan’s assets. 

PBGC seeks to recover from 

contributing sponsors and members of 

their controlled groups as much as it 

can of terminated plans’ unfunded 

benefit liabilities. A portion of those 

recoveries is paid to participants and 

beneficiaries of a terminated plan in 

accordance with the provisions of 

section 4022(c) of ERISA. Section 

4022(c) provides for determination of a 

‘‘recovery ratio,’’ which is then 

multiplied by the total value of the 

plan’s unfunded nonguaranteed benefits 

to determine the total amount allocable 

to participants in the plan who have 

unfunded nonguaranteed benefits. It is 

allocated to those unfunded 

nonguaranteed benefits beginning in the 

section 4044 priority category where the 

plan’s assets ran out, but none of it is 

allocated to guaranteed benefits—i.e., 

this section 4022(c) allocation ‘‘skips 

over’’ guaranteed benefits in the priority 

categories. 

The recovery ratio is described in 

section 4022(c)(3) of ERISA. For a large 

plan, it equals the value of PBGC’s 

recovery of unfunded liabilities for that 

plan divided by the amount of that 

plan’s unfunded benefit liabilities ‘‘as of 

the termination date.’’ For a small plan, 

the ratio is based on an average of 


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34596 Federal Register / Vol. 76, No. 114 / Tuesday, June 14, 2011 / Rules and Regulations 

PBGC’s recoveries over a five-year 

period. For this purpose, a small plan is 

any plan in which the value of 

unfunded nonguaranteed benefits is 

equal to or less than $20 million. 

(Section 408 of PPA 2006 changed the 

five-year period over which the recovery 

ratio is determined for small plans; that 

change generally applies to plans in 

which termination was initiated on or 

after September 16, 2006.) 

A plan’s unfunded nonguaranteed 

benefits, as the term suggests, are those 

benefits that are neither funded by the 

plan’s assets under the section 4044 

allocation nor guaranteed by PBGC. 

(PBGC generally uses the term 

‘‘unfunded nonguaranteed benefits,’’ 

because that term is more descriptive 

than ‘‘outstanding amount of benefit 

liabilities,’’ the term used in section 

4001(a)(19) of ERISA.) Stated 

differently, the unfunded 

nonguaranteed benefits are the benefits 

lost by participants on account of their 

plan’s termination, a portion of which is 

made up by the section 4022(c) 

allocation. 

PPA 2006 Changes 

New section 4022(g) instructs PBGC 

to apply section 4022 by treating the 

bankruptcy filing date as the plan’s 

termination date. Section 4022(c), of 

course, is part of section 4022. PBGC 

interprets this statutory language, for 

section 4022(c) benefits, to mean that in 

determining a plan’s unfunded 

nonguaranteed benefits, PBGC must take 

into account the changes to guaranteed 

benefits under new section 4022(g) and 

the changes to the asset allocation under 

new section 4044(e). For example, a 

benefit that became nonforfeitable 

between the bankruptcy filing date and 

the termination date is not guaranteed 

and thus (if not funded) is included in 

the unfunded nonguaranteed benefits. 

The final regulation also provides 

that, as in a non-PPA 2006 bankruptcy 

termination, PBGC will value the 

unfunded nonguaranteed benefits as of 

the termination date. For reasons similar 

to those explained above regarding 

priority category 3 benefits, PBGC 

believes that the statutory provision 

should not be interpreted to require a 

different valuation date for this purpose. 

The final regulation similarly 

provides that the other elements that go 

into calculation of section 4022(c) 

benefits are unaffected by the PPA 2006 

changes. The recovery ratio described in 

section 4022(c)(3)(A), as explained 

above, is based on PBGC’s recoveries of 

unfunded benefit liabilities. Because 

that section provides that the 

denominator of the recovery ratio is the 

amount of the plan’s unfunded benefit 

liabilities as of the termination date, one 

might conclude that in a PPA 2006 

bankruptcy termination the unfunded 

benefit liabilities should be determined 

for this purpose as of the bankruptcy 

filing date. The final regulation does not 

adopt that approach. The numerator of 

the recovery ratio—PBGC’s recoveries— 

is based on PBGC’s statutory claim for 

unfunded benefit liabilities, which, 

under section 4062(b) of ERISA, must be 

determined as of the termination date. 

Because section 4062(b) was not 

amended by PPA 2006, PBGC’s 

recoveries will still be based on that 

termination-date-computed claim. PBGC 

believes that the general language of 

section 4022(g) should not be 

interpreted to require a separate 

determination of unfunded benefit 

liabilities to be made as of the 

bankruptcy filing date, when PBGC 

recoveries will be based on a 

determination of unfunded benefit 

liabilities as of the termination date. 

Thus, the amount of a plan’s unfunded 

benefit liabilities, as in a non-PPA 2006 

bankruptcy termination, will be 

determined based on the value of the 

plan’s assets and benefit liabilities as of 

the termination date. See ERISA 

sections 4001(a)(18), 4062(b). 

The final rule adds a new § 4022.51 to 

PBGC’s regulations to incorporate the 

above interpretations. It provides, for 

example, that in computing section 

4022(c) benefits in a PPA 2006 

bankruptcy termination, the benefits 

included in a plan’s unfunded 

nonguaranteed benefits take into 

account the provisions of sections 

4022(g) and 4044(e) of ERISA, and the 

corresponding provisions of PBGC’s 

regulations. The value of unfunded 

nonguaranteed benefits will be 

multiplied by the recovery ratio, as in a 

non-PPA 2006 bankruptcy termination, 

to determine the total dollar amount to 

be allocated for the plan. That dollar 

amount will be allocated to the 

unfunded nonguaranteed benefits of 

participants in the same manner as 

before PPA 2006, but the result of the 

allocation will be different because of 

the changes made by section 404 of PPA 

2006 to guaranteed benefits and the 

benefits in priority category 3. For 

example, a benefit that would have been 

guaranteed under prior law but is not 

guaranteed under PPA 2006 and is not 

funded under the section 4044 

allocation is an unfunded 

nonguaranteed benefit that might be 

paid under the section 4022(c) 

allocation. 

Other Issues 

Reduction of Benefits to Title IV Levels 

In a distress termination, the plan 

administrator is required, beginning on 

the proposed termination date, to 

reduce benefits in pay status to the 

estimated levels payable under Title IV. 

See ERISA section 4041(c)(3)(D)(ii); 29 

CFR §§ 4041.42(c), 4022.61–4022.63. 

The final regulation provides that for 

any PPA 2006 bankruptcy termination, 

those estimated benefits are based on 

the rules described above relating to the 

bankruptcy filing date. 

PPA 2006 did not change the 

provision in section 4041 of ERISA 

about when these benefit reductions are 

to be made. Accordingly, the final 

regulation does not change the rule in 

§ 4041.42(c) of the regulations that the 

reductions are made beginning on the 

proposed termination date. 

Recoupment of Overpayments 

PBGC’s current regulations provide 

that the agency recoups benefit 

overpayments if it determines that net 

benefits paid exceed the amount to 

which a participant is entitled under 

Title IV of ERISA. See 29 CFR 4022.81. 

For example, if a retiree is paid an 

estimated termination benefit of $3,100 

per month while PBGC is processing the 

termination of the plan, and PBGC later 

determines that the participant is 

entitled to a termination benefit of only 

$3,000 per month, the agency generally 

recoups the net overpayment (the $100 

difference times the number of months 

the benefit was overpaid) from future 

benefit payments. The amount recouped 

is determined by multiplying future 

benefit payments by a fraction the 

numerator of which is the net 

overpayment and the denominator of 

which is the present value of the benefit 

to which the participant is entitled 

under Title IV. The final rule (like the 

proposed rule) amends § 4022.82(a) to 

provide that the denominator is 

determined taking into account the 

changes to participants’ benefits made 

by section 404 of PPA 2006. 

In computing the net overpayment, 

the current regulation provides that 

PBGC takes into account only 

overpayments made on or after the latest 

of the proposed termination date, the 

termination date, or, if no notice of 

intent to terminate was issued, the date 

on which proceedings to terminate the 

plan are instituted pursuant to section 

4042 of ERISA. See 29 CFR 

4022.81(c)(1). Thus, for example, in a 

case where a plan is terminated under 

section 4042 and the termination date is 

before the date on which PBGC initiated 

termination proceedings, PBGC does not 


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1PBGC in the past has allowed participants the 

option to come out of pay status (and resume 

benefits later) in very limited circumstances, such 

as where a participant was mistakenly put into pay 

status by the plan administrator at a time when the 

participant was not entitled to any benefit under the 

plan. Relatively few participants have taken 

advantage of this option in any event, and for the 

reasons stated in the text PBGC is not inclined to 

expand the group to whom such a choice is offered. 

recoup overpayments made before 

initiation of the termination proceedings 

even though those overpayments were 

made after (what later became) the 

termination date. 

In the preamble to the proposed rule, 

PBGC proposed not to make any change 

to this rule. As under prior law, the 

preamble stated, in determining the 

amount to be recouped (or otherwise 

recovered, if there are no future benefits 

from which to recoup), PBGC would 

include only overpayments made on or 

after the latest of the proposed 

termination date, the termination date, 

or, if no notice of intent to terminate 

was issued, the date on which 

proceedings to terminate the plan are 

instituted pursuant to section 4042 of 

ERISA. Several commenters applauded 

this aspect of the proposed rule. They 

stated that this was a fair proposal that 

would moderate the hardship that 

would otherwise result if PBGC were to 

treat as overpayments subject to 

recoupment benefit payments made 

after the bankruptcy filing date that 

exceeded the Title IV limitations. These 

commenters asked only that PBGC make 

this treatment explicit in the regulation 

itself. To avoid any doubt about this 

matter, PBGC has accepted this 

suggestion. PBGC has thus included a 

new § 4022.81(c)(3) in the regulation 

explicitly stating that the rules regarding 

the overpayments and underpayments 

that will be taken into account in 

determining any amount to be recouped 

or reimbursed by PBGC apply regardless 

of whether the termination is a PPA 

2006 bankruptcy termination. 

Continuation of Payments; Entry Into 

Pay Status 

As explained above, under new 

section 4022(g) of ERISA, PBGC will not 

guarantee a benefit that was forfeitable 

as of the bankruptcy filing date even if 

it became nonforfeitable by the 

termination date. This includes, for 

example, a subsidized early retirement 

benefit or disability benefit to which a 

participant became entitled between the 

two dates. 

Because the plan normally will have 

been ongoing as of the bankruptcy filing 

date, participants who became entitled 

to subsidized early retirement benefits 

or other benefits after the bankruptcy 

filing date but before the termination 

date may have retired and been put into 

pay status by the plan administrator. It 

would impose a hardship on such 

participants to take them out of pay 

status, likely depriving them of all or 

most of their retirement income. 

To address this situation, the 

proposed regulation proposed that 

participants who became entitled under 

their plan to subsidized early retirement 

benefits or other benefits between the 

bankruptcy filing date and the 

termination date would be continued in 

pay status or, if they were not already 

receiving a benefit, would be allowed to 

go into pay status. The amount of such 

a benefit, however, would be reduced to 

reflect that the subsidy or other benefit 

is not guaranteed. 

PBGC received several comments on 

this proposal. One commenter suggested 

that PBGC should give a choice to 

participants who became entitled to a 

subsidized early retirement or other 

benefit between the bankruptcy filing 

date and the termination date and went 

into pay status with that benefit. The 

choice would be either to remain in pay 

status but with the benefit reduced to 

reflect that the subsidy or other benefit 

is not guaranteed, or to come out of pay 

status with the ability to resume benefit 

payments at a later date. 

The final rule does not adopt this 

suggestion. In the situations in question, 

the participant was entitled under the 

plan to the subsidized or other benefit 

at the time he was put into pay status 

and the benefit was nonforfeitable as of 

the termination date. Even though the 

benefit is not guaranteed because of 

section 4022(g), some or all of it may be 

paid by PBGC in priority category 5, 

depending on the level of the plan’s 

assets and PBGC’s recoveries on its 

claims for unfunded benefit liabilities 

under section 4062(b) of ERISA. 

Moreover, the Title IV limits on PBGC’s 

guarantee have often resulted in 

substantial reductions to retirees’ 

benefits, but PBGC historically has not 

offered a choice to such retirees to come 

out of pay status and resume benefits 

later.1 If PBGC were to allow such a 

choice in the situations addressed in 

this regulation, it might seem unfair not 

to allow a similar choice to any retiree 

whose benefit is reduced because of 

Title IV limits. But allowing a 

potentially large number of participants 

to come out of pay status and resume 

benefits later would create 

complications, including how to 

account for the benefits previously 

received and possible disputes about 

entitlement if, for example, the 

participant in the interim has divorced 

and remarried or a spouse has died. For 

these reasons, PBGC does not believe it 

would be appropriate to offer a choice 

to come out of pay status in these 

situations. 

A commenter also suggested that 

PBGC specify in the regulations how it 

will determine the amount of the 

reduction in the benefit in these 

situations. The final rule does not adopt 

this suggestion. There are quite a 

number of different situations that may 

arise, and different rules may be needed 

for each. For example, in one case a 

participant who is not entitled to a fully 

subsidized early retirement benefit 

because he had not satisfied the 

conditions for it by the bankruptcy 

filing date may not be entitled to any 

other early retirement benefit. In that 

case a full actuarial reduction from the 

accrued benefit would be appropriate. 

In another case, although a participant 

might not be entitled to the fully 

subsidized benefit he had been 

receiving, he might be entitled to a 

different, partially subsidized benefit for 

which he had satisfied the conditions by 

the bankruptcy filing date. In that case, 

the reduction would not be a full 

actuarial reduction from the accrued 

benefit but rather would take into 

account the partially subsidized benefit 

to which the participant was entitled. 

Also, the plan may or may not have 

actuarial reduction factors for the 

participant’s age (since under the plan 

they may not have been needed). PBGC 

believes that specifying reduction 

factors in this regulation for a wide 

range of theoretical scenarios would add 

more complexity than clarity. 

Finally, a commenter noted that the 

proposed rule had described how PBGC 

will treat participants who become 

entitled to a benefit between the 

bankruptcy filing date and the 

termination date only in an example 

about subsidized early retirement 

benefits. Because this treatment applies 

to any benefit to which a participant 

becomes entitled between the 

bankruptcy filing date and the 

termination date, the commenter 

suggested that PBGC include it in a 

separate paragraph rather than merely as 

part of an example. This suggestion is a 

good one and has been adopted in 

§ 4022.3(b)(2). 

Sufficiency for Guaranteed Benefits 

In a distress termination, the plan’s 

enrolled actuary must certify, among 

other things, whether the plan is 

sufficient for guaranteed benefits as of 

the proposed termination date and as of 

the proposed distribution date. (See 

section 4041(c)(2)(A) of ERISA.) In 

making those determinations, the 

actuary must take into account 

nonguaranteed benefits to which the 


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34598 Federal Register / Vol. 76, No. 114 / Tuesday, June 14, 2011 / Rules and Regulations 

plan’s assets must be allocated under 

section 4044—notably, nonguaranteed 

benefits in priority category 3. PBGC 

must determine whether it agrees that 

the plan is sufficient for guaranteed 

benefits. (See section 4041(c)(3)(A) of 

ERISA.) If PBGC agrees that the plan is 

sufficient for guaranteed benefits, it so 

notifies the plan administrator and the 

administrator then proceeds to 

distribute the plan’s assets and carry out 

the termination of the plan. (See section 

4041(c)(3)(B)(ii) of ERISA.) One purpose 

of the determinations under section 

4041 of the plan’s sufficiency for 

guaranteed benefits is to avoid PBGC 

trusteeship of a plan that has enough 

assets to pay all the benefits that PBGC 

would pay if it took over the plan. (Any 

additional benefits that may be payable 

under section 4022(c) of ERISA are not 

considered for purposes of whether a 

plan is sufficient for guaranteed 

benefits.) 

The final regulation provides that in 

a PPA 2006 bankruptcy termination, the 

determination of sufficiency for 

guaranteed benefits is made taking into 

account the amendments made by 

section 404 of PPA 2006. That is, the 

plan actuary and PBGC must determine 

sufficiency for guaranteed benefits 

based on whether, as of the termination 

date and the distribution date, the plan 

has sufficient assets to pay the benefits 

that are guaranteed as of the bankruptcy 

filing date and the benefits that are in 

priority category 3 as of three years 

before the bankruptcy filing date (based 

generally on the plan provisions as of 

five years before the bankruptcy filing 

date). It would make little sense to treat 

as insufficient for guaranteed benefits— 

and thus require PBGC to trustee—a 

plan that has enough assets to provide 

all the benefits that PBGC would pay if 

it became statutory trustee of the plan. 

Amendment of Definition of Basic-Type 

Benefit 

PBGC’s regulations define the term 

‘‘basic-type benefit’’ in § 4001.2 to mean 

any benefit that is guaranteed under part 

4022 or that would be guaranteed if the 

guarantee limits in §§ 4022.22 through 

4022.27 (primarily the maximum 

guaranteeable benefit and the phase-in 

limit) did not apply. A ‘‘nonbasic-type 

benefit’’ is any benefit provided by a 

plan other than a basic-type benefit. The 

effect of this distinction is to treat 

temporary supplements, which as 

explained above are generally not 

guaranteed due to the accrued-at-normal 

limit in § 4022.21, as nonbasic-type 

benefits. Nonbasic-type benefits are 

treated differently from basic-type 

benefits in the section 4044 allocation. 

See, e.g., §§ 4044.10(c) and 4044.12. 

If no change were made to the 

definition of basic-type benefit in a PPA 

2006 bankruptcy termination, benefits 

that accrued, or to which a participant 

otherwise became entitled, between the 

sponsor’s bankruptcy filing date and the 

plan’s termination date would become 

nonbasic-type benefits (because they 

would not be guaranteed but not due to 

the limitations in §§ 4022.22 through 

4022.27) and thus subject to the 

different treatment currently accorded 

temporary supplements. Such benefits 

would, absent this regulatory change, 

receive less favorable treatment in 

priority category 5, a technical result 

that PBGC believes was not intended by 

the statutory change. Not amending the 

regulation would also require PBGC to 

follow the more complex allocation 

procedures in part 4044 for nonbasictype benefits even where a plan has no 

temporary supplements. Accordingly, 

the final regulation modifies the 

definition of ‘‘basic-type benefits’’ to 

provide that benefits not guaranteed 

solely because they accrued or became 

nonforfeitable, or the participant 

became entitled to them, after the 

bankruptcy filing date will be 

considered basic-type benefits. This 

change to the regulatory definition of 

basic-type benefits requires a 

conforming change to § 4044.14 of the 

regulations, to ensure that these 

nonguaranteed benefits are not placed 

in priority category 4, which (with 

limited exceptions for benefits of 

business owners and of participants in 

more than one terminated plan) is 

reserved for guaranteed benefits. 

Determination of the Bankruptcy Filing 

Date 

Section 404 of PPA 2006 requires 

treating the date that a contributing 

sponsor of a plan has filed or has had 

filed against it ‘‘a petition seeking 

liquidation or reorganization in a case 

under title 11, United States Code, or 

under any similar Federal law or law of 

a State or political subdivision’’ as the 

termination date of the plan, for the 

purposes discussed above. The final 

regulation uses the term ‘‘bankruptcy 

filing date’’ to describe the date when a 

bankruptcy petition has been filed, and 

PBGC does not anticipate difficulty 

determining what that date is in most 

cases. 

However, three situations may arise in 

which there could be ambiguity about 

the bankruptcy filing date. The first 

involves conversion of a bankruptcy 

case—for example, where a bankruptcy 

case began with the filing of a petition 

for reorganization under Chapter 11 of 

the Bankruptcy Code but was later 

converted to a liquidation case under 

Chapter 7. The final regulation clarifies 

that, in such a situation, the date of the 

original bankruptcy petition is the 

bankruptcy filing date. This is 

consistent with section 348 of the 

Bankruptcy Code, which provides that 

conversion of a case from one chapter to 

another under the Bankruptcy Code 

does not change the date of the filing of 

the petition. 

The second situation involves plans 

that have more than one contributing 

sponsor. Section 404 of PPA 2006 

applies where a plan terminates during 

the bankruptcy proceeding of ‘‘a’’ 

contributing sponsor of a plan. 

Although most terminating singleemployer plans have only a single 

contributing sponsor, some plans have 

more than one contributing sponsor. 

The final regulation provides that if a 

plan with multiple contributing 

sponsors terminates during the 

sponsors’ bankruptcy proceedings and if 

the various sponsors all filed for 

bankruptcy on the same date, that date 

is the bankruptcy filing date. 

However, if the various contributing 

sponsors filed for bankruptcy on 

different dates, or if not all of them have 

filed for bankruptcy, it is not obvious 

what date should be treated as the 

bankruptcy filing date. PBGC believes 

that it would be impracticable to use 

more than one bankruptcy filing date in 

determining benefits under a single 

plan. But PBGC also believes that it 

would be unwise to attempt to establish 

a mechanical rule on what date to use 

that would apply in all cases. Thus, 

where a plan has more than one 

contributing sponsor and not all 

sponsors filed for bankruptcy on the 

same date, the proposed regulation 

provided that PBGC would determine 

the date to treat as the bankruptcy filing 

date for determining guaranteed benefits 

and benefits in priority category 3. 

PBGC’s determination would be based 

on the facts and circumstances, which 

might include such things as the relative 

sizes of the various contributing 

sponsors, the relative amounts of their 

minimum required contributions to the 

plan, the timing of the different 

bankruptcies, and the expectations of 

participants. 

One commenter suggested a change to 

the proposal described in the previous 

paragraph regarding plans that have 

more than one contributing sponsor that 

filed for bankruptcy on different dates. 

Noting the importance to participants of 

the date chosen as the bankruptcy filing 

date, the commenter urged that the final 

rule provide that PBGC either— 

• Obtain a court determination of the 

appropriate bankruptcy filing date; or 


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Federal Register / Vol. 76, No. 114 / Tuesday, June 14, 2011 / Rules and Regulations 34599 

• Issue a notification of its 

determination of the bankruptcy filing 

date to participants, relevant labor 

unions, and other affected parties and 

exempt this determination from PBGC’s 

administrative review process under 

§ 4003.1 of its regulations, thereby 

allowing speedier judicial review of the 

determination. 

The final rule does not adopt either of 

these suggestions, and adopts the 

procedure described in the proposed 

rule. PBGC believes that obtaining a 

court order or issuing notification to 

potentially thousands of participants 

could be onerous and unduly delay 

PBGC’s processing of a terminated plan. 

Moreover, such situations are likely to 

be rare; if future experience reveals 

problems with the position adopted in 

this regulation, PBGC may consider 

amending the regulation to address such 

problems based on that experience. 

The third situation in which there 

could be ambiguity about the 

bankruptcy filing date involves 

liquidation or reorganization cases that 

are filed, not under the U.S. Bankruptcy 

Code, but under a ‘‘similar * * * law of 

a State or political subdivision.’’ Some 

states have insolvency statutes similar 

to the U.S. Bankruptcy Code and 

include provisions similar to 11 U.S.C. 

301(a), 302(a), and 303(b) under which 

a case is commenced by the filing of a 

petition in court. The date on which 

such a petition is filed will be treated as 

the bankruptcy filing date under the 

final rule. Other, perhaps more 

informal, proceedings, such as 

assignments for the benefit of creditors, 

may have different procedures for 

commencing cases, which may vary 

from state to state. For such 

proceedings, PBGC will make case-bycase determinations on what date is 

most analogous to the date of the filing 

of a bankruptcy petition and would treat 

that date as the bankruptcy filing date. 

PBGC received a comment on an issue 

that was not addressed in the proposed 

rule concerning determination of the 

bankruptcy filing date. This comment 

proposed that in a case in which an 

involuntary bankruptcy petition is filed 

against a contributing sponsor and the 

sponsor timely contests the petition, 

PBGC should use the date on which the 

bankruptcy court enters an order for 

relief, rather than the date on which the 

petition was filed, as the bankruptcy 

filing date. (See 11 U.S.C. 303(h).) The 

final rule does not adopt this proposal. 

Sections 4022(g) and 4044(e) make no 

distinction between voluntary and 

involuntary bankruptcies. In describing 

when they apply, both provisions refer 

to cases in which a contributing sponsor 

‘‘has filed or has had filed against such 

person a petition seeking liquidation or 

reorganization.’’ (Emphasis added.) 

Moreover, under the Bankruptcy Code, 

both a voluntary bankruptcy case and an 

involuntary case are commenced by the 

filing of a ‘‘petition.’’ (Compare 11 

U.S.C. 301(a) with 11 U.S.C. 303(a).) 

Thus, Congress evidently intended that 

the relevant date under sections 4022(g) 

and 4044(e) be the date on which the 

bankruptcy petition was filed, 

regardless of whether it is a voluntary or 

involuntary petition. 

Changes Unrelated to PPA 2006 

The final regulation adopts a few 

minor changes unrelated to the PPA 

2006 amendments, most of which were 

proposed in the proposed regulation. 

For example, in §§ 4022.4(a)(1), 4044.2, 

and 4044.13, the final regulation 

changes the words ‘‘date of termination’’ 

or ‘‘date of plan termination’’ to 

‘‘termination date’’ to conform to the 

current phrasing in section 4048(a) of 

ERISA. The regulation amends 

§ 4022.4(a)(2) to codify PBGC’s practice 

of allowing a participant who has 

elected an optional life-annuity form of 

benefit (not a lump sum) at any time up 

until the date that PBGC is appointed 

statutory trustee of the plan to receive 

his benefit in that form, even if it is not 

one of the PBGC optional forms under 

§ 4022.8(c) of the regulations. The 

regulation also corrects the reference in 

§ 4022.22 to the provision of the Internal 

Revenue Code defining ‘‘earned 

income’’; the definition has been moved 

from section 911(b) to section 911(d)(2) 

of the Code since PBGC’s original 

regulation was adopted. 

A new § 4022.62(b)(5) has been added 

to clarify that the rules in § 4022.62(b), 

which generally apply to the calculation 

of estimated benefits pending PBGC’s 

determination of final benefits, do not 

override the requirements of subparts A 

or B of part 4022 with respect to the 

requirements for a benefit to be 

guaranteed by PBGC. 

In addition to these changes that were 

in the proposed regulation, the final 

regulation incorporates some other 

minor changes unrelated to PPA 2006. 

The final rule makes non-substantive, 

clarifying changes to § 4044.13, 

including examples designed to remove 

any ambiguity about the dates on which 

the relevant periods begin and end. 

Also, certain provisions of existing 

part 4044 have been superseded by 

legislative changes, and some provisions 

of the existing regulation include 

anachronistic language. The existing 

regulation contains a prefatory note to 

the effect that PBGC intends to amend 

part 4044 to conform it to current 

statutory provisions. The final rule does 

so by deleting or rewording 

anachronistic language in part 4044; no 

substantive change in part 4044 is 

intended. It also removes the no-longerneeded prefatory note in part 4044 (and 

does not include a prefatory note that 

the proposed rule would have added to 

part 4022). 

Coordination With Other PPA 2006 

Amendments 

Section 404 was only one of a number 

of provisions of PPA 2006 that affect the 

determination of benefits under Title IV. 

PBGC’s regulations therefore must 

coordinate the various provisions, 

where necessary. Below is a description 

of certain PPA 2006 amendments that 

interrelate with the changes made by 

section 404. 

Shutdown Benefits and Other 

Unpredictable Contingent Event 

Benefits 

One situation requiring coordination 

involves section 403 of PPA 2006, 

which added new section 4022(b)(8) to 

the guarantee provisions of Title IV. 

Section 4022(b)(8) provides a special 

phase-in rule for shutdown benefits and 

other ‘‘unpredictable contingent event 

benefits.’’ In cases to which that 

provision applies, PBGC is to apply the 

phase-in rules of section 4022 as if a 

plan amendment had been adopted on 

the date that the unpredictable 

contingent event occurred. For example, 

in a case in which new section 4022(g) 

does not apply, if an unpredictable 

contingent event occurred more than 

two years but less than three years 

before the termination date, this would 

mean that the guarantee of a benefit 

increase arising from the unpredictable 

contingent event would be 40% phased 

in. 

But if section 4022(g) also applies to 

such a case, PBGC believes that, as with 

other benefit increases, the five-year 

phase-in period must be measured by 

reference to the bankruptcy filing date, 

not the termination date. Thus, 

continuing the above example, if the 

sponsor’s bankruptcy filing date were 

one year before the plan’s termination 

date, then the guarantee of the 

unpredictable contingent event benefit 

would be only 20% rather than 40% 

phased in, because the unpredictable 

contingent event would have occurred 

more than one year but less than two 

years before the bankruptcy filing date. 

Section 4022(b)(8) applies to benefits 

that become payable as a result of an 

unpredictable contingent event that 

occurs after July 26, 2005. 

PBGC intends to issue a separate 

proposed rule to implement section 

4022(b)(8). 


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Commercial Airlines 

Another provision that raises 

coordination issues is PPA 2006 section 

402(g)(2)(A), which added new section 

4022(h) to Title IV. Section 4022(h) 

modifies the guarantee and asset 

allocation rules primarily for plans of 

commercial airlines that make an 

election under section 402(a)(1) of PPA 

2006 (relating to special minimum 

funding rules) and that terminate within 

10 years of such election. Section 

4022(h) provides that when those 

conditions are met, section 4022 is to be 

applied by treating the first day of the 

first applicable plan year (for the special 

airline funding rules) as the termination 

date of the plan. It also provides 

generally that the plan’s assets are to be 

allocated first to the benefits that would 

have been guaranteed but for this 

provision (i.e., ahead of benefits in all 

other priority categories under section 

4044). Section 4022(h) applies to plan 

years ending after August 17, 2006. 

The final regulation does not address 

implementation of section 4022(h) or 

how it interrelates with the amendments 

made by section 404 of PPA 2006. PBGC 

intends to do so in a future rulemaking. 

Substantial-Owner Benefits 

Section 407 of PPA 2006 amended 

section 4022(b)(5) of ERISA, which 

previously provided a special phase-in 

rule for PBGC’s guarantee of the benefits 

of ‘‘substantial owners,’’ who were 

generally defined as those owning more 

than 10% of the business. Under the 

amendment, a special phase-in rule 

applies only to benefits of ‘‘majority 

owners,’’ generally defined as those 

owning 50% or more of the business. 

The amendment also completely 

revamped the way in which the special 

phase-in rule works. Previously, the 

substantial-owner phase-in rule was 

used in lieu of the usual phase-in rule 

for benefits of substantial owners. The 

new majority-owner phase-in rule, by 

contrast, applies in addition to the usual 

phase-in rule, but the additional 

limitation looks back only 10 years 

rather than 30 years. Finally, section 

407 of PPA 2006 amended section 4044 

of ERISA to change the treatment in 

priority category 4 of benefits subject to 

the majority-owner phase-in. These 

section 407 amendments are effective 

for distress terminations in which 

notices of intent to terminate are 

provided on or after January 1, 2006, 

and for involuntary terminations in 

which notices of determination are 

provided on or after January 1, 2006. 

The final regulation does not address 

implementation of these changes or how 

they interrelate with the amendments 

made by section 404 of PPA 2006. PBGC 

intends to do so in a future rulemaking. 

Applicability 

Section 404(c) of PPA 2006 provided 

that the changes made by section 404 

apply to any plan whose termination 

date occurs while bankruptcy 

proceedings are pending with respect to 

the contributing sponsor of the plan, if 

the bankruptcy proceedings were 

initiated on or after September 16, 2006. 

Bankruptcy proceedings are pending, 

for this purpose, if the contributing 

sponsor has filed or has had filed 

against it a petition seeking liquidation 

or reorganization in a case under title 

11, United States Code, or under any 

similar Federal law or law of a State or 

political subdivision, and the case has 

not been dismissed as of the termination 

date of the plan. Accordingly, the final 

regulation, which implements the 

statutory changes, likewise applies to 

terminations occurring during a 

bankruptcy proceeding of the 

contributing sponsor that was initiated 

on or after September 16, 2006. 

Compliance With Rulemaking 

Guidelines 

Executive Order 12866 

PBGC has determined, in consultation 

with the Office of Management and 

Budget, that this final rule is a 

‘‘significant regulatory action’’ under 

Executive Order 12866. The Office of 

Management and Budget has therefore 

reviewed this final rule under that 

executive order. 

Section 404 of PPA 2006 made 

significant changes to provisions of Title 

IV of ERISA relating to the guarantee of 

benefits under section 4022 and the 

allocation of a terminated plan’s assets 

under section 4044. This final rule 

implements those statutory changes 

and, as described in this preamble, 

clarifies the implications of those 

changes in areas where there might be 

ambiguity in the absence of a regulation. 

The final rule provides guidance to 

participants and beneficiaries of 

terminated plans about their benefits 

paid by PBGC. It will also assist PBGC 

staff in making benefit determinations. 

Except for a few minor housekeeping 

items described above under ‘‘Changes 

Unrelated to PPA 2006,’’ the final rule 

is limited to implementing and 

clarifying the changes made by section 

404. 

Under Section 3(f)(1) of Executive 

Order 12866, a regulatory action is 

economically significant if ‘‘it is likely 

to result in a rule that may * * * [h]ave 

an annual effect on the economy of $100 

million or more or adversely affect in a 

material way the economy, a sector of 

the economy, productivity, competition, 

jobs, the environment, public health or 

safety, or State, local, or Tribal 

governments or communities. The PBGC 

has determined that this final rule does 

not cross the $100 million threshold for 

economic significance and is not 

otherwise economically significant. 

As discussed above, the economic 

effect of the final rule is attributable 

almost entirely to the economic effect of 

section 404(c) of PPA 2006. 

Accordingly, PBGC bases its 

determination on its experience with 

plans subject to the statutory provision. 

As stated above in Applicability, the 

statutory provision applies to any plan 

whose termination date occurs while 

bankruptcy proceedings are pending 

with respect to the contributing sponsor 

of the plan, if the bankruptcy 

proceedings were initiated on or after 

September 16, 2006. 

PBGC estimates that, to date, the total 

effect of section 404(c) of PPA—in terms 

of lower benefits paid to participants 

and associated savings for PBGC—is 

between $10 and $15 million. Many of 

the plans subject to the statutory 

provision had frozen benefit accruals 

before the date of bankruptcy filing, 

which resulted in the statutory 

provision having minimal, if any, effect. 

For those plans for which the statutory 

provision did significantly affect 

benefits, the effect was lessened because 

the date of bankruptcy filing was less 

than a year (and sometimes much less) 

before the date of plan termination. 

For various reasons, it is difficult to 

predict the future effect of the statutory 

provision and related regulatory 

changes. For example, PBGC cannot 

predict with certainty which plans will 

terminate during the bankruptcy of the 

plan sponsor, how long the plan 

sponsor will be in bankruptcy before the 

plan terminates, whether the plan will 

be frozen, the funding level of the plan, 

or what benefits will be affected by the 

guarantee limits. However, given the 

relatively low estimate of the effect of 

the statutory provision to date, PBGC 

has determined that the annual effect of 

the final rule will be less than $100 

million. 

Regulatory Flexibility Act 

PBGC certifies under section 605(b) of 

the Regulatory Flexibility Act (5 U.S.C. 

601 et seq.) that the amendments in this 

final regulation will not have a 

significant economic impact on a 

substantial number of small entities. 

The amendments implement and in 

some cases clarify statutory changes 

made in PPA 2006; they do not impose 

new burdens on entities of any size. 


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Federal Register / Vol. 76, No. 114 / Tuesday, June 14, 2011 / Rules and Regulations 34601 

Virtually all of the statutory changes 

affect only PBGC and persons who 

receive benefits from PBGC. 

Accordingly, as provided in section 605 

of the Regulatory Flexibility Act, 

sections 603 and 604 do not apply. 

List of Subjects 

29 CFR Part 4001 

Pensions. 

29 CFR Part 4022 

Pension insurance, Pensions, 

Reporting and recordkeeping 

requirements. 

29 CFR Part 4044 

Pension insurance, Pensions. 

For the reasons given above, PBGC is 

amending 29 CFR parts 4001, 4022, and 

4044 as follows. 

PART 4001—TERMINOLOGY 

■ 1. The authority citation for part 4001 

continues to read as follows: 

Authority: 29 U.S.C. 1301, 1302(b)(3). 

■ 2. In § 4001.2: 

■ a. Amend the definition of basic-type 

benefit by adding a sentence at the end. 

■ b. Amend the definition of sufficient 

for guaranteed benefits by adding two 

sentences at the end. 

■ c. Add definitions for bankruptcy 

filing date and non-PPA 2006 

bankruptcy termination in alphabetical 

order. 

The additions read as follows: 

§ 4001.2 Definitions 

* * * * * 

Bankruptcy filing date means, with 

respect to a plan, the date on which a 

petition commencing a case under the 

United States Bankruptcy Code is filed, 

or the date on which any similar filing 

is made commencing a case under any 

similar Federal law or law of a State or 

political subdivision, with respect to the 

contributing sponsor of the plan, if such 

case has not been dismissed as of the 

termination date of the plan. If a 

bankruptcy petition is filed under one 

chapter of the United States Bankruptcy 

Code, or under one chapter or provision 

of any such similar law, and the case is 

converted to a case under a different 

chapter or provision of such Code or 

similar law (for example, a Chapter 11 

reorganization case is converted to a 

Chapter 7 liquidation case), the date of 

the original petition is the bankruptcy 

filing date. If such a plan has more than 

one contributing sponsor: 

(1) If all contributing sponsors entered 

bankruptcy on the same date, that date 

is the bankruptcy filing date; 

(2) If all contributing sponsors did not 

enter bankruptcy on the same date (or 

if not all contributing sponsors are in 

bankruptcy), PBGC will determine the 

date that will be treated as the 

bankruptcy filing date based on the facts 

and circumstances, which may include 

such things as the relative sizes of the 

contributing sponsors, the relative 

amounts of their minimum required 

contributions to the plan, the timing of 

the different bankruptcies, and the 

expectations of participants. 

Basic-type benefit * * * In a PPA 

2006 bankruptcy termination, it also 

includes a benefit accrued by a 

participant, or to which a participant 

otherwise became entitled, on or before 

the plan’s termination date but that is 

not guaranteed solely because of the 

provisions of §§ 4022.3(b) or 4022.4(c). 

* * * * * 

Non-PPA 2006 bankruptcy 

termination means a plan termination 

that is not a PPA 2006 bankruptcy 

termination. 

* * * * * 

Sufficient for guaranteed benefits 

* * * In a PPA 2006 bankruptcy 

termination, the determination whether 

a plan is sufficient for guaranteed 

benefits is made taking into account the 

limitations in sections 4022(g) and 

4044(e) of ERISA (and corresponding 

provisions of these regulations). The 

determinations of which benefits are 

guaranteed and which benefits are in 

priority category 3 under section 

4044(a)(3) of ERISA are made by 

reference to the bankruptcy filing date, 

but the present values of those benefits 

are determined as of the proposed 

termination date and the date of 

distribution. 

* * * * * 

PART 4022—BENEFITS PAYABLE IN 

TERMINATED SINGLE-EMPLOYER 

PLANS 

■ 3. The authority citation for part 4022 

continues to read as follows: 

Authority: 29 U.S.C. 1302, 1322, 1322b, 

1341(c)(3)(D), and 1344. 

§ 4022.2 [Amended] 

■ 4. In § 4022.2, amend the introductory 

text by removing the words ‘‘annuity, 

Code’’ and adding in their place 

‘‘annuity, bankruptcy filing date, Code’’; 

and by removing the words 

‘‘nonforfeitable benefit, normal 

retirement age’’ and adding in their 

place ‘‘nonforfeitable benefit, non-PPA 

2006 bankruptcy termination, normal 

retirement age’’. 

■ 5. In § 4022.3: 

■ a. Designate the introductory text as 

paragraph (a) with the heading 

‘‘General.’’ 

■ b. Redesignate paragraphs (a), (b), and 

(c) as paragraphs (1), (2), and (3). 

■ c. Add new paragraph (b) to read as 

follows: 

§ 4022.3 Guaranteed benefits. 

* * * * * 

(b) PPA 2006 bankruptcy termination. 

(1) Substitution of bankruptcy filing 

date. In a PPA 2006 bankruptcy 

termination, ‘‘bankruptcy filing date’’ is 

substituted for ‘‘termination date’’ each 

place that ‘‘termination date’’ appears in 

paragraph (a) of this section. 

(2) Condition for entitlement satisfied 

between bankruptcy filing date and 

termination date. If a participant 

becomes entitled to a subsidized early 

retirement or other benefit before the 

termination date (or on or before the 

termination date, in the case of a 

requirement that a participant attain a 

particular age, earn a particular amount 

of service, become disabled, or die) but 

on or after the bankruptcy filing date (or 

after the bankruptcy filing date, in the 

case of a requirement that a participant 

attain a particular age, earn a particular 

amount of service, become disabled, or 

die), the subsidy or other benefit is not 

guaranteed because the participant had 

not satisfied the conditions for 

entitlement by the bankruptcy filing 

date. In such a case, the participant may 

have been put into pay status with the 

subsidized early retirement or other 

benefit by the plan administrator, 

because the plan was ongoing at the 

time. Even though the subsidy or other 

benefit is not guaranteed, the participant 

may be entitled to another benefit from 

PBGC (at that time or in the future). If 

so, PBGC will continue paying the 

participant a benefit, but in an amount 

reduced to reflect that the subsidy or 

other benefit is not guaranteed. PBGC 

will also allow a similarly situated 

participant who had not started 

receiving a subsidized early retirement 

or other benefit before PBGC became 

trustee of the plan to begin receiving a 

benefit (if the participant would have 

been allowed under the plan to begin 

receiving benefits and has reached his 

Earliest PBGC Retirement Date, as 

defined in § 4022.10), but in an amount 

that does not include the subsidy or 

other benefit. 

(3) Examples. (i) Vesting. A plan 

provides for 5-year ‘‘cliff’’ vesting—i.e., 

benefits become 100% vested when the 

participant completes five years of 

service; before the five-year mark, 

benefits are 0% vested. The contributing 

sponsor of the plan files a bankruptcy 

petition on November 15, 2006. The 

plan terminates with a termination date 

of December 4, 2007, and PBGC 

becomes statutory trustee of the plan. A 


jdjones on DSK8KYBLC1PROD with RULES
34602 Federal Register / Vol. 76, No. 114 / Tuesday, June 14, 2011 / Rules and Regulations 

participant had four years and six 

months of service at the bankruptcy 

filing date and became vested in May 

2007. None of the participant’s benefit 

is guaranteed because none of the 

benefit was nonforfeitable as of the 

bankruptcy filing date. 

(ii) Subsidized early retirement 

benefit. The facts regarding the plan are 

the same as in Example (i) (paragraph 

(b)(3)(i) of this section), but the plan 

also provides that a participant may 

retire from active employment at any 

age with a fully subsidized (i.e., not 

actuarially reduced) early retirement 

benefit if he has completed 30 years of 

service. The plan also provides that a 

participant who is age 60 and has 

completed 20 years of service may retire 

from active employment with an early 

retirement benefit, reduced by three 

percent for each year by which the 

participant’s age at benefit 

commencement is less than 65. A 

participant was age 61 and had 29 years 

and 6 months of service at the 

bankruptcy filing date. The participant 

continued working for another six 

months, then retired as of June 1, 2007, 

and immediately began receiving from 

the plan the fully subsidized ‘‘30-andout’’ early retirement benefit. PBGC will 

continue paying the participant a 

benefit, but PBGC’s guarantee does not 

include the full subsidy for the ‘‘30-andout’’ benefit, because the participant 

satisfied the conditions for that benefit 

after the bankruptcy filing date. The 

guarantee does include, however, the 

partial subsidy associated with the ‘‘60/ 

20’’ early retirement benefit, because the 

participant satisfied the conditions for 

that benefit before the bankruptcy filing 

date. 

(iii) Accruals after bankruptcy filing 

date. The facts regarding the plan are 

the same as in Example (i) (paragraph 

(b)(3)(i) of this section). A participant 

has a vested, accrued benefit of $500 per 

month as of the bankruptcy filing date. 

At the plan’s termination date, the 

participant has a vested, accrued benefit 

of $512 per month. His guaranteed 

benefit is limited to $500 per month— 

the accrued, nonforfeitable benefit as of 

the bankruptcy filing date. 

■ 6. In § 4022.4: 

■ a. Amend paragraph (a)(1) by 

removing ‘‘date of the termination’’ and 

adding in its place ‘‘termination date’’. 

■ b. Revise paragraph (a)(2) and add 

paragraph (c) to read as follows: 

§ 4022.4 Entitlement to a benefit. 

(a) * * * 

(2) The benefit is payable in an 

optional life-annuity form of benefit that 

the participant or beneficiary elected on 

or before the termination date of the 

plan or, if later, the date on which PBGC 

became statutory trustee of the plan. 

* * * * * 

(c) In a PPA 2006 bankruptcy 

termination, ‘‘bankruptcy filing date’’ is 

substituted for ‘‘termination date’’ each 

place that ‘‘termination date’’ appears in 

paragraphs (a)(1) and (3) of this section. 

In making this substitution for purposes 

of paragraph (a)(3) of this section, the 

rule in § 4022.3(b)(2) (dealing with the 

situation where the condition for 

entitlement was satisfied between the 

bankruptcy filing date and the 

termination date) shall apply. 

■ 7. In § 4022.6: 

■ a. Amend paragraph (a) by removing 

‘‘provided in paragraph (b) of’’ and 

adding in its place ‘‘otherwise provided 

in’’. 

■ b. Add new paragraph (d) to read as 

follows: 

§ 4022.6 Annuity payable for total 

disability. 

* * * * * 

(d) PPA 2006 bankruptcy termination. 

In a PPA 2006 bankruptcy termination, 

‘‘bankruptcy filing date’’ is substituted 

for ‘‘termination date’’ in paragraph (a) 

of this section. 

■ 8. In § 4022.21: 

■ a. Amend paragraph (a)(1) by 

removing ‘‘(b), (c) and (d)’’ in the first 

sentence and adding in its place ‘‘(b), 

(c), (d), and (e).’’ 

■ b. Add new paragraph (e) to read as 

follows: 

§ 4022.21 Limitations; in general. 

* * * * * 

(e) PPA 2006 bankruptcy termination. 

(1) Substitution of bankruptcy filing 

date. In a PPA 2006 bankruptcy 

termination, ‘‘bankruptcy filing date’’ is 

substituted for ‘‘termination date’’ each 

place that ‘‘termination date’’ appears in 

paragraph (a)(1) of this section. 

(2) Examples. (i) Straight-life annuity. 

A plan provides for normal retirement at 

age 65. If a participant terminates 

employment at or after age 55 with 25 

years of service, the plan will pay an 

unreduced early retirement benefit, plus 

a temporary supplement of $400 per 

month until the participant reaches age 

62. When the plan’s contributing 

sponsor files a bankruptcy petition in 

2008, a participant who is still working 

has a vested, accrued benefit of $1,500 

per month (as a straight-life annuity) 

and has satisfied the age and service 

requirements for the unreduced early 

retirement benefit. The participant 

retires eight months later, when his 

vested, accrued benefit is $1,530 per 

month (as a straight-life annuity). He 

elects to receive his benefit as a straightlife annuity, and begins receiving a total 

benefit of $1,930: His $1,530 accrued 

benefit plus the $400 temporary 

supplement. The plan terminates six 

months later, during the sponsor’s 

bankruptcy. No Title IV limitations 

apply to the participant’s benefit, other 

than the limitation in paragraph (a)(1) of 

this section. PBGC will guarantee 

$1,500, the amount of the participant’s 

accrued benefit (as a straight-life 

annuity) as of the bankruptcy filing 

date. 

(ii) Joint-and-survivor annuity. The 

facts are the same as Example (i) 

(paragraph (e)(2)(i) of this section), 

except that the participant elects to 

receive his benefit as a 50% joint-andsurvivor annuity. Before plan 

termination, the participant was 

receiving a total benefit of $1,777: His 

$1,530 accrued benefit, reduced by 10% 

for the survivor benefit, plus the $400 

temporary supplement. From the 

termination date until the participant 

reaches age 62, PBGC will guarantee 

$1,500: The $1,500 accrued benefit (as 

a straight-life annuity) as of the 

bankruptcy filing date, reduced to 

$1,350 to reflect the 10% reduction for 

the survivor benefit, plus $150 of the 

temporary supplement that, in 

combination with the $1,350, does not 

exceed the $1,500 accrued-at-normal 

limit. When the participant reaches age 

62, his guaranteed benefit is reduced to 

$1,350, because under plan provisions 

the temporary supplement ceases at that 

time. 

■ 9. Revise § 4022.22 to read as follows: 

§ 4022.22 Maximum guaranteeable benefit. 

(a) In general. Subject to section 

4022B of ERISA and part 4022B of this 

chapter, and except as provided in 

paragraph (b) of this section, benefits 

payable with respect to a participant 

under a plan shall be guaranteed only to 

the extent that such benefits do not 

exceed the actuarial value of a benefit in 

the form of a life annuity payable in 

monthly installments, commencing at 

age 65, equal to the lesser of— 

(1) One-twelfth of the participant’s 

average annual gross income from his 

employer during either his highest-paid 

five consecutive calendar years in 

which he was an active participant 

under the plan, or if he was not an 

active participant throughout the entire 

such period, the lesser number of 

calendar years within that period in 

which he was an active participant 

under the plan; or 

(2) $750 multiplied by the fraction x/ 

$13,200 where ‘‘x’’ is the Social Security 

contribution and benefit base 

determined under section 230 of the 

Social Security Act in effect at the 

termination date of the plan. 


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Federal Register / Vol. 76, No. 114 / Tuesday, June 14, 2011 / Rules and Regulations 34603 

(b) PPA 2006 bankruptcy termination. 

In a PPA 2006 bankruptcy termination— 

(1) The five-year period described in 

paragraph (a)(1) of this section shall not 

include any calendar years that end 

after the bankruptcy filing date. 

(2) ‘‘Bankruptcy filing date’’ is 

substituted for ‘‘termination date of the 

plan’’ in paragraph (a)(2) of this section. 

Example: A contributing sponsor files a 

bankruptcy petition in 2007. The 

sponsor’s plan terminates in a distress 

termination with a termination date in 

2008. PBGC will compute participants’ 

maximum guaranteeable benefits based 

on the amount determined under 

paragraph (a)(2) for 2007 ($4,125.00 as 

a straight-life annuity starting at age 65). 

(c) Gross income. For purposes of 

paragraph (a)(1) of this section— 

(1) Gross income means ‘‘earned 

income’’ as defined in section 911(d)(2) 

of the Code, determined without regard 

to any community property laws. 

(2) If the plan is one to which more 

than one employer contributes, and 

during any calendar year the participant 

received gross income from more than 

one such contributing employer, then 

the amounts so received shall be 

aggregated in determining the 

participant’s gross income for the 

calendar year. 

■ 10. In § 4022.23, add paragraph (g) to 

read as follows: 

§ 4022.23 Computation of maximum 

guaranteeable benefits. 

* * * * * 

(g) PPA 2006 bankruptcy termination. 

(1) In a PPA 2006 bankruptcy 

termination, except as provided in the 

next sentence, ‘‘bankruptcy filing date’’ 

is substituted for ‘‘termination date’’ 

and ‘‘date of plan termination’’ each 

place that ‘‘termination date’’ or ‘‘date of 

plan termination’’ appears in paragraphs 

(c), (d), and (f) of this section. In any 

case in which an event (such as the 

death of a participant or beneficiary 

who was alive on the bankruptcy filing 

date) that affects who is receiving or 

will receive a benefit from PBGC has 

occurred on or before the termination 

date, PBGC will determine the factors in 

paragraphs (d), (e), and (f) based on the 

form of benefit that was being paid (or 

was payable) and the person who was 

receiving or was entitled to receive the 

benefit from PBGC as of the termination 

date. (The case of Participant C in the 

example below illustrates this 

exception.) 

(2) Example. (i) Facts. The 

contributing sponsor of a plan files a 

bankruptcy petition in July 2007, and 

the sponsor’s plan terminates in a 

PBGC-initiated termination with a 

termination date in July 2008. At the 

bankruptcy filing date: 

(A) Participant A was age 64 and 

receiving a benefit from the plan in the 

form of a 10-year certain-andcontinuous annuity, with 4 years 

remaining in the certain period. 

(B) Participant B was age 60 and 

6 months and was still working. She 

began receiving a benefit from the plan 

in the form of a 50% joint-and-survivor 

annuity when she turned 61 in January 

2008. Her spouse was the same age as 

she. 

(C) Participant C was age 60 and was 

receiving a $3,000/month benefit from 

the plan in the form of a 50% joint-andsurvivor annuity, with his spouse, age 

58, as his beneficiary. Participant C he 

died in February 2008 and in March 

2008 his spouse began receiving a 50% 

survivor annuity of $1,500/month. 

(D) Participant D was age 59 and was 

still working; he began receiving a 

straight-life annuity from the PBGC in 

July 2010 when he was 62 years old. 

(ii) Conclusions. In accordance with 

§ 4022.22(b)(2), PBGC computes the 

maximum guaranteeable monthly 

benefit for Participants A, B, and D and 

for the spouse of Participant C based on 

the $4,125.00 amount determined under 

§ 4022.22(a)(2) for 2007. (The grossincome-based limitation in 

§ 4022.22(a)(1) does not apply to any of 

these participants.) 

(A) Participant A’s maximum 

guaranteeable monthly benefit is 

$3,759.53 [$4,125.00 × .93 (7% 

reduction for a benefit starting at age 64) 

× .98 (2% reduction for a certain-andcontinuous annuity with 4 years 

remaining in the certain period)]. 

(B) Participant B’s maximum 

guaranteeable monthly benefit is 

$2,673.00 [$4,125.00 × .72 (28% 

reduction for a benefit starting at age 61) 

× .90 (10% reduction due to the 50% 

joint-and-survivor feature)]. 

(C) Participant C’s spouse’s maximum 

guaranteeable monthly benefit is 

$2,351.25 [$4,125.00 × .57 (43% 

reduction for a benefit starting at age 58; 

no reduction for the form of benefit 

because the spouse’s survivor benefit is 

a straight-life annuity)]. Because that 

amount exceeds the spouse’s $1,500 

monthly survivor benefit, the spouse’s 

benefit is not reduced by the maximum 

guaranteeable benefit limitation. 

(D) Participant D’s maximum 

guaranteeable monthly benefit is 

$3,258.75 [$4,125.00 × .79 (21% 

reduction for a benefit starting at age 

62)]. 

■ 11. In § 4022.24, add paragraph (f) to 

read as follows: 

§ 4022.24 Benefit increases. 

* * * * * 

(f) PPA 2006 bankruptcy termination. 

In a PPA 2006 bankruptcy termination, 

except as provided in the next sentence, 

‘‘bankruptcy filing date’’ is substituted 

for ‘‘termination date’’ each place that 

‘‘termination date’’ appears in 

paragraphs (a) and (c) of this section. In 

any case in which an event (such as the 

death of a participant or beneficiary 

who was alive on the bankruptcy filing 

date) that affects who is receiving or 

will receive a benefit from PBGC has 

occurred on or before the termination 

date, PBGC will compute the benefit 

based on the form of benefit that was 

being paid (or was payable) and the 

person who was receiving or was 

entitled to receive the benefit from 

PBGC as of the termination date, 

consistent with § 4022.23(g). 

■ 12. In § 4022.25, add paragraph (f) to 

read as follows: 

§ 4022.25 Five-year phase-in of benefit 

guarantee for participants other than 

substantial owners. 

* * * * * 

(f) PPA 2006 bankruptcy termination. 

In a PPA 2006 bankruptcy termination, 

‘‘bankruptcy filing date’’ is substituted 

for ‘‘termination date’’ each place that 

‘‘termination date’’ appears in 

paragraphs (c) and (d) of this section. 

Example: A plan amendment that was 

adopted and effective in February 2007 

increased a participant’s benefit by $300 

per month (as computed under 

§ 4022.24). The contributing sponsor of 

the plan filed a bankruptcy petition in 

March 2009 and the plan has a 

termination date in April 2010. PBGC’s 

guarantee of the participant’s benefit 

increase is limited to $120 ($300 × 

40%), because the increase was made 

more than 2 years but less than 3 years 

before the bankruptcy filing date. 

Subpart C—Section 4022(c) Benefits 

■ 13. Revise the heading for subpart C 

to read as set forth above. 

■ 14. Add new § 4022.51 under subpart 

C to read as follows: 

§ 4022.51 Determination of section 4022(c) 

benefits in a PPA 2006 bankruptcy 

termination. 

(a) Amount of unfunded 

nonguaranteed benefits. For purposes of 

this section, and subject to paragraph (b) 

of this section, a plan’s amount of 

unfunded nonguaranteed benefits 

means the plan’s outstanding amount of 

benefit liabilities, as defined in section 

4001(a)(19) of ERISA, determined as of 

the plan’s termination date. A plan’s 

amount of unfunded nonguaranteed 


jdjones on DSK8KYBLC1PROD with RULES
34604 Federal Register / Vol. 76, No. 114 / Tuesday, June 14, 2011 / Rules and Regulations 

benefits is multiplied by the applicable 

recovery ratio to determine the aggregate 

amount to be allocated with respect to 

participants of the plan under section 

4022(c)(1) of ERISA. 

(b) Benefits included in unfunded 

nonguaranteed benefits. For purposes of 

computing benefits under section 

4022(c) of ERISA in a PPA 2006 

bankruptcy termination, unfunded 

nonguaranteed benefits are benefits 

under a plan as of the plan’s termination 

date that are neither guaranteed by 

PBGC (taking into account section 

4022(g) of ERISA) nor funded by the 

plan’s assets (taking into account 

section 4044(e) of ERISA). 

(c) Determination of recovery ratio. In 

a PPA 2006 bankruptcy termination, the 

recovery ratio under section 4022(c)(3) 

of ERISA is determined as follows. The 

numerator is based on PBGC’s 

recoveries under section 4062, 4063, or 

4064, valued as of the plan’s (or plans’) 

termination date (or dates). The 

denominator of the recovery ratio is 

based on the amount of unfunded 

benefit liabilities, as defined in section 

4001(a)(18) of ERISA, as of the plan’s (or 

plans’) termination date (or dates). 

■ 15. In § 4022.61: 

■ a. Amend paragraph (c) by removing 

‘‘4022.22(b)’’ and adding in its place 

‘‘4022.22(a)(2)’’ and by adding a 

sentence at the end. 

■ b. Amend paragraph (f) introductory 

text by removing ‘‘:’’ and adding in its 

place ‘‘.’’ and by adding a parenthetical 

reference at the end. 

The additions read as follows: 

§ 4022.61 Limitations on benefit payments 

by plan administrator. 

* * * * * 

(c) * * * In a PPA 2006 bankruptcy 

termination, the maximum 

guaranteeable benefit is determined as 

of the bankruptcy filing date, in 

accordance with §§ 4022.22(b) and 

4022.23(g). 

* * * * * 

(f) * * * (For examples addressing 

issues specific to a PPA 2006 

bankruptcy termination, see 

§§ 4022.21(e), 4022.22(b), and 

4022.23(g).) 

* * * * * 

■ 16. In § 4022.62: 

■ a. Redesignate paragraph (e) as 

paragraph (f). 

■ b. Amend the introductory text of 

newly redesignated paragraph (f) by 

removing ‘‘:’’ and adding in its place ‘‘.’’ 

and by adding a parenthetical reference 

at the end. 

■ c. Revise paragraphs (b)(1) and (b)(2), 

and add paragraph (b)(5) and new 

paragraph (e) to read as follows: 

§ 4022.62 Estimated guaranteed benefits. 

* * * * * 

(b) * * * 

(1) Non-PPA 2006 bankruptcy 

termination. In a non-PPA 2006 

bankruptcy termination: 

(i) For benefits payable with respect to 

a participant who is in pay status on or 

before the proposed termination date, 

the plan administrator shall use the 

participant’s age and benefit payable 

under the plan as of the proposed 

termination date. 

(ii) For benefits payable with respect 

to a participant who enters pay status 

after the proposed termination date, the 

plan administrator shall use the 

participant’s age as of the benefit 

commencement date and his service and 

compensation as of the proposed 

termination date. 

(2) PPA 2006 bankruptcy termination. 

In a PPA 2006 bankruptcy termination: 

(i) For benefits payable with respect to 

a participant who is in pay status on or 

before the bankruptcy filing date, the 

plan administrator shall use the 

participant’s age and benefit payable 

under the plan as of the bankruptcy 

filing date. 

(ii) For benefits payable with respect 

to a participant who enters pay status 

after the bankruptcy filing date, the plan 

administrator shall use the participant’s 

age as of the benefit commencement 

date and his service and compensation 

as of the bankruptcy filing date. 

* * * * * 

(5) Nothing in this paragraph (b) 

overrides the provisions of subparts A 

and B of part 4022 with respect to the 

requirements necessary for a benefit to 

be guaranteed by PBGC. 

* * * * * 

(e) PPA 2006 bankruptcy termination. 

In a PPA 2006 bankruptcy termination, 

‘‘bankruptcy filing date’’ is substituted 

for ‘‘proposed termination date’’ each 

place that ‘‘proposed termination date’’ 

appears in paragraph (c) of this section. 

(f) * * * (For an example addressing 

issues specific to a PPA 2006 

bankruptcy termination, see 

§ 4022.25(f).). 

* * * * * 

■ 17. In § 4022.63: 

■ a. Redesignate the introductory text of 

paragraph (c) as paragraph (c)(1) with 

the heading ‘‘In general.’’ 

■ b. Redesignate paragraph (c)(1) as 

paragraph (c)(1)(i) and redesignate 

paragraph (c)(2) as paragraph (c)(1)(ii). 

■ c. Add new paragraphs (b)(3) and 

(c)(2). 

■ d. In paragraph (e), amend Example 1 

by adding a paragraph at the end. 

The additions read as follows: 

§ 4022.63 Estimated title IV benefits. 

* * * * * 

(b) * * * 

(3) PPA 2006 bankruptcy termination. 

In a PPA 2006 bankruptcy termination, 

‘‘bankruptcy filing date’’ is substituted 

for ‘‘proposed termination date’’ in the 

first sentence of paragraph (b)(2) of this 

section. 

(c) * * * 

(2) PPA 2006 bankruptcy termination. 

In a PPA 2006 bankruptcy termination, 

‘‘bankruptcy filing date’’ is substituted 

for ‘‘proposed termination date’’ each 

place that ‘‘proposed termination date’’ 

appears in paragraph (c)(1) of this 

section. 

* * * * * 

(e) * * * 

Example 1. * * * 

* * * * * 

PPA 2006 bankruptcy termination. In 

a PPA 2006 bankruptcy termination, the 

methodology would be the same, but 

‘‘bankruptcy filing date’’ would be 

substituted for ‘‘proposed termination 

date’’ each place that ‘‘proposed 

termination date’’ appears in the 

example, and the numbers would 

change accordingly. 

* * * * * 

■ 18. In § 4022.81: 

■ a. Redesignate paragraphs (c)(3) and 

(4) as paragraphs (c)(4) and (5). 

■ b. Add new paragraph (c)(3) to read as 

follows: 

§ 4022.81 General rules. 

* * * * * 

(c) * * * 

(3) PPA 2006 bankruptcy termination. 

The provisions of paragraphs (c)(1) and 

(2) of this section regarding the 

overpayments and underpayments that 

will be included in the account balance 

apply regardless of whether the 

termination is a PPA 2006 bankruptcy 

termination. 

* * * * * 

■ 19. In § 4022.82, revise paragraph 

(a)(1) to read as follows: 

§ 4022.82 Method of recoupment. 

(a) * * * 

(1) Computation. The PBGC will 

determine the fractional multiplier by 

dividing the amount of the net 

overpayment by the present value of the 

benefit payable with respect to the 

participant under title IV of ERISA. 

(i) Non-PPA 2006 bankruptcy 

termination. In a non-PPA bankruptcy 

termination, the PBGC will determine 

the present value of the benefit to which 

a participant or beneficiary is entitled 

under title IV of ERISA as of the 

termination date, using the PBGC 

interest rates and factors in effect on 

that date. 


jdjones on DSK8KYBLC1PROD with RULES
Federal Register / Vol. 76, No. 114 / Tuesday, June 14, 2011 / Rules and Regulations 34605 

(ii) PPA 2006 bankruptcy termination. 

In a PPA 2006 bankruptcy termination, 

PBGC will determine the amount of 

benefit payable with respect to the 

participant under title IV of ERISA 

taking into account the limitations in 

sections 4022(g) and 4044(e) (and 

corresponding provisions of these 

regulations), and will determine the 

present value of that amount as of the 

termination date, using PBGC interest 

rates and factors in effect on the 

termination date. 

(iii) Facts and circumstances. The 

PBGC may, however, utilize a different 

date of determination if warranted by 

the facts and circumstances of a 

particular case. 

* * * * * 

PART 4044—ALLOCATION OF 

ASSETS IN SINGLE-EMPLOYER 

PLANS 

■ 20. The authority citation for part 

4044 is revised to read as follows (note 

is removed): 

Authority: 29 U.S.C. 1301(a), 1302(b)(3), 

1341, 1344, 1362. 

§ 4044.1 [Amended] 

■ 21. In § 4044.1: 

■ a. Amend paragraph (b)(1) by 

removing from the second sentence the 

words ‘‘receive or that expect to receive 

a Notice of Inability to Determine 

Sufficiency from PBGC and,’’ and by 

removing from the end of the paragraph 

the parenthetical ‘‘(See Note at 

beginning of part 4044.)’’. 

■ b. Amend paragraph (b)(2) by 

removing ‘‘received a Notice of 

Sufficiency issued by PBGC pursuant to 

part 2617 and has’’ and by removing 

‘‘(See Note at beginning of part 4044.)’’. 

§ 4044.2 [Amended] 

■ 22. In § 4044.2: 

■ a. Amend paragraph (a) by removing 

‘‘annuity, basic-type benefit’’ and 

adding in its place ‘‘annuity, bankruptcy 

filing date, basic-type benefit’’ and by 

removing ‘‘nonforfeitable benefit, 

normal retirement age’’ and adding in 

its place ‘‘nonforfeitable benefit, nonPPA 2006 bankruptcy termination, 

normal retirement age’’. 

■ b. In paragraph (b), amend the 

definition of ‘‘non-trusteed plan’’ by 

removing ‘‘receives a Notice of 

Sufficiency from PBGC and’’ and ‘‘in 

accordance with part 2617 of this 

chapter. (See Note at the beginning of 

part 4044.);’’; remove the definition of 

‘‘notice of sufficiency’’; and amend the 

definition of ‘‘valuation date’’ by 

removing ‘‘date of termination’’ and 

adding in its place ‘‘termination date’’. 

■ c. In paragraph (e), remove the 

definition of ‘‘qualifying bid’’. 

§ 4044.3 [Amended] 

■ 23. In § 4044.3(b): 

■ a. Remove ‘‘pursuant to a Notice of 

Sufficiency under the provisions of 

subpart C of part 2617 of this chapter’’ 

and add in its place ‘‘under § 4041.28 or 

§ 4041.50’’. 

■ b. Remove ‘‘(See Note at beginning of 

part 4044.)’’. 

§ 4044.10 [Amended] 

■ 24. In § 4044.10, amend the last 

sentence of paragraph (b) by adding 

before the period at the end: ‘‘, but, in 

a PPA 2006 bankruptcy termination, 

subject to the limitations in sections 

4022(g) and 4044(e) of ERISA (and 

corresponding provisions of these 

regulations)’’. 

■ 25. In § 4044.13: 

■ a. Paragraph (a) is revised. 

■ b. Amend paragraph (b)(2)(i) by 

removing ‘‘Except as provided in the 

next sentence,’’ and adding in its place 

‘‘Except as provided in paragraph 

(b)(3),’’ and by removing the second 

sentence. 

■ c. Amend paragraph (b)(2)(ii) by 

removing the word ‘‘For’’ and adding 

‘‘Except as provided in paragraph (b)(3), 

for’’ in its place at the beginning of the 

first sentence. 

■ d. Paragraph (c) is added. 

The revision and addition read as 

follows: 

§ 4044.13 Priority category 3 benefits. 

(a) Definition. The benefits in priority 

category 3 are those annuity benefits 

that were in pay status before the 

beginning of the 3-year period ending 

on the termination date, and those 

annuity benefits that could have been in 

pay status (then or as of the next 

payment date under the plan’s rules for 

starting benefit payments) for 

participants who, before the beginning 

of the 3-year period ending on the 

termination date, had reached their 

Earliest PBGC Retirement Date (as 

determined under § 4022.10 of this 

chapter) based on plan provisions in 

effect on the day before the beginning of 

the 3-year period ending on the 

termination date. For example, in a plan 

with a termination date of September 1, 

2012, the benefits in priority category 3 

are those annuity benefits that were in 

pay status on or before September 1, 

2009, and those annuity benefits that 

could have been in pay status for 

participants who, on or before 

September 1, 2009, had reached their 

Earliest PBGC Retirement Date based on 

plan provisions in effect on September 

1, 2009. Benefit increases, as defined in 

§ 4022.2, that were in effect throughout 

the 5-year period ending on the 

termination date, including automatic 

benefit increases during that period to 

the extent provided in paragraph (b)(5) 

of this section, shall be included in 

determining the priority category 3 

benefit. For example, in a plan with a 

termination date of September 1, 2012, 

a benefit increase that was in effect 

throughout the 5-year period from 

September 2, 2007, to September 1, 

2012, is included in priority category 3. 

Benefits are primarily basic-type 

benefits, although nonbasic-type 

benefits will be included if any portion 

of a participant’s priority category 3 

benefit is not guaranteeable under the 

provisions of subpart A of part 4022 and 

§ 4022.21 of this chapter. 

* * * * * 

(c) PPA 2006 bankruptcy termination. 

In a PPA 2006 bankruptcy termination: 

(1) For purposes of this paragraph (c), 

‘‘applicable pre-termination period’’ 

means the period— 

(i) Beginning on the first day of the 5- 

year period ending on the bankruptcy 

filing date; and 

(ii) Ending on the termination date. 

For example, if the bankruptcy filing 

date is January 15, 2008, and the 

termination date is March 22, 2009, the 

applicable pre-termination period is the 

period beginning on January 16, 2003, 

and ending on March 22, 2009. 

(2) ‘‘Applicable pre-termination 

period’’ is substituted for ‘‘5-year period 

ending on the termination date’’ each 

place that ‘‘5-year period ending on the 

termination date’’ appears in paragraphs 

(a) and (b) of this section. 

(3) Except as provided in paragraph 

(a)(2) of this section, ‘‘bankruptcy filing 

date’’ is substituted for ‘‘termination 

date’’ and ‘‘date of the plan 

termination’’ each place that 

‘‘termination date’’ and ‘‘date of the 

plan termination’’ appear in paragraphs 

(a) and (b) of this section. In paragraph 

(b)(5) of this section, ‘‘the bankruptcy 

filing date’’ is substituted for 

‘‘termination’’ in the phrase ‘‘during the 

fourth and fifth years preceding 

termination.’’ 

(4) Example: A plan provides for 

normal retirement at age 65 and has 

only one early retirement benefit: a 

subsidized early retirement benefit for 

participants who terminate employment 

on or after age 60 with 20 years of 

service. These plan provisions have 

been unchanged since 1990. The 

contributing sponsor of the plan files a 

bankruptcy petition in June 2008, and 

the plan terminates during the 

bankruptcy with a termination date in 

September 2010. A participant retired in 


jdjones on DSK8KYBLC1PROD with RULES
34606 Federal Register / Vol. 76, No. 114 / Tuesday, June 14, 2011 / Rules and Regulations 

July 2007, at which time he was age 60 

and had 20 years of service, and began 

receiving the subsidized early 

retirement benefit. The participant has 

no benefit in priority category 3, 

because he was not eligible to retire 

three or more years before the June 2008 

bankruptcy filing date. 

§ 4044.14 [Amended] 

■ 26. Amend § 4044.14 by removing 

‘‘basic-type benefits that do not exceed 

the guarantee limits set forth in subpart 

B of part 4022 of this chapter’’ and 

adding in its place ‘‘guaranteed 

benefits’’. 

§ 4044.41 [Amended] 

■ 27. Amend § 4044.41, paragraph 

(a)(2), by removing from the second 

sentence the words ‘‘with respect to 

which PBGC has issued a Notice of 

Sufficiency’’ and removing from the end 

the parenthetical ‘‘(See Note at 

beginning of part 4044.)’’. 

§ 4044.71 [Amended] 

■ 28. Amend § 4044.71 by removing 

‘‘under the qualifying bid’’. 

§ 4044.72 [Amended] 

■ 29. Amend § 4044.72, paragraph 

(a)(2), by removing ‘‘pursuant to 

§ 2617.4(c) of this chapter’’ and ‘‘(See 

Note at beginning of part 4044.)’’. 

§ 4044.73 [Amended] 

■ 30. In § 4044.73: 

■ a. In paragraph (b), first sentence, 

remove ‘‘pursuant to § 2617.12 of part 

2617 of this chapter’’. 

■ b. At the end of the section, remove 

‘‘(See Note at beginning of part 4044.)’’. 

§ 4044.75 [Amended] 

■ 31. In 4044.75: 

■ a. In paragraph (a), remove 

‘‘qualifying bid’’ and add in its place 

‘‘irrevocable commitment’’. 

■ b. At the end of the section, remove 

‘‘(See Note at beginning of part 4044.)’’. 

Issued in Washington, DC, this 3rd day of 

June 2011. 

Joshua Gotbaum, 

Director, Pension Benefit Guaranty 

Corporation. 

Issued on the date set forth above pursuant 

to a resolution of the Board of Directors 

authorizing publication of this final rule. 

Judith R. Starr, 

Secretary, Board of Directors, Pension Benefit 

Guaranty Corporation. 

[FR Doc. 2011–14241 Filed 6–13–11; 8:45 am] 

BILLING CODE 7709–01–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 100 

[Docket No. USCG–2011–0235] 

RIN 1625–AA08 

Special Local Regulation; 

Monongahela River, Morgantown, WV 

AGENCY: Coast Guard, DHS. 

ACTION: Temporary final rule. 

SUMMARY: The Coast Guard is 

establishing a temporary special local 

regulation from mile marker 101.0 

(Morgantown Highway Bridge) to mile 

marker 102.0 (Morgantown Lock and 

Dam) on the Monongahela River, 

extending the entire width of the river. 

The special local regulation is being 

established to safeguard participants of 

the Mountaineer Triathlon from the 

hazards of marine traffic. Entry into, 

movement within, and departure from 

this Coast Guard regulated area is 

prohibited unless authorized by the 

Captain of the Port or a designated 

representative. 

DATES: This proposed rule is effective 

from 5:45 a.m. until 10 a.m. on June 26, 

2011. 

ADDRESSES: Documents indicated in this 

preamble as being available in the 

docket are part of docket USCG–2011– 

0235 and are available online by going 

to http://www.regulations.gov, inserting 

USCG–2011–0235 in the ‘‘Keyword’’ 

box, and then clicking ‘‘Search.’’ They 

are also available for inspection or 

copying at the Docket Management 

Facility (M–30), U.S. Department of 

Transportation, West Building Ground 

Floor, Room W12–140, 1200 New Jersey 

Avenue, SE., Washington, DC 20590, 

between 9 a.m. and 5 p.m., Monday 

through Friday, except Federal holidays. 

FOR FURTHER INFORMATION CONTACT: If 

you have questions on this proposed 

rule, call or e-mail ENS Robyn Hoskins, 

Marine Safety Unit Pittsburgh, Coast 

Guard; telephone 412–644–5808 Ext. 

2140, e-mail 

Robyn.G.Hoskins@uscg.mil. If you have 

questions on viewing or submitting 

material to the docket, call Renee V. 

Wright, Program Manager, Docket 

Operations, telephone 202–366–9826. 

SUPPLEMENTARY INFORMATION: 

Regulatory Information 

The Coast Guard is issuing this 

temporary final rule without prior 

notice and opportunity to comment 

pursuant to authority under section 4(a) 

of the Administrative Procedure Act 

(APA) (5 U.S.C. 553(b)). This provision 

authorizes an agency to issue a rule 

without prior notice and opportunity to 

comment when the agency for good 

cause finds that those procedures are 

‘‘impracticable, unnecessary, or contrary 

to the public interest.’’ Under 5 U.S.C. 

553(b)(B), the Coast Guard finds that 

good cause exists for not publishing a 

notice of proposed rulemaking (NPRM). 

Publishing a NPRM would be 

impracticable with respect to this rule 

based on the short notice given the 

Coast Guard for this event. Immediate 

action is needed to safeguard 

participants during the Mountaineer 

Triathlon marine event from the hazards 

imposed by marine traffic. 

Under 5 U.S.C. 553(d)(3), the Coast 

Guard finds that good cause exists for 

making this rule effective less than 30 

days after publication in the Federal 

Register. Publishing an NPRM and 

delaying its effective date would be 

impracticable based on the short notice 

received for the event. Immediate action 

is needed to provide safety and 

protection during the Mountaineer 

Triathlon marine event that will occur 

in the city of Morgantown, WV. 

Basis and Purpose 

The Coast Guard is establishing a 

temporary special local regulation from 

mile marker 101.0 (Morgantown 

Highway Bridge) to mile marker 102.0 

(Morgantown Lock and Dam) on the 

Monongahela River, extending the 

entire width of the river. The special 

local regulation is being established to 

safeguard participants of the 

Mountaineer Triathlon from the hazards 

of marine traffic. 

Discussion of Rule 

The Captain of the Port Pittsburgh is 

establishing a temporary special local 

regulation from mile marker 101.0 

(Morgantown Highway Bridge) to mile 

marker 102.0 (Morgantown Lock and 

Dam) on the Monongahela River, 

extending the entire width of the river. 

The special local regulation is being 

established to safeguard participants of 

the Mountaineer Triathlon from the 

hazards of marine traffic that will occur 

in the city of Morgantown, WV. Persons 

or vessels shall not enter into, depart 

from, or move within the regulated area 

without permission from the Captain of 

the Port Pittsburgh or his authorized 

representative. They may be contacted 

on VHF–FM Channel 13 or 16, or 

through Coast Guard Sector Ohio Valley 

at 1–800–253–7465. This rule is 

effective from 5:45 a.m. to 10 a.m. on 

June 26, 2011. The Captain of the Port 

Pittsburgh will inform the public 


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