Federal Register / Vol. 79, No. 63 / Wednesday, April 2, 2014 / Proposed Rules 18483 

1Release No. 33–9117 (Apr. 7, 2010), 75 FR 

23328. 

2Release No. 33–9244 (Jul. 26, 2011), 76 FR 

47948. 

3Release No. 33–9552 (Feb. 25, 2014), 79 FR 

11361. 

4See Memorandum from the Commission’s 

Division of Corporation Finance (dated Feb. 25, 

2014), which is available on the Commission’s 

Internet Web site at http://www.sec.gov/comments/ 

s7–08–10/s70810.shtml. 

5See letters from Ally Financial Inc. dated Mar. 

14, 2014, Bank of America Corporation dated Mar. 

18, 2014, CNH Industrial Capital America LLC 

dated Mar. 20, 2014, Ford Motor Credit Company 

LLC dated Mar. 10, 2014, Mortgage Bankers 

Association dated Mar. 14, 2014, Structured 

Finance Industry Group dated Mar. 10, 2014, Volvo 

Financial Services dated Mar. 25, 2014 and World 

Omni Financial Corp. dated Mar. 24, 2014. The 

public comments we received are available at 

http://www.sec.gov/comments/s7-08-10/

s70810.shtml. 

Eastern Service Center, Federal Aviation 

Administration, P.O. Box 20636, 

Atlanta, Georgia 30320; telephone (404) 

305–6364. 

SUPPLEMENTARY INFORMATION: 

History 

On March 18, 2014, the FAA 

published in the Federal Register a 

NPRM to amend Class E airspace at 

Bridgeport, CT (79 FR 15064) Docket 

No. FAA–2014–0076. Subsequent to 

publication the FAA found that the 

Bridgeport VOR navigation aid has not 

been decommissioned and airspace 

redesign is not necessary. This proposed 

rule is being withdrawn. 

Lists of Subjects in 14 CFR Part 71 

Airspace, Incorporation by reference, 

Navigation (air). 

The Withdrawal 

Accordingly, pursuant to the 

authority delegated to me, the notice of 

proposed rulemaking, as published in 

the Federal Register on March 18, 2014 

(79 FR 15064) (FR Doc. 2014–05889), is 

hereby withdrawn. 

Authority: 49 U.S.C. 106(g); 40103, 40113, 

40120; E.O. 10854, 24 FR 9565, 3 CFR, 1959– 

1963 Comp., p. 389. 

Issued in College Park, Georgia, on March 

25, 2014. 

Eric Fox, 

Acting Manager, Operations Support Group, 

Eastern Service Center, Air Traffic 

Organization. 

[FR Doc. 2014–07291 Filed 4–1–14; 8:45 am] 

BILLING CODE 4910–13–P 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Parts 200, 229, 230, 232, 239, 

240, 243, and 249 

[Release Nos. 33–9568; 34–71830; File No. 

S7–08–10] 

RIN 3235–AK37 

Extension of Comment Period for 

Asset-Backed Securities Release 

AGENCY: Securities and Exchange 

Commission 

ACTION: Extension of comment period. 

SUMMARY: On February 25, 2014, the 

Securities and Exchange Commission 

re-opened the comment period on two 

releases related to asset-backed 

securities. The Commission re-opened 

the comment period to permit interested 

persons to comment on an approach for 

the dissemination of potentially 

sensitive asset-level data. The comment 

period is scheduled to end on March 28, 

2014. In light of public interest in 

providing comment on the approach, 

the Commission is extending the 

comment period until April 28, 2014 to 

permit interested persons additional 

time to analyze and comment on the 

approach. 

DATES: Comments should be received on 

or before April 28, 2014. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/proposed.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number S7– 

08–10 on the subject line; or 

• Use the Federal eRulemaking Portal 

(http://www.regulations.gov). Follow the 

instructions for submitting comments. 

Paper Comments 

• Send paper comments to Secretary, 

Securities and Exchange Commission, 

100 F Street NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number S7–08–10. This file number 

should be included on the subject line 

if email is used. To help us process and 

review your comments more efficiently, 

please use only one method. The 

Commission will post all comments on 

the Commission’s Internet Web site 

(http://www.sec.gov/rules/

proposed.shtml). Comments are also 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549 on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. All comments 

received will be posted without change; 

we do not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. 

FOR FURTHER INFORMATION CONTACT: 

Rolaine S. Bancroft, Senior Special 

Counsel, or Robert Errett, Special 

Counsel, at (202) 551–3850 in the Office 

of Structured Finance, Division of 

Corporation Finance, U.S. Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–3628. 

SUPPLEMENTARY INFORMATION: On 

February 25, 2014, we re-opened the 

comment period on two releases, AssetBacked Securities 1 and Re-Proposal of 

Shelf Eligibility Conditions for AssetBacked Securities,2 to permit interested 

persons to comment on an approach for 

the dissemination of asset-level data,3

which is described in a staff 

memorandum, dated February 25, 2014, 

that has been previously included in the 

public comment file.4

The comment period is scheduled to 

end on March 28, 2014. We have 

received requests for an extension of 

time for public comment.5 The 

Commission believes that providing the 

public additional time to consider and 

comment on the matters outlined in the 

staff memorandum and submit 

comprehensive responses would benefit 

the Commission in its consideration of 

the final rules. Therefore, we are 

extending the comment period until 

April 28, 2014. 

By the Commission. 

Date: March 28, 2014. 

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–07356 Filed 4–1–14; 8:45 am] 

BILLING CODE 8011–01–P 

PENSION BENEFIT GUARANTY 

CORPORATION 

29 CFR Parts 4001, 4022, and 4044 

RIN 1212–AB23 

Title IV Treatment of Rollovers From 

Defined Contribution Plans To Defined 

Benefit Plans 

AGENCY: Pension Benefit Guaranty 

Corporation. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would 

amend PBGC’s regulations on allocation 

of assets and benefits payable in 

terminated single-employer plans to 

clarify the treatment of benefits 

resulting from a rollover distribution 

from a defined contribution plan or 

other qualified trust to a defined benefit 

plan, if the defined benefit plan was 

terminated and trusteed by PBGC. This 


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18484 Federal Register / Vol. 79, No. 63 / Wednesday, April 2, 2014 / Proposed Rules 

1References to the Code should be read to 

include the parallel provision under ERISA. 

2Code section 417(e)(3) was amended in 1994 

(Pub. L. 103–465) to specify an applicable mortality 

table, which is part of the determination of actuarial 

equivalence under IRS guidance. See Prop. Treas. 

Reg. § 1.411(c)–1. 

3 Generally, contributions by employees to 

defined benefit plans (whether mandatory or 

voluntary) are not deductible for federal income tax 

purposes. Under Code section 411(d)(5), voluntary 

contributions are treated in the same manner as 

employee contributions to a defined contribution 

plan for which a separate account is maintained; 

the accrued benefit derived from such contributions 

is generally determined as the amount of those 

contributions, plus income, expenses, and gains 

and losses attributable thereto. 

4Plan assets must be allocated to each priority 

category in succession, beginning with priority 

category one (PC1). The benefits assigned to each 

priority category under section 4044 of ERISA in 

general are as follows: 

• PC1: The portion of a participant’s accrued 

benefit derived from the participant’s voluntary 

contributions. 

• PC2: The portion of a participant’s accrued 

benefit derived from the participant’s mandatory 

contributions. 

• PC3: 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 (or 

bankruptcy filing date, if applicable), 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 such three-year period, 

provided that the benefit was the lowest benefit 

payable under the plan provisions at any time 

during the five-year period ending on the 

termination date (or bankruptcy filing date, if 

applicable). 

• PC4: All other guaranteed benefits. 

• PC5: All other nonforfeitable benefits. 

• PC6: All other benefits. 

5 In general, an eligible rollover distribution is a 

lump sum distribution, or any other distribution of 

a participant’s benefit, that is not one of a series of 

substantially equal periodic payments made at least 

annually for a period of 10 years or more. There are 

several exceptions to the types of distributions that 

are eligible to be rolled over. See Code section 

402(c)(4). An election of a rollover requires a 

distributable event under the plan, such as the 

proposed clarification of Title IV 

treatment of rollovers is part of PBGC’s 

efforts to enhance retirement security by 

promoting lifetime income options. 

DATES: Comments must be submitted on 

or before June 2, 2014. 

ADDRESSES: Comments, identified by 

Regulatory Information Number (RIN 

1212–AB23) may be submitted to any by 

the following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the Web 

site instructions for submitting 

comments. 

• Email: reg.comments@pbgc.gov. 

• Fax: 202–326–4224. 

• Mail or Hand Delivery: Legislative 

and Regulatory Department, Pension 

Benefit Guaranty Corporation, 1200 K 

Street NW., Washington, DC 20005– 

4026. 

Comments received, including personal 

information provided, will be posted to 

www.pbgc.gov. Copies of comments may 

also be obtained by writing to 

Disclosure Division, Office of the 

General Counsel, Pension Benefit 

Guaranty Corporation, 1200 K Street 

NW., Washington, DC 20005–4026, or 

calling 202–326–4040 during normal 

business hours. (TTY and TDD users 

may call the Federal relay service toll 

free at 1–800–877–8339 and ask to be 

connected to 202–326–4040.) 

FOR FURTHER INFORMATION CONTACT: 

Catherine B. Klion 

(klion.catherine@pbgc.gov), Assistant 

General Counsel, Office of the General 

Counsel, Pension Benefit Guaranty 

Corporation, 1200 K Street NW., 

Washington, DC 20005–4026; 202–326– 

4024. (TTY and TDD users may call the 

Federal relay service toll free at 1–800– 

877–8339 and ask to be connected to 

202–326–4024.) 

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. At times, plans 

trusteed by PBGC include contributions 

made by employees that fund part of the 

benefit under the plan. 

Mandatory Contributions 

A plan may be funded in whole or in 

part by mandatory contributions. Under 

section 4044(b)(6) of ERISA, the term 

‘‘mandatory contributions’’ means 

amounts contributed to the plan by a 

participant, which are required as a 

condition of employment, as a condition 

of participation in such plan, or as a 

condition of obtaining benefits under 

the plan attributable to employer 

contributions. See also section 

411(c)(2)(C) of the Internal Revenue 

Code (‘‘Code’’) and section 204(c)(2)(C) 

of ERISA. 

Section 411(c)(1) of the Code 1

provides that an employee’s accrued 

benefit derived from employer 

contributions as of any date is the 

excess, if any, of the accrued benefit for 

the employee as of that date over the 

accrued benefit derived from 

contributions made by the employee as 

of that date. Section 411(c)(2) of the 

Code provides the rules for determining 

an employee’s accrued benefit derived 

from the employee’s mandatory 

contributions to a defined benefit plan. 

Section 411(c)(2)(B) provides that the 

accrued benefit derived from mandatory 

employee contributions is equal to the 

employee’s contributions accumulated 

to normal retirement age using specified 

rates under section 411(c)(2)(C), and 

converted to an actuarially equivalent 

annuity commencing at normal 

retirement age, using an interest rate 

under section 417(e)(3) of the Code as of 

the determination date.2

Typically, mandatory employee 

contributions are required under the 

plan as a percentage of the employee’s 

compensation. They are withheld from 

the salary of the employee by the 

employer and deposited to the 

employee’s credit in the defined benefit 

plan on an after-tax basis.3 Such 

mandatory contributions have generally 

been used to fund a portion of the 

participant’s accrued benefit as 

determined under the plan’s benefit 

formula and are required in order to 

receive the portion of the accrued 

benefit derived from employer 

contributions. 

When a plan terminates in a distress 

termination or an involuntary 

termination, each participant’s plan 

benefit is assigned to one or more of six 

‘‘priority categories’’ that are described 

in paragraphs (1) through (6) of section 

4044(a) of ERISA.4 Participants’ accrued 

benefits derived from mandatory 

employee contributions are assigned to 

PC2. Because benefits in PC2 have a 

higher claim on plan assets than nearly 

all other benefits under the plan, when 

an underfunded plan terminates, plan 

assets are usually (but not always) 

sufficient to pay accrued benefits 

derived from mandatory employee 

contributions. 

Although PBGC generally pays 

benefits only in annuity form, PBGC’s 

regulations allow a return of mandatory 

employee contributions in a single 

installment (or a series of installments), 

provided certain conditions are met (see 

§ 4022.7(b)(2)). 

Rollover Benefits Under the Code and 

Treasury/IRS Guidance 

Section 401(a)(31) of the Code 

requires a qualified plan to permit a 

distributee of any eligible rollover 

distribution to elect a direct rollover of 

any part of the distribution to an eligible 

retirement plan.5 Payment in the form of 


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Federal Register / Vol. 79, No. 63 / Wednesday, April 2, 2014 / Proposed Rules 18485 

participant’s severance from employment or the 

attainment of normal retirement age. The taxable 

portion of an eligible rollover distribution from a 

qualified plan is generally subject to 20 percent 

mandatory withholding of Federal tax unless a 

direct rollover to an eligible retirement plan is 

made. See Code section 3405(c). 

6Code section 401(a)(31). 

7http://www.irs.gov/irb/2012-08_IRB/ar08.html. 

Footnote 1 of Rev. Rul. 2012–4 stated that PBGC 

was developing guidance on the Title IV treatment 

of benefits under a defined benefit plan resulting 

from a rollover. This proposed rule is part of the 

development of that guidance. 

8Rev. Rul. 2012–4 states that if a plan’s certified 

or presumed adjusted funding target attainment 

percentage under Code section 436(j)(2) were to 

drop below 60%, the plan would not be permitted 

to receive direct rollover contributions because 

such rollover contributions would give rise to 

additional benefit accruals that are not permitted 

under Code section 436(e). 

9Rev. Rul. 2012–4 states that this contribution of 

the employee is required as a condition of receiving 

additional benefits under the defined benefit plan 

attributable to employer contributions. Thus, if the 

amount of the rollover is insufficient to provide for 

the benefit derived from mandatory employee 

contributions (for example, if the actual return on 

plan assets is less than the rate that was assumed 

in determining that benefit), the employer would be 

required to make additional contributions to fund 

that benefit. 

a direct rollover to a defined benefit 

plan is allowed only if the defined 

benefit plan accepts rollover 

contributions.6 Section 402(c) of the 

Code permits an individual receiving an 

eligible rollover distribution from a 

qualified plan, individual retirement 

plan, or certain other plans to elect to 

roll over any portion of that distribution 

within a specified time to an eligible 

retirement plan that accepts the rollover 

(including a defined benefit plan). 

On February 21, 2012, the Department 

of the Treasury and the Internal 

Revenue Service (IRS) issued Rev. Rul. 

2012–4, 2012–8 I.R.B. 386,7 which 

clarified certain qualification 

requirements under section 401(a) of the 

Code for use of rollover amounts to 

provide an additional benefit under a 

defined benefit plan. Under the facts of 

the example provided in Rev. Rul. 

2012–4, a qualified defined benefit plan 

provides that it will accept a direct 

rollover of a distribution from a 

qualified defined contribution plan 

maintained by the same employer for an 

employee or former employee of the 

employer who separates from service 

after age 55 with at least 10 years of 

service and elects to commence an 

immediate annuity of the employee’s 

benefit under the plan (including the 

additional benefit resulting from the 

direct rollover).8

Rev. Rul. 2012–4 treats the amounts 

rolled over as mandatory employee 

contributions for purposes of section 

411(c) of the Code.9 The ruling states 

that the plan satisfies section 411(c)(2) 

of the Code with respect to the rollover 

because— 

1. The benefit resulting from the direct 

rollover is provided as an immediate annuity 

determined as the actuarial equivalent of the 

amount rolled over, where actuarial 

equivalence is determined using the 

applicable interest rate and mortality table 

under section 417(e)(3) of the Code; and 

2. The plan further provides that, in the 

event payment is delayed after the rollover, 

interest on the rollover contribution is 

accumulated in accordance with the 

requirements of Code section 411(c)(2)(C)(iii) 

and the benefit derived from the rollover is 

not forfeitable upon death prior to the 

annuity starting date. 

Under the ruling, an accrued benefit 

derived from mandatory employee 

contributions that is determined under 

the rules of section 411(c)(2) of the Code 

does not fail to satisfy the 

nonforfeitability rules under section 

411(a) of the Code and may be excluded 

from the participant’s annual benefit for 

purposes of the maximum benefit 

limitation under section 415(b) of the 

Code. 

The ruling further provides that, if the 

plan provided an annuity with respect 

to the rollover in excess of the amount 

determined under the rules of section 

411(c) of the Code, such as by using a 

more favorable actuarial conversion 

basis than required by those rules, the 

portion of the benefit resulting from the 

rollover amounts that exceeded the 

benefit derived from mandatory 

employee contributions as determined 

under section 411(c)(2) of the Code 

would be subject to the requirements 

applicable to a benefit attributable to 

employer contributions. The ruling 

notes that, in this case, the liability for 

the total benefit resulting from the 

rollover (including the portion of the 

accrued benefit considered to be derived 

from employer contributions because it 

exceeds the amount determined under 

section 411(c)(2)(B)) would likely 

exceed the amounts rolled over, 

requiring additional funding by the 

employer, and the excess amount over 

the amount determined under section 

411(c)(2)(B) would be included in the 

annual benefit for purposes of section 

415(b) of the Code. 

Following clarification by Treasury 

and IRS of certain qualification 

requirements concerning rollovers in 

Rev. Rul. 2012–4, PBGC is proposing to 

amend its regulations to provide 

guidance on Title IV treatment of 

rollovers, both in anticipation of 

increased use of rollovers, and as part of 

its efforts to promote retirement 

security. The availability of a rollover of 

a participant’s retirement savings in a 

401(k) or other defined contribution 

plan to a defined benefit plan expands 

the opportunities for participants to 

elect lifetime annuity options. 

Overview of Proposed Regulation 

PBGC is proposing to amend PBGC’s 

regulations on Benefits Payable in 

Terminated Single-Employer Plans (29 

CFR part 4022) and Allocation of Assets 

in Single-Employer Plans (29 CFR part 

4044). The proposed amendments 

would establish or clarify the rules for 

treatment of rollovers in plans that 

terminate underfunded, the most 

important of which are: 

• A benefit resulting from rollover 

amounts would be treated as an accrued 

benefit derived from mandatory 

employee contributions in PC2 (which 

has a higher claim on plan assets than 

nearly all other benefits under the plan), 

to the extent that the benefit is 

determined using the rules of Code 

section 411(c)(2)(B). 

• Unlike other PC2 benefits, PC2 

benefits resulting from rollover amounts 

would generally not be payable in lump 

sum form. 

• The portion of any benefit resulting 

from rollover amounts that exceeds the 

accrued benefit derived from mandatory 

employee contributions (i.e., the portion 

derived from employer contributions) 

would be a guaranteeable benefit in 

PC3, PC4, or PC5, as applicable. 

• The participant’s accrued benefit 

resulting from rollover amounts 

generally would not be subject to 

PBGC’s maximum guaranteeable benefit 

limitation under section 4022(b) of 

ERISA and thus would not be taken into 

account in applying that limitation. 

However, the maximum guaranteeable 

benefit limitation would apply to any 

benefit resulting from rollover amounts 

that exceeds the accrued benefit treated 

as derived from mandatory employee 

contributions. 

• The participant’s accrued benefit 

resulting from rollover amounts 

generally would not be subject to the 

five-year phase-in limitation on the 

guarantee of benefit increases. However, 

the phase-in limitation would apply to 

any benefit resulting from rollover 

amounts that exceeds the accrued 

benefit treated as derived from 

mandatory employee contributions, 

with the phase-in period beginning as of 

the date the rollover contributions were 

received by the plan. 

A detailed discussion of the proposed 

regulation follows. 


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18486 Federal Register / Vol. 79, No. 63 / Wednesday, April 2, 2014 / Proposed Rules 

10The facts of the example in Rev. Rul. 2012–4 

involve an employee who separates from service 

after age 55 with at least ten years of service and 

elects to commence an immediate annuity. 

Although this example is used to illustrate the 

treatment of a direct rollover from a qualified plan 

into a defined benefit plan, rollovers are permitted 

in broader circumstances. This proposed rule is not 

limited to the facts in the example, but it is limited 

to rollovers that give rise to accrued benefits under 

a defined benefit plan formula. 

11 In addition, PBGC will pay mandatory 

employee contributions in a lump sum under a 

plan’s modified cash refund feature, which pays the 

excess of any accumulated mandatory employee 

contributions over the pension payments received 

by a participant upon his death, but only if this is 

the automatic form of benefit under the plan’s 

provisions (or is in a form that has been elected by 

a participant who commenced benefits prior to the 

date of PBGC trusteeship and dies after such date). 

12PBGC determines the amount of the lump sum 

benefit based on the participant’s accumulated 

contributions—i.e., the employee’s mandatory 

contributions credited with interest for the period 

through the plan’s termination date (but not less 

than the minimum lump sum required under 

section 411(c) of the Code upon withdrawal of 

mandatory employee contributions). Interest on that 

sum is thereafter based on PBGC’s late-payment 

interest rate until the participant’s distribution date. 

13PBGC would disregard any plan provision that 

allows an additional annuity resulting from rollover 

amounts to have an annuity starting date that differs 

from the annuity starting date for the remainder of 

the participant’s benefit under the plan. 

14 If no QPSA is payable, the mandatory 

contributions would be payable to a named 

beneficiary in a life annuity form that would 

commence at the same time as a QPSA could 

commence under PBGC’s regulations. In the case of 

a cash refund annuity (i.e., a post-retirement lump 

sum death benefit of the value of the participant’s 

mandatory contributions in excess of the pension 

payments received by the participant at the time of 

death), PBGC would include the value of the 

mandatory contributions in the qualified joint and 

survivor annuity (QJSA) to the spouse or, if no 

QJSA is payable, would pay such amounts to a 

named beneficiary in a life annuity form that would 

commence at the same time as a QJSA could 

commence under PBGC’s regulations. 

15See ERISA section 4022(b)(8) and PBGC’s 

proposed rule on Benefits Payable in Terminated 

Single-Employer Plans; Limitations on Guaranteed 

Benefits, 76 FR 13304 (Mar. 11, 2011). 

Proposed Regulatory Changes 

Benefits Payable in Terminated SingleEmployer Plans 

This proposed rule would amend 

PBGC’s benefit payments regulation to 

describe the calculation and payment of 

a benefit resulting from a distribution 

that is rolled over into a defined benefit 

plan that later terminates.10 Under the 

proposed rule, PBGC would treat the 

rollover amounts as mandatory 

employee contributions and would 

determine the employee’s accrued 

benefit derived from mandatory 

employee contributions using the rules 

of section 411(c)(2)(B) of the Code. This 

proposed rule relates solely to a benefit 

resulting from the rollover of a 

distribution. It does not affect PBGC’s 

treatment of any other contributions that 

may be used to fund benefits under a 

defined benefit plan or the employee’s 

benefit derived from such contributions, 

regardless of the characterization of 

those contributions or benefits, or their 

tax treatment. 

PBGC’s current regulation provides 

for the return of mandatory employee 

contributions in a single installment (or 

a series of installments) if a participant, 

or a beneficiary of a pre-retirement 

death benefit, so elects in accordance 

with the plan’s provisions.11 If a 

participant (or a surviving spouse) elects 

a return of mandatory employee 

contributions prior to the annuity 

starting date in the form of a lump sum, 

instead of as an annuity, the lump sum 

benefit is determined under 

§ 4044.12(c)(2) as the amount of the 

participant’s accumulated mandatory 

contributions.12 A withdrawal of the 

participant’s accumulated mandatory 

employee contribution results in an 

accrued benefit under the plan derived 

solely from employer contributions. 

The proposed regulation generally 

would not permit participants to receive 

a lump sum return of mandatory 

employee contributions attributable to 

rollover amounts. PBGC would 

disregard a plan’s provisions for the 

return of employee contributions in a 

lump sum and would make rollover 

amounts payable only in the form of an 

annuity. Because the participant had the 

chance to take the distribution from a 

defined contribution plan as a lump 

sum and chose to roll it into a defined 

benefit plan to obtain additional annuity 

benefits, it would seem anomalous to 

later allow the participant to convert the 

additional annuity back into a lump 

sum. Moreover, paying the additional 

benefit as an annuity is consistent with 

PBGC’s policy of promoting retirement 

security through preserving lifetime 

retirement income. 

Under the proposed rule, the annuity 

resulting from rollover amounts would 

be payable at the same time, and in the 

same form, as the remainder of the 

participant’s benefit under the plan to 

avoid administrative burden to PBGC.13

In the case of a plan that provides for 

a pre-retirement death benefit that 

returns the employee’s mandatory 

contributions in a single installment, 

PBGC would not allow the spouse of a 

participant who dies after the plan 

terminates to elect to withdraw the 

mandatory contributions attributable to 

rollover amounts in a single installment; 

instead, PBGC would include such 

contributions in the value of the plan’s 

qualified preretirement survivor annuity 

(QPSA) to the spouse.14 PBGC would 

determine whether a payment was de 

minimis (currently $5,000 or less under 

§ 4022.7(b)(1)(i)), and if so would base 

the amount of the payment on the lump 

sum value of the participant’s total 

benefit payable by PBGC (the benefit 

resulting from rollover amounts 

combined with the benefit excluding 

rollover amounts). 

Under section 4022 of ERISA, PBGC 

guarantees the payment of all 

nonforfeitable benefits provided by a 

plan, subject to two principal statutory 

limitations—the maximum 

guaranteeable benefit limitation and the 

five-year phase-in limitation. 

The amount of the maximum monthly 

guarantee is set by law and is updated 

each calendar year. The maximum 

guaranteeable benefit applicable to a 

plan is fixed as of that plan’s 

termination date. Under the Pension 

Protection Act of 2006, if a plan 

terminates during a plan’s sponsor’s 

bankruptcy and the sponsor entered 

bankruptcy on or after September 16, 

2006, the maximum guaranteeable 

benefit is fixed as of the date the 

sponsor entered bankruptcy. 

The five-year phase-in limitation 

generally applies to a benefit increase 

that has been in effect for less than five 

years. Generally, 20 percent of a benefit 

increase is guaranteed after one year, 40 

percent after two years, etc., with full 

phase-in of the guarantee after five 

years. If the amount of the monthly 

benefit increase is below $100, the 

annual rate of phase-in is $20 rather 

than 20 percent. For this purpose, a 

benefit increase resulting from a plan 

amendment is deemed to be in effect on 

the later of the amendment’s adoption 

date or its effective date. Under the 

Pension Protection Act of 2006, an 

unpredictable contingent event benefit 

is generally deemed to be in effect on 

the date the event occurred.15

Historically, PBGC has interpreted the 

statutory limitations to apply to the 

participant’s total nonforfeitable 

accrued benefit under a plan, including 

that portion of the benefit funded by 

traditional after-tax mandatory 

employee contributions. In the case of 

rollover amounts, however, PBGC 

proposes to exempt from these 

limitations the accrued benefit derived 

from mandatory employee contributions 

determined under the rules of Code 

section 411(c)(2)(B). The exemption 

would not apply to any benefit resulting 

from rollover amounts that exceeds the 

accrued benefit derived from employee 

contributions. 

Rollovers can help preserve 

participants’ retirement savings until 

retirement. They provide a valuable 

means for participants to withdraw their 

benefits from one retirement plan and 


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contribute them to another. Rollovers to 

defined benefit plans also provide 

lifetime-annuity protection at a 

competitive cost. Consistent with the 

Administration’s initiative on 

retirement security, PBGC wants to 

encourage the rollover and 

annuitization of distributions from 

defined contribution plans by providing 

assurances to participants that their 

benefits attributable to rollover amounts 

to a defined benefit plan will largely be 

protected from the limitations that 

might otherwise apply if the plan 

terminates and is trusteed by PBGC. 

There are a number of reasons why 

PBGC views benefits resulting from the 

portion of rollover amounts treated as 

mandatory employee contributions 

differently from other benefits under a 

plan. Unlike other mandatory employee 

contributions, rollover benefits require 

an affirmative election by the 

participant to roll over a pension 

distribution to obtain an additional 

annuity from a defined benefit plan. If 

the benefit resulting from rollover 

amounts caused a participant’s total 

benefit under the plan to exceed PBGC’s 

maximum guaranteeable benefit, 

participants might be reluctant to roll 

over benefits from defined contribution 

plans to defined benefit plans. Applying 

the five-year phase-in limitation to 

benefits resulting from rollover amounts 

similarly might make rollovers 

unattractive. 

The limitations on PBGC’s guarantee 

were designed to protect the pension 

insurance system from risk of loss. But 

rollovers do not present the same risk of 

loss to the insurance program as other 

benefits. A benefit derived from rollover 

amounts treated as mandatory employee 

contributions is considered under Rev. 

Rul. 2012–4 to be actuarially equivalent 

to the rollover amounts received by the 

defined benefit plan. Therefore, 

although a plan accepting a rollover 

becomes liable to pay additional 

benefits, it simultaneously receives 

additional funds of equivalent value. 

That is not true for most new benefit 

accruals. Accordingly, PBGC’s proposal 

to exempt benefits, to the extent derived 

from the portion of a rollover treated as 

mandatory employee contributions, 

from the maximum guaranteeable 

benefit and phase-in limitations is a 

reasonable statutory interpretation. 

In accordance with PBGC’s statutory 

interpretation, the proposed rule would 

amend § 4022.22 to exempt the rollover 

benefit amount derived from mandatory 

employee contributions from the 

maximum guaranteeable benefit 

limitation. Thus, PBGC would exclude 

that amount from its determination of 

the participant’s maximum 

guaranteeable benefit. However, any 

rollover benefit in excess of the benefit 

derived from employee contributions 

(i.e., any portion of the rollover benefit 

derived from employer contributions) 

would be combined with the annuity 

otherwise payable under the plan in 

determining the participant’s maximum 

guaranteeable benefit. 

Similarly, the proposed rule would 

amend § 4022.24 to exempt a 

participant’s rollover benefit derived 

from mandatory employee contributions 

from the five-year phase-in limitation. 

The five-year phase-in limitation would, 

however, apply to the portion of any 

rollover benefit derived from employer 

contributions, with that benefit portion 

deemed to be in effect on the date the 

rollover amounts were received by the 

plan (i.e., when the rollover amounts 

were treated as providing additional 

benefit accruals under the plan). 

PBGC’s regulations provide for a third 

guarantee limitation, the ‘‘accrued-atnormal’’ limitation, which restricts 

PBGC’s guarantee of temporary 

supplements. Under § 4022.21, PBGC’s 

guarantee cannot exceed the accrued 

benefit payable as a straight life annuity 

at normal retirement age. PBGC would 

include the annuity attributable to 

rollover amounts in the determination 

of the accrued-at-normal limitation, 

which would increase the limitation 

against which the participant’s entire 

benefit is measured, and would apply 

the accrued-at-normal limitation to the 

entire benefit, including rollover 

amounts. This would generally have the 

effect of increasing the participant’s 

guaranteeable benefit. 

Allocation of Assets in Single-Employer 

Plans 

The proposed rule would also amend 

PBGC’s asset allocation regulation to set 

forth rules for PBGC treatment of 

rollover benefits when a defined benefit 

plan terminates with insufficient assets 

to pay all benefits. 

Proposed new § 4044.12(b)(4) and 

(c)(4) describes the calculation of a 

participant’s total annuity benefit 

resulting from rollover amounts. For 

participants and beneficiaries not yet in 

pay status as of the termination date, the 

rollover amounts would be credited 

with interest payable under plan 

provisions to the plan’s termination 

date, and converted to an annuity 

benefit payable at the normal retirement 

age using the plan’s interest rates and 

conversion factors in effect as of the 

plan’s termination date for the 

conversion of such rollover amounts. 

Under the proposed rule, the portion 

of a participant’s accrued benefit 

resulting from rollover amounts derived 

from mandatory employee contributions 

would be determined using the rules of 

section 411(c) of the Code. Specifically, 

the participant’s accumulated 

mandatory employee contributions—the 

participant’s rollover amounts credited 

with interest at 120% of the Federal 

mid-term rate from the date of the 

rollover to the plan’s termination date— 

would be converted to an actuarially 

equivalent straight life annuity under 

the plan payable at the normal 

retirement age using the applicable 

interest rate and mortality table under 

section 417(e) of the Code as of the 

plan’s termination date. Consistent with 

Rev. Rul. 2012–4, which defines this 

annuity amount as the actuarial 

equivalent of an employee’s rollover 

amounts to a defined benefit plan, only 

an annuity benefit determined on this 

basis would be assigned to PC2. 

Rev. Rul. 2012–4 permits a qualified 

defined benefit plan to offer a subsidy 

with respect to a rollover by using a 

more generous annuity conversion 

factor than under the minimum rules for 

an actuarially equivalent annuity under 

section 411(c) of the Code, provided the 

additional qualification requirements 

applicable to a benefit derived from 

employer contributions are met. If, 

under the plan’s provisions, the benefit 

resulting from rollover amounts exceeds 

the annuity derived from mandatory 

employee contributions determined 

under the rules of section 411(c)(2) of 

the Code—for example, because the 

plan uses more generous conversion 

factors than those under section 417(e) 

of the Code—the proposed rule would 

treat the portion of the benefit in excess 

of the annuity derived from mandatory 

employee contributions under the rules 

of section 411(c)(2) as a benefit derived 

from employer contributions for 

purposes of assigning the benefits to the 

priority categories under part 4044. The 

annuity benefit derived from employer 

contributions would be a guaranteeable 

benefit in PC3, PC4, or PC5, as 

applicable, because it is a nonforfeitable 

benefit (i.e., a benefit for which the 

participant has satisfied all plan 

conditions for entitlement as of the 

plan’s termination date). Under section 

4022(a) of ERISA, PBGC is required to 

guarantee all nonforfeitable benefits 

provided by a plan, subject to the 

limitations contained in section 4022(b). 

Applicability 

The amendments made by this 

proposed rule would apply to 

terminations initiated on or after the 

effective date of the final rule. In the 

interim, PBGC will make determinations 

under the current regulations, consistent 

with IRS Rev. Rul. 2012–4, including 


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paying the return of employee 

contributions under a benefit resulting 

from rollover amounts in a single sum. 

Compliance With Rulemaking 

Requirements 

Executive Order 12866 ‘‘Regulatory 

Planning and Review’’ and Executive 

Order 13563 ‘‘Improving Regulation and 

Regulatory Review’’ 

PBGC has determined, in consultation 

with the Office of Management and 

Budget, that this rule is not a 

‘‘significant regulatory action’’ under 

Executive Order 12866. 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. Executive 

Orders 12866 and 13563 require a 

comprehensive regulatory impact 

analysis be performed for any 

economically significant regulatory 

action, defined as an action that would 

result in an annual effect of $100 

million or more on the national 

economy or which would have other 

substantial impacts. In accordance with 

OMB Circular A–4, PBGC has examined 

the economic and policy implications of 

this proposed rule and has concluded 

that the action’s benefits justify its costs. 

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.’’ PBGC 

has determined that this proposed rule 

does not cross the $100 million 

threshold for economic significance and 

is not otherwise economically 

significant. 

PBGC estimates that the annual 

economic impact of this proposed rule 

would be about $11,000,000. This is the 

amount PBGC estimates that 

participants who roll over benefits from 

defined contribution plans to defined 

benefit plans that subsequently 

terminate and are trusteed by PBGC in 

aggregate would gain (and PBGC would 

lose), as a result of the proposed 

regulatory change to exclude from the 

maximum guaranteeable benefit and 

phase-in limitations any benefit 

resulting from rollover amounts that 

does not exceed the accrued benefit 

derived from mandatory employee 

contributions. 

Since IRS has only recently provided 

guidance to defined benefit plans on 

calculating rollover amounts, PBGC has 

no historic data to draw upon in 

developing this estimate. Accordingly, 

PBGC made conservative assumptions 

based on its judgment about such factors 

as how many defined benefit plans 

would allow rollovers from defined 

contribution plans and how many 

participants in such plans would roll 

over benefits from defined contribution 

plans. 

Although it is difficult to predict with 

any certainty the annual economic 

impact of the proposed regulatory 

action, given that the estimate is so far 

below $100 million, PBGC has 

determined that the annual economic 

impact of the proposed rule would be 

less than $100 million. 

Regulatory Flexibility Act 

The Regulatory Flexibility Act 

imposes certain requirements with 

respect to rules that are subject to the 

notice and comment requirements of 

section 553(b) of the Administrative 

Procedure Act and that are likely to 

have a significant economic impact on 

a substantial number of small entities. 

Unless an agency determines that a 

proposed rule is not likely to have a 

significant economic impact on a 

substantial number of small entities, 

section 603 of the Regulatory Flexibility 

Act requires that the agency present an 

initial regulatory flexibility analysis at 

the time of the publication of the 

proposed rule describing the impact of 

the rule on small entities and seeking 

public comment on such impact. Small 

entities include small businesses, 

organizations and governmental 

jurisdictions. 

For purposes of the Regulatory 

Flexibility Act requirements with 

respect to this proposed rule, PBGC 

considers a small entity to be a plan 

with fewer than 100 participants. This 

criterion is consistent with certain 

requirements in Title I of ERISA and the 

Internal Revenue Code, as well as the 

definition of a small entity that the 

Department of Labor has used for 

purposes of the Regulatory Flexibility 

Act. 

Further, while some large employers 

that terminate plans may have small 

plans that terminate along with larger 

ones, in general most small plans are 

maintained by small employers. Thus, 

PBGC believes that assessing the impact 

of the final rule on small plans is an 

appropriate substitute for evaluating the 

effect on small entities. The definition 

of small entity considered appropriate 

for this purpose differs, however, from 

a definition of small business based on 

size standards promulgated by the Small 

Business Administration (13 CFR 

121.201) pursuant to the Small Business 

Act. PBGC therefore requests comments 

on the appropriateness of the size 

standard used in evaluating the impact 

on small entities of the amendments to 

the benefit payments regulation to 

implement this proposed rule. 

On the basis of its proposed definition 

of small entity, PBGC certifies under 

section 605(b) of the Regulatory 

Flexibility Act (5 U.S.C. 601 et seq.) that 

the amendments in this proposed rule 

would not have a significant economic 

impact on a substantial number of small 

entities. Virtually all, if not all, of the 

effect of this proposed rule will be on 

PBGC or persons who receive benefits 

from PBGC. Accordingly, as provided in 

section 605 of the Regulatory Flexibility 

Act (5 U.S.C. 601 et seq.), sections 603 

and 604 do not apply. 

List of Subjects 

29 CFR Part 4001 

Pensions. 

29 CFR Part 4022 

Pension insurance, Pensions. 

29 CFR Part 4044 

Pension insurance, Pensions. 

For the reasons given above, PBGC 

proposes to amend 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, add a definition for 

‘‘rollover amounts’’ in alphabetical 

order to read as follows: 

§ 4001.2 Definitions 

* * * * * 

Rollover amounts means the dollar 

amount of all or any part of a 

distribution that is rolled over into a 

defined benefit plan in accordance with 

section 401(a)(31) or 402(c) of the 

Internal Revenue Code. 

* * * * * 

PART 4022—BENEFITS PAYABLE IN 

TERMINATED SINGLE–EMPLOYER 

PLANS 

■ 3. The authority citation for part 4022 

continues to read as follows: 


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

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

§ 4022.7 [Amended] 

■ 4. Amend § 4022.7 as follows: 

■ a. In paragraph (b)(2)(i), add the 

phrase ‘‘except as provided in paragraph 

(b)(2)(iii) of this section,’’after the words 

‘‘Notwithstanding any other provision 

of this part,’’; 

■ b. Add paragraph (b)(2)(iii); and 

■ c. Revise paragraph (c)(2). 

The addition and revision read as 

follows: 

§ 4022.7 Benefits payable in a single 

installment. 

* * * * * 

(b) * * * 

(iii) Rollover amounts. The rule in 

paragraph (b)(2) of this section (dealing 

with return of employee contributions) 

does not apply to a participant’s 

accumulated mandatory employee 

contributions resulting from rollover 

amounts (as determined under 

§ 4044.12(c)(4)(i) of this chapter) or the 

benefit derived from such mandatory 

employee contributions. 

* * * * * 

(c) * * * 

(2) Exception. Except in the case of 

accumulated mandatory employee 

contributions resulting from rollover 

amounts (as determined under 

§ 4044.12(c)(4)(i) of this chapter), upon 

the death of a participant the PBGC may 

pay in a single installment (or a series 

of installments) that portion of the 

participant’s accumulated mandatory 

employee contributions that is payable 

under the plan in a single installment 

(or a series of installments) upon the 

participant’s death. 

* * * * * 

§ 4022.8 Form of payment. 

■ 5. In § 4022.8, add paragraph (f) to 

read as follows: 

* * * * * 

(f) Rollover amounts. The annuity 

benefit resulting from rollover amounts 

(as determined under § 4044.12(c)(4)) is 

combined with any other benefit under 

the plan and paid in the same form and 

at the same time as the other benefit. 

§ 4022.22 Maximum guaranteeable benefit. 

■ 6. In § 4022.22, add paragraph (d) to 

read as follows: 

* * * * * 

(d) Rollover amounts. Any portion of 

a benefit derived from mandatory 

employee contributions resulting from 

rollover amounts (as determined under 

§ 4044.12(c)(4)(i) of this chapter) is 

disregarded in applying the provisions 

of §§ 4022.22 and 4022.23. However, 

any portion of a benefit derived from 

employer contributions resulting from 

rollover amounts (as determined under 

§ 4044.12(c)(4)(ii) of this chapter) is 

combined with any other benefit under 

the plan for purposes of determining the 

maximum guaranteeable benefit under 

§§ 4022.22 and 4022.23. For example, 

assume that a participant has an $80,000 

total annual plan benefit at age 65, of 

which $15,000 is derived from 

mandatory employee contributions 

resulting from rollover amounts and 

$5,000 is derived from employer 

contributions resulting from rollover 

amounts. The $15,000 benefit derived 

from employee contributions resulting 

from rollover amounts would be 

excluded in the determination of the 

participant’s maximum guaranteeable 

amount. The participant’s remaining 

$65,000 benefit (including the $5,000 

benefit derived from employer 

contributions resulting from rollover 

amounts) would be subject to the 

maximum guaranteeable benefit 

limitation. Assuming a PBGC maximum 

guaranteeable benefit of $59,000 for a 

straight life annuity at age 65 (the 

approximate level for 2014), the 

participant’s maximum guaranteeable 

benefit would effectively be increased 

by the $15,000 benefit derived from 

employee contributions resulting from 

rollover amounts, resulting in total 

guaranteed benefits of $74,000. (The 

$59,000 maximum guaranteeable benefit 

limitation would apply to the 

participant’s benefit derived from 

employer contributions; as a result, 

$6,000 of the participant’s benefit 

derived from employer contributions 

would not be guaranteed by PBGC.) 

§ 4022.24 Benefit increases. 

■ 7. In § 4022.24, add paragraph (g) to 

read as follows: 

* * * * * 

(g) Rollover amounts. Any portion of 

a benefit derived from mandatory 

employee contributions resulting from 

rollover amounts (as determined under 

§ 4044.12 (c)(4)(i) of this chapter) is 

disregarded in applying the provisions 

of §§ 4022.24 through 4022.26. 

However, any portion of a benefit 

derived from employer contributions 

resulting from rollover amounts (as 

determined under § 4044.12 (c)(4)(ii) of 

this chapter) is combined with any other 

benefit under the plan in applying the 

provisions of §§ 4022.24 through 

4022.26. In such case, the benefit 

increase is deemed to be in effect on the 

date the rollover amounts are received 

by the plan. 

PART 4044—ALLOCATION OF 

ASSETS IN SINGLE-EMPLOYER 

PLANS 

■ 8. The authority citation for part 4044 

continues to read as follows: 

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

1341, 1344, and 1362. 

■ 9. In 4044.12, paragraphs (b)(4) and 

(c)(4) are added to read as follows: 

§ 4044.12 Priority category 2 benefits. 

* * * * * 

(b) * * * 

(4) Rollover amounts. In the case of a 

benefit resulting from rollover amounts, 

notwithstanding the provisions of 

paragraph (b)(2) of this section, the 

interest rates and conversion factors in 

§ 4044.12(c)(4) are used to determine the 

portion of the accrued benefit derived 

from the employee’s contributions and, 

if any, the portion of the accrued benefit 

derived from employer contributions. 

(c) * * * 

(4) Special rules for benefit resulting 

from rollover amounts. (i) Mandatory 

employee contributions. 

Notwithstanding paragraphs (c)(1) 

through (3) of this section, in the case 

of a benefit resulting from rollover 

amounts, the accrued benefit derived 

from mandatory employee contributions 

is determined using the interest rates 

and conversion factors under section 

411(c)(2)(B) and (C) of the Code for 

purposes of computing an employee’s 

accrued benefit derived from the 

employee’s contributions. The annuity 

benefit and the pre-retirement death 

benefit, as determined on this basis, is 

the benefit resulting from rollover 

amounts in priority category 2. 

(ii) Employer contributions. Any 

portion of a participant’s accrued 

benefit resulting from rollover amounts 

that is in excess of the accrued benefit 

derived from mandatory employee 

contributions determined in accordance 

with paragraph (c)(4)(i) of this section 

(i.e., the accrued benefit derived from 

employer contributions) is a 

guaranteeable benefit in priority 

category 3, priority category 4, or 

priority category 5, as applicable under 

this part. 

Issued in Washington, DC, this 26th day of 

March 2014. 

Joshua Gotbaum, 

Director, Pension Benefit Guaranty 

Corporation. 

[FR Doc. 2014–07323 Filed 4–1–14; 8:45 am] 

BILLING CODE 7709–02–P 


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