1998 Enrolled Actuaries Meeting

Questions to the PBGC

and Summary of their Responses

March 1998
Summary of Discussion Between the Enrolled Actuaries Program Committee

and Staff of the Pension Benefit Guaranty Corporation

on March 17, 1998

The following pages set forth the questions and responses discussed by the staff of the Pension

Benefit Guaranty Corporation with representatives of the Enrolled Actuaries Program Committee. 

The summary responses to the questions are intended to reflect as accurately as possible the

statements made by the government representatives. However, those responses are merely the

current views of the individuals and do not represent the position of the Pension Benefit Guaranty

Corporation or any other governmental agency, and cannot be relied upon by any person for any

purpose. Moreover, the Pension Benefit Guaranty Corporation has not in any way approved this

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

The following representatives of the Enrolled Actuaries Program Committee participated in the

discussion:

James G. Durfee, Towers Perrin

Marjorie R. Martin, Sedgwick Noble Lowndes

Donald J. Segal, The Segal Company

Lawrence J. Sher, The Kwasha Lipton Group of Coopers & Lybrand, L.L.P.

The following representatives of the Pension Benefit Guaranty Corporation participated in the

discussion:

Stuart M. Sirkin, Director, Corporate Policy and Research Department

C. David Gustafson, Chief Policy Actuary

Harold J. Ashner, Assistant General Counsel for Legislation and Regulations

The Program Commitee would like to thank the many practitioners who submitted questions for

this booklet.

Copyright © 1998, Enrolled Actuaries Meeting

All rights reserved by the Enrolled Actuaries Meeting. Permission is granted to print or otherwise reproduce a

limited number of copies of the material on the diskette for personal, classroom, or other instructional use, on the

condition that the foregoing copyright notice is used so as to give reasonable notice of the copyright of the Enrolled

Actuaries Meeting. This consent for free limited copying without prior consent of the Enrolled Actuaries Meeting

does not extend to making copies for general distribution, for advertising or promotional purposes, for inclusion in

new collective works, or for sale or resale.
INDEX

Subject Matter Questions

1. Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 - 9

2. Standard Terminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 -14

3. Participant Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 - 19

4. Reportable Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 - 34

QUESTION 1

Premiums — COLA Recipients as "Participants"

(a) Are retirees with irrevocable commitments (annuity contracts) who are being paid an ad

hoc COLA from plan assets included in the participant count for premium purposes? 

(b) Can the annuitized retirees be kept out of the participant count if irrevocable commitments

are purchased to cover the ad hoc COLA?

RESPONSE:

(a) Retirees with COLA entitlements that are to be paid from plan assets are included in the

participant count for premium purposes. 

(b) The retirees would not be included in the participant count if the plan has purchased an

irrevocable commitment to cover the COLA before the premium “snapshot” date, which is

generally the last day of the preceding plan year.

QUESTION 2

Premiums — COLAs as UVBs

Are automatic COLAs included in unfunded vested benefits (“UVBs”) for premium purposes?

RESPONSE:

Yes. An automatic COLA is part of a plan’s current liability, and thus, to the extent vested, is

included in UVB’s for premium purposes. An automatic COLA is vested to the same extent that

the underlying accrued benefit is, so for retirees it would be fully vested. For other participants, it

would be vested in the same percentage as their other benefits. The value of vested benefits is

determined by valuing a stream of future payments that includes projected COLAs.
2

QUESTION 3

Premiums — Effect of IPG Contracts

Are premiums payable with respect to participants covered by an IPG annuity contract?

RESPONSE:

Whether premiums are payable in this situation depends on whether the participant has received

an irrevocable commitment under the terms of the contract, regardless of whether it’s an IPG

annuity contract or any other contract with an insurer. If the insurer is irrevocably committed to

provide all benefits to the participant regardless of investment experience or any action or inaction

of the plan, and the insurer’s obligation is legally enforceable by the participant, there is an

irrevocable commitment. Under § 4001.2 of the PBGC's regulations, "irrevocable commitment"

means — 

an obligation by an insurer to pay benefits to a named participant or surviving beneficiary,

if the obligation cannot be cancelled under the terms of the insurance contract (except for

fraud or mistake) without the consent of the participant or beneficiary and is legally

enforceable by the participant or beneficiary. 

QUESTION 4

Premiums — Required Mortality Assumptions

What mortality assumptions must be used for premium purposes?

RESPONSE:

The mortality assumption used for premium purposes is the IRS version of the GAM-83 tables

(sex distinct) prescribed in Rev. Rul. 95-28 at 1995-1 C.B. 74 (4/3/95). This is the mortality

standard required under Title I of ERISA and the Internal Revenue Code for determining

unfunded current liability, which in turn is the statutory basis for determining the unfunded vested

benefits on which the variable rate premium is based.
3

QUESTION 5

Premiums — Change to Market Valuation

May a change to market valuation of assets for the current year be applied to determining UVBs

as of the end of the prior year under the general rule?

RESPONSE:

If the plan simply computes UVBs as of the end of the prior year, the regulations require that this

be done using the assumptions and methods for the prior year (except as otherwise specifically

provided — for example, using a different interest rate). This would include the asset valuation

method.

The plan may compute UVBs as of the first day of the current year under the special “proviso” in

the general rule. However, the result may only be used if it is not materially lower than the result

that would have been determined as of the last day of the prior year, using the prior year’s

assumptions and methods. In other words, the results of a valuation as of the first day of the

premium payment year must be adjusted to “back out” the effect of changes in actuarial

assumptions and methods if the net effect of such changes would be to materially decrease UVBs.

If the special merger and spinoff rule in 29 CFR § 4006.5(e) applies, UVBs are determined as of

the first day of the current year, rather than the last day of the prior year. This requires use of the

assumptions, methods, and data as of the first day of the current year, including the current year’s

asset valuation method. Therefore, there is no need to make an adjustment to “back out” any

changes between the last day of the prior year and the first day of the current year. This rule

applies where a non-de minimis merger or spinoff is effective as of the first day of the current plan

year, and it applies only to the transferee plan in a merger or the transferor plan in a spinoff.

QUESTION 6

Premiums — Alternate Payees as "Participants"

Is an alternate payee considered to be a participant for premium purposes?

RESPONSE:

Alternate payees under QDROs are treated basically the same as other beneficiaries for purposes

of the participant count. If the participant is alive, the participant is counted as one participant

without regard to the existence of one or more alternate payees. If the participant is deceased, the

existence of one or more alternate payees or other beneficiaries will result in the inclusion of one

deceased participant in the participant count. Like other beneficiaries, however, alternate payees
4

are not themselves included in the participant count. The same rules on irrevocable commitments

(annuity contracts) apply for alternate payees as for other beneficiaries.

QUESTION 7

Premiums — Using ACM Before Filing Schedule B

May the Alternative Calculation Method be used if the premium filing is before the Form

5500/Schedule B filing on which the ACM is based?

RESPONSE:

Yes. The ACM is based on data that are required to be reported on Schedule B to Form 5500,

but the Schedule B need not have been filed before the premium forms are filed. The premium

filing may be based on the data the enrolled actuary expects to include on the Schedule B that is

later filed. Should that Schedule B contain different data, an amended premium filing would be

required.

QUESTION 8

Premiums — Participant Count in Mergers and Spinoffs

If two plans with different plan years merge, can the disappearing plan get a premium refund for

the portion of its plan year following the merger? Similarly, if a plan spins off a new plan (other

than at the beginning or end of its plan year), can the transferor plan get a premium refund for the

portion of its plan year following the merger with respect to the participants transferred to the

new plan? 

RESPONSE:

These kinds of transactions can result in periods during which premiums are paid for certain

participants by both plans or periods during which neither plan pays premiums for certain

participants. For example: 

• Plan A, whose plan year begins April 1, merges into Plan B, which has a calendar plan

year, on March 1, 1998. Plan A has paid premiums for its participants through March 31,

1998 (the end of its last plan year). Plan B isn't required to pay premiums for those

participants until 1999 (because they weren't in Plan B on December 31, 1997, the

snapshot date for Plan B's 1998 premium). So in effect, neither plan pays premiums for

those participants for the period from April 1 to December 31, 1998. 
5

• Plan C, which has a calendar plan year, spins off Plan D on May 1, 1998, and Plan D

adopts a plan year beginning May 1. Plan C must pay premiums for 1998 for the

participants transferred to Plan D (because they were in Plan C on December 31, 1997,

the premium snapshot date for Plan C's 1998 premium). But Plan D must also pay

premiums for those participants for its first plan year (because they are in Plan D on May

1, 1998, the snapshot date for Plan D's 1998 premium). So in effect, both plans pay

premiums for those participants for the period from May 1 to December 31, 1998. 

For non-de minimis mergers and spinoffs that are effective at the beginning of a plan year (the

most common situation), the premium rates regulation shifts the premium snapshot date to avoid

these results. (29 CFR § 4006.5(e).) For a spinoff, the transferor plan's snapshot date is shifted

to the first day of the plan year, so that the transferred participants are excluded from the

transferor's participant count, and only the transferee plan pays premiums for them for that year. 

For a merger, the transferee plan's snapshot date is shifted; thus, although the disappearing

transferor plan doesn't pay premiums for the participants, the transferee plan does. 

QUESTION 9

Premiums — Counting Terminated Non-Vested Participants

When do terminated non-vested participants drop out of the participant count? 

RESPONSE:

Terminated non-vested participants continue to be counted as participants for PBGC premium

purposes until either (1) they incur a break in service the greater of one year from the date of

termination or the break in service period specified in the plan or (2) their benefits are deemed to

be cashed out under the plan.

If the plan has a separate cashout provision for zero benefits, terminated non-vested participants

are deemed to be cashed out as of the date specified in the deemed cashout provision or, if no

date is specified, as of the employment termination date. If the plan provides that zero benefit

amounts will be deemed to be paid as soon as possible, terminated non-vested participants also

will be deemed to be cashed out as of the employment termination date.

If the plan does not have a separate cashout provision for zero benefits but does have a mandatory

cashout of small benefit amounts (e.g., benefits less than $5,000), terminated non-vested

participants are deemed to be cashed out in the same manner as terminated vested participants. If

the plan is silent as to the timing of actual cashouts of terminated vested participants, deem the

plan to read “as soon as practicable” and deem the terminated non-vested participants to be

cashed out immediately upon termination of employment. If the plan specifies a date as of which

actual cashouts of terminated vested participants take place (e.g., on the first day of the next
6

month), that rule also would apply to deemed cashouts of terminated non-vested participants. 

These rules do not apply if, despite plan language, the plan has an obvious pattern or practice of

delaying distributions for long periods of time.

QUESTION 10

Standard Terminations — Annuity Information for Cashout Recipients

Do plan administrators have to provide the notice of annuity information to those participants

who are expected to elect lump sums?

RESPONSE:

Yes. One purpose of the notice is to help participants and beneficiaries make informed elections

between lump sums and annuity benefits, and even a participant or beneficiary who has already

elected a lump sum can still change that election. The notice must be given to all participants and

beneficiaries except those who will receive mandatory cashouts. 

QUESTION 11

Standard Terminations — Insurer Notice Where Insurer Unknown

How can the notice that identifies the insurer be provided 45 days before distribution when most

insurers keep bids open only for a very short time?

RESPONSE:

If the plan administrator knows who the insurer will be when this 45-day notice is issued, the

notice must identify that insurer. However, if the plan administrator does not yet know for sure,

the regulations provide that the notice may contain a list of those insurers the plan administrator is

considering. Any list of insurers should be reasonable in number and include only those insurers

from whom the plan administrator has solicited, or reasonably intends to solicit, actual bids. 
7

QUESTION 12

Standard Terminations — What Defects May Be Overlooked

In what circumstances is the PBGC using its RPA authority to permit “defective” terminations to

proceed based on the “interests of participants”?

RESPONSE:

One of the factors the PBGC will consider is whether benefits were properly frozen as of a date

no later than the proposed termination date. If the PBGC concludes that there will be no

additional accruals even if it declares the plan ongoing, the PBGC is less likely to nullify the

termination. Of course, freezing accruals does not by itself assure that the PBGC will not nullify

the termination, particularly in cases where the violations are egregious or willful.

The PBGC has had some cases involving top-heavy plans, where the accruals cannot be frozen for

the non-key employees. In a number of defective top-heavy plan terminations, the PBGC has

required the plan to provide additional accruals to the non-key employees as a condition of its

agreeing to allow the termination to proceed. 

Since the new standard termination regulation relaxes many termination rules, the PBGC expects

fewer situations to arise where it would be necessary to consider using its authority to permit

“defective” terminations to proceed. 

QUESTION 13

Standard Terminations — Tax Reporting and Withholding for Missing Participants

When I pay the PBGC a designated benefit for a missing participant, do I withhold for taxes? Do

I issue a 1099-R?

RESPONSE:

The Service has confirmed to the PBGC that there is no need to withhold for taxes in this

situation. (See the IRS letter on the PBGC's web site at http://www.pbgc.gov/irs_ltr.htm.) There

is also no need to issue a 1099-R. The PBGC will issue the 1099-R in January of the year

following the year in which it pays the missing participant’s benefit.
8

QUESTION 14

Standard Terminations — Effect of Excess Assets on PDC

Should I wait to file the Post-Distribution Certification until all assets, including excess assets,

have been distributed?

RESPONSE:

Although the PDC is statutorily due 30 days after the plan administrator completes distribution in

satisfaction of all benefit liabilities, plan administrators in effect have greater latitude in submitting

the PDC because the PBGC assesses late submission penalties only to the extent that the PDC is

submitted more than 90 days after the end of the permissible distribution period. The plan

administrator should not wait until excess assets are distributed, whether through a reversion to

the employer, an additional distribution to participants, or both. The certification language on the

PDC states that all benefit liabilities under the plan “have been satisfied,” and that plan assets in

excess of those needed to satisfy all benefit liabilities “have been or will be” distributed in

accordance with applicable provisions of ERISA and implementing regulations.

QUESTION 15

Participant Notice — Small Plan Rules for Controlled Group

To use the “small plan” calculations for the Participant Notice, must you aggregate all defined

benefit plans in the controlled group?

RESPONSE:

Yes. In determining whether the plan is a “small plan” for the plan year being tested — and is

therefore eligible to use the special “small plan” calculation rules of § 4011.4(b) — the plan

administrator should apply the aggregation rules of ERISA section 302(d)(6)(C) that are used for

purposes of determining whether the plan is exempt from the deficit reduction contribution

requirements because it has 100 or fewer participants.
9

QUESTION 16

Participant Notice — Change in Plan Administrator

If plan administrators change between the Participant Notice deadline and the Form 1

Certification, who makes the certification?

RESPONSE:

The plan administrator who is responsible for filing the Form 1 — the current plan

administrator — is responsible for making the certification. The current plan administrator may

check the box that says “An explanation is attached.” The explanation should reflect reasonable

efforts to determine whether the Partipant Notice requirements were met. For example, the

current plan administrator may have a representation from the former plan administrator that the

Participant Notice was issued as required, and may also have conducted a spot check of

participants to ensure that the representation is true.

QUESTION 17

Participant Notice — Requirement for Terminating Plans

Is a Participant Notice required for a terminating plan?

RESPONSE:

Although there is no specific exception for terminating plans in ERISA section 4011 or the

implementing regulations, the last Participant Notice ordinarily will be for the plan year that

contains the proposed termination date in a standard termination (which is by far the most

common type of termination), because that is ordinarily the last plan year for which the plan will

be subject to a variable rate premium. There is a special rule in § 4006.5(a)(4) of the PBGC’s

regulations that exempts plans undergoing a standard termination from the variable rate premium

for any plan years after the plan year that contains the proposed termination date.

This exemption is conditioned on the plan’s successfully completing the standard termination. If

the standard termination fails, the exemption is retroactively revoked, and one or more Participant

Notices may be past due. If that happens, the plan administrator should issue any such notices as

soon as possible. Assuming the plan administrator does that, and assuming further that the

standard termination was initiated and continued in good faith, it is unlikely that the PBGC would

be assessing penalties in this situation.

In addition, a Participant Notice is not required to be issued if the due date for the notice comes

after premiums have ceased to accrue under ERISA section 4007(a). This occurs when the plan
10

has wound up its affairs. In the case of a standard termination, the plan winds up its affairs by

completing the distribution of plan assets in satisfaction of all benefit liabilities. In a distress or

involuntary termination, the analogous date is normally the date on which the plan is trusteed,

although it would be the distribution date in the case of a plan that receives a PBGC distribution

notice and is able to satisfy at least all guaranteed benefits in a private-sector closeout. 

QUESTION 18

Participant Notice — Sending Missed Notice with Current Notice

If a 1997 Participant Notice was required but not issued, may it be included as part of the 1998

notice or must it be sent separately?

RESPONSE:

The plan administrator must issue notices for 1997 and 1998. The plan administrator is subject to

§ 4071 penalties to the extent the 1997 notice is late. The regulation requires that any “additional

information” be in a separate document, and the PBGC would consider the 1997 Participant

Notice to be “additional information” insofar as the 1998 Participant Notice is concerned, and

vice versa. Thus, the two notices may not be combined into one notice or issued on the front and

back of the same piece of paper. However, the two notices may be mailed in the same envelope,

and the plan administrator may include a cover letter — as a separate document — explaining

why two notices are enclosed.

QUESTION 19

Participant Notice — Satisfying DOL Requirements

Does reporting missed plan contributions in the Participant Notice satisfy ERISA § 101(d)?

RESPONSE:

Yes. The PBGC noted in the preamble to its final Participant Notice regulation that DOL advised

the PBGC that, in the absence of final regulations implementing ERISA § 101(d), it will treat a

plan administrator that provides a Participant Notice as having satisfied § 101(d) with respect to

any missed contributions disclosed in the Participant Notice. If the plan is subject to the

Participant Notice requirement for a plan year, and that is the first Participant Notice in which the

missed contribution would be subject to reporting, the plan administrator will be in compliance

with § 101(d) with respect to any missed contributions properly disclosed in the Participant

Notice. However, a plan may not be subject to the PBGC’s Participant Notice requirement until

quite some time — perhaps several years or more — after the missed contribution. A plan
11

administrator who is in this situation should check with DOL about when and how to give a

§ 101(d) notice.

QUESTION 20

Reportable Events — Meaning of "Extraordinary Dividend"

What does "extraordinary dividend" mean in the context of the reportable events regulation? 

RESPONSE:

"Extraordinary dividend" doesn't mean the same thing under § 4043.31 of the PBGC's reportable

events regulation as under the Internal Revenue Code. As part of the negotiated rulemaking

process through which the new regulation was developed, the PBGC waived the statutory

reporting requirement for extraordinary dividends based on the definition in the IRC and adopted

a requirement based on a different definition. The regulation requires reporting, in the case of

cash distributions, only if the dividend exceeds the company’s adjusted net income on both a one

year and a four year basis. In the case of non-cash distributions, the trigger is a distribution of

more than 10% of the total net assets of the company making the distribution. The same

thresholds apply for stock redemptions. 

QUESTION 21

Reportable Events — Intra-group Transfer as Extraordinary Dividend

Could a transfer within the controlled group constitute an extraordinary dividend? 

RESPONSE:

Yes. The regulatory event captures significant transfers of value to shareholders, and a transfer to

anyone in the controlled group — up, down, or sideways — is treated as a transfer to a

shareholder. That is because the PBGC’s employer liability claim in the event of plan termination

is against each member of the plan’s controlled group, on a joint and several basis, and the

PBGC’s recovery prospects therefore can be significantly harmed if one member of the controlled

group transfers value to another member, depending on their relative financial positions. 
12

QUESTION 22

Reportable Events — Asset Sales

Is an asset sale a reportable event? 

RESPONSE:

A sale of assets, in and of itself, is ordinarily not a reportable event. However, it would be a

reportable event if the sale is made to any other member of the seller’s controlled group or to an

outside shareholder and results in a transfer of value to the buyer — net of any proceeds — that

triggers one of the thresholds for an extraordinary dividend. Even if the sale is for fair market

value, there could be an extraordinary dividend if the proceeds are paid (or transferred) to a

member of the seller’s controlled group or an outside shareholder and the applicable threshold is

crossed.

QUESTION 23

Reportable Events — Plan Transferred to Another Controlled Group

Does a reportable event occur when a plan is transferred from one controlled group to another? 

RESPONSE:

Yes. From the perspective of the plan, each member of the old controlled group will cease to be a

member of the plan’s controlled group. Therefore, these plan transfers must be reported, even if

both controlled groups remain intact.

QUESTION 24

Reportable Events — Report Timing for Controlled Group Breakup

When does the 30-day period begin for reporting a transaction that results in a controlled group

break-up? 

RESPONSE:

For post-event reporting, as under the pre-RPA regulation, the event is not the actual breakup of

the controlled group or the actual transfer of plan sponsorship. It is the transaction as a result of

which the controlled group will break up or the plan will be transferred. In other words, reporting

is due 30 days after there is a binding contract, even if there is a later closing or effective date. If
13

there is no legally binding agreement, post-event reporting is due 30 days after the actual transfer

or change in ownership. 

Example: On March 1, a company signs a binding agreement to sell a subsidiary to a person

outside the controlled group. The sale is effective on June 1. Reporting is due on March 31.

Advance reporting is due 30 days before the transaction becomes effective. Thus, if there is a

long time period between the date of the legally binding agreement and the effective date,

post-event reporting could be due before advance reporting is due. If that is the case, so long as a

complete post-event notice is filed, there is no need to give the PBGC a separate advance

reporting notice.

QUESTION 25

Reportable Events — Loan Defaults

When is a loan default reportable? 

RESPONSE:

The default is reportable if it is on a loan with an outstanding balance of $10 million or more, and

then only under certain circumstances. It is reportable if the default results from failure to make a

payment unless it is paid within 30 days. It is also reportable if the lender accelerates the loan for

any reason, or issues a written notice of default based on one of several specified reasons.

The event occurs when the default occurs — not when the 30 day period for making the late

payment ends, not when the lender issues a notice of default or accelerates the loan, and not when

the cure period ends. Reporting is due 30 days after the date of the default. However, there are

extensions available that are keyed to the cure period under the loan agreement or the date of a

notice of default or of a loan acceleration. 

QUESTION 26

Reportable Events — Reporting Waiver Rules Based on Plan Funding

How do reporting waivers based on plan funding differ? 

RESPONSE:

For many events, a post-event reporting waiver is available if the plan meets any of the following

four premium-based funding tests: (1) no variable rate premium, (2) less than $1 million in
14

unfunded vested benefits, (3) no unfunded vested benefits, and (4) 80% funded. The following

chart, provided by the PBGC, summarizes each of these tests.

WAIVER TESTS FOR POST-EVENT REPORTING

No VRP UVB less than $1 million No UVB 80% Funded 

(includes VRP (4010 optional

exemptions) Alternative I Alternative II assumptions)

Interest Same as Same as Same as 100% of Same as

Rate premiums premiums premiums 30-year premiums

Treasury 

Bonds 

Mortality Same as Same as Same as GAM 83 until Same as

Table premiums premiums premiums new PBGC premiums

(now GAM 83) (now GAM 83) (now GAM 83) tables (now GAM 83) 

Asset Actuarial value Actuarial value FMV FMV FMV

Valuation (FMV when (FMV when

IRS tables IRS tables

issued) issued) 

ACM Yes Yes No No No

available

Most plans will qualify for a waiver based on the first test, since most plans do not owe the

variable rate portion of the premium. When determining whether this test is met, the general rule

or the alternative calculation method (ACM) may be used to determine the plan’s UVBs. This

test may be met based on the full funding limit exemption or any of the other exemptions from the

variable rate premium. Under this test, the methods and assumptions used are the same as those

that apply for purposes of determining the PBGC premium. 

For the “UVBs of less than a million” test, there are two choices. Under “Alternative I,” the same

methods and assumptions that apply for purposes of determining the PBGC premium are used. 

Thus, UVBs are determined in the same way as under the “no VRP” test. Under “Alternative II,”

there are two differences from Alternative I. First, fair market value of assets must be used. 

Second, the general rule, not the ACM, must be used.

For the “no UVBs” test, the optional assumptions and methodology in the PBGC’s employer

reporting regulation (29 CFR Part 4010) are used — 100% of the 30-year Treasury rates, GAM

83 (for now), the fair market value of the plan’s assets, and the general rule (not the ACM). If the
15

PBGC adopts new mortality tables in its valuation regulation, those new tables must be used in

lieu of GAM 83.

The “80% funded” test uses the same methods and assumptions as “Alternative II” of the “UVBs

less than a million” test.

QUESTION 27

Reportable Events — Contribution Timing for Post-Event Waiver

When does a contribution have to be made to count for the post-event waiver tests? 

RESPONSE:

Contributions made by the last day of the prior plan year (including the first three quarterlies) are

counted. Contributions made during the current plan year are also counted if certain requirements

are met. The contributions must be attributable to the prior plan year for funding purposes. 

Contributions used to satisfy quarterly contribution requirements for the current plan year may not

be included. In the case of the “no VRP” test, the “UVBs less than a million” test under

Alternative I, and the “no UVBs” test, the contributions have to be in the plan by the notice date

(including any extensions). For the other two tests — the “UVBs less than a million” test under

Alternative II and the “80% funded” test, the contributions must be made by the earlier of the due

date or filing date for the current plan year’s variable rate premium.

Example: On July 1, 1997, the parties enter into a legally binding agreement that will result in a

person ceasing to member of the controlled group of Company X. Post-event reporting is due on

July 31, 1997. Assume Company X maintains a calendar plan year. If contributions attributable

to the 1996 plan year are made to the plan by July 31, 1997, and not used to satisfy 1997

quarterlies, they may be included when determining UVBs as of December 31, 1996, under all of

the post-event waiver tests.

For advance reporting, when determining the $50 million and 90% funded thresholds, the same

rules apply, with the contributions required to be in the plan by the notice date (including any

extensions). The PBGC would be willing to entertain a waiver request if reporting would not be

required based on contributions made between the notice date and the effective date of the event. 
16

QUESTION 28

Reportable Events — Contribution Discount Rules

How are contributions discounted? 

RESPONSE:

Contributions made after the end of the prior plan year must be discounted to the date as of which

you are calculating assets as part of the determination of UVBs. Under the general rule, the

contributions are discounted using the plan’s asset valuation rate (i.e., the IRC § 412(b)(5)(A)

interest rate assumption), generally to the last day of the prior plan year. Under the Alternative

Calculation Method, the contributions are discounted using the premium interest rate, generally

to the first day of the prior plan year. The ACM then automatically brings all figures forward to

the end of the prior plan year.

QUESTION 29

Reportable Events — Premium-related Waivers Before Premium Due

How will I know a plan qualifies for a premium-related waiver if the notice is due before the

premium filing is due? 

RESPONSE:

The regulations provide an extension until 30 days after the variable rate premium due date if one

of the funding-related waiver tests was met for the plan year before the plan year in which the

event occurs. 

Example: A transaction resulting in a person ceasing to be a member of the controlled group of

Company X occurs on June 30, 1997. Company X maintains only one plan, which is a calendar

year plan, and which as of December 31, 1995, met the “UVBs of less than $1 million” test.

Company X is entitled to an extension. By September 15, Company X will know if a waiver

based on the funding status of the plan is available. If no waiver is available, Company X must

report by October 15, 1997.
17

QUESTION 30

Reportable Events — Counting Foreign Controlled Group Members

Are foreign members of controlled groups counted in determining whether a segment is de

minimis? 

RESPONSE:

Yes. Foreign entities are counted both in determining which members have left the controlled

group and in determining the size of the entire controlled group — that is, they are counted in

both numerator and denominator in the definition of de minimis 10 percent segment.

QUESTION 31

Reporting for Foreign Controlled Group Members

What are the reporting rules for events involving foreign controlled group members? 

RESPONSE:

Post event reporting for certain events is waived if the event involves only foreign non-parent

entities. These events are (1) change in controlled group, (2) liquidation, (3) extraordinary

dividend, and (4) loan default. In addition, reporting of an extraordinary dividend made by a

foreign parent is waived if the distribution is made within the controlled group.

For these same events, extensions are available for foreign parents and “foreign-linked entities”

under certain circumstances. 

• A foreign-linked entity is a non-foreign entity that is not a contributing sponsor of the plan

and that is related to the entity involved in the transaction only because of ownership

interests in or by foreign entities. For example, assume Companies X and Y are wholly

owned U.S. subsidiaries of a foreign entity and that Company X (but not Company Y) is a

contributing sponsor of the plan. Y is a foreign-linked entity for purposes of a transaction

involving Company X.

• In general, if a transaction involves only foreign parent or foreign-linked entities, the

reporting deadline is extended until 30 days after the plan’s first 5500 due date after the

person required to notify the PBGC has knowledge of the transaction and the controlled

group relationship. 
18

QUESTION 32

Reportable Events — Calculating Advance Reporting Thresholds

As of what date are advance reporting thresholds calculated? 

RESPONSE:

The testing date is the last day of the plan year preceding the date the event becomes effective. If

there is more than one plan, the nominal dollar amount of each plan’s underfunding is determined

separately and then aggregated, without any adjustment for the fact the amounts may have been

determined as of different dates.

Example: A transaction resulting in a person ceasing to be a member of the controlled group of

Company X occurs on June 30, 1997. Assume a calendar plan year. The testing date is

December 31, 1996. 

Example: Assume Company X also sponsors a plan with a plan year ending September 30. The

testing date for that plan is September 30, 1996. 

QUESTION 33

Reportable Events — Actuarial Assumptions for Advance Reporting

What assumptions are used in calculating the advance reporting threshold? 

RESPONSE:

There are three funding determinations that need to be made for advance reporting. The first

determination is whether to include particular plans in determining whether the threshold tests are

met; all plans with no UVBs are disregarded. The second determination is whether the plans have

more than $50 million in aggregate UVBs. The third determination is whether the plans are 90%

funded in the aggregate.

In general, the thresholds for advance reporting are based upon underfunding determined using

the PBGC’s premium methodology. However, the exemptions from the VRP may not be relied

on. In addition, the alternative calculation method may be used only for determining which plans

are excluded because they have no UVBs. The following chart, provided by the PBGC, shows

the assumptions that must be used for each determination.
19

TESTS FOR ADVANCE REPORTING

Disregard Plans with $50 Million Threshold Funded Vested

no UVBs Percentage under 90%

Interest Rate Same as premiums Same Same

Mortality GAM 83 until new IRS Same Same

Table tables

Asset Actuarial value (FMV Same Same

Valuation when IRS tables

issued) 

ACM Yes No No

available

QUESTION 34

Reportable Events — Calculating $50 Million Thresholds

Are the $50 million thresholds for advance reporting (section 4043) and annual reporting (section

4010) calculated in the same way? 

RESPONSE:

No. There are differences between how the $50 million threshold is calculated for reportable

events under section 4043 and for employer reporting under section 4010.

1. The optional assumptions in the employer reporting regulation are not available for

determining the $50 million threshold for reportable events. 

2. Under the reportable events regulation, the alternative calculation method may be used for

advance reporting only in determining which plans have no UVBs and may therefore be

disregarded in determining whether the advance reporting threshold is met. Under the

employer reporting regulation, the alternative calculation method may be used in

determining whether the reporting threshold is met, provided that the optional

assumptions are not being used.