2013 Enrolled Actuaries Meeting
 

Questions to the PBGC
 

and Summary of Their Responses
 
 

 

 

Summary of Discussions between the Enrolled Actuaries Program Committee

and Staff of the Pension Benefit Guaranty Corporation

on February 14, 2013
 

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

Corporation at discussions on February 14, 2013, with representatives of the Enrolled Actuaries 

Program Committee. Included also are summaries of the responses to those questions. The 

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

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

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

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

purpose. Moreover, PBGC has not in any way approved this booklet or reviewed it to determine 

whether the statements herein are accurate or complete. 

The following representatives of the Enrolled Actuaries Program Committee took part in the 

discussions: 

Harold J. Ashner, Keightley & Ashner LLP 

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

Bruce A. Cadenhead, Mercer 

Scott A. Hittner, October Three LLC 

James E. Holland Jr., Cheiron Inc. 

Eric A. Keener, Aon Hewitt 

Ellen L. Kleinstuber, The Savitz Organization

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

Marjorie R. Martin, Buck Consultants, A Xerox Company 

John H. Moore, TTerry Consulting LLC 

Maria M. Sarli, Towers Watson 

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

discussions: 

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

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

Eric Field, Assistant Chief Counsel, Office of the Chief Counsel 

David Gustafson, Chief Policy Actuary, PBGC 

Catherine Klion, Assistant General Counsel, Office of the General Counsel 

Grace Kraemer, Attorney, Office of the General Counsel

Daniel Liebman, Attorney, Office of the General Counsel

Bruce Perlin, Manager, Multiemployer Program Division

Salil Mehta, Director, Policy, Research and Analysis Department 

Neela Ranade, Chief Negotiating Actuary, Corporate Finance & Restructuring Department

Roger Reiersen, Attorney, Corporate Finance & Restructuring Department

Peggy Thibault, Actuary, Policy, Research and Analysis Department 

Cindy Travia, Senior Actuary, Corporate Finance & Restructuring Department

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

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

booklet. 
 

INDEX
 

Subject Matter Questions 

1. Premiums ................................................................................................................................ 1 – 2 

2. Standard Terminations ............................................................................................................ 3 – 5 

3. Distress or Involuntary Terminations ..................................................................................... 6 – 10
 

4. Reporting .............................................................................................................................11 – 12 

5. ERISA Section 4062(e) .......................................................................................................13 – 16
 

6. Multiemployer Plans ............................................................................................................17 – 20 

7. Other....................................................................................................................................21 – 23 
QUESTION 1 

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

Purposes 

Q&A 3 of the 2010 Blue Book and Q&A 5 of the 2012 Blue Book both asked about a 

situation in which a plan amendment providing for an ad-hoc retiree COLA takes effect 

during the current plan year (after the valuation date) and is reflected in the IRC §430 

funding target for the current plan year (either because the plan sponsor made an IRC 

§412(d)(2) election to reflect it or because it was required to be reflected under the special 

rule of IRC §1.430(d)-1(d)(2)). 

The questions relate to whether such amendment should be included in the premium 

funding target for the plan year in which the amendment takes effect. Under the scenario 

for the: 

 2010 Q&A, the amendment was adopted before the current plan year began. 

 2012 Q&A, the amendment was adopted during the current plan year. 

PBGC staff answered the 2010 question by saying “If the amendment is reflected in the 

funding target for purposes of determining the minimum required contribution, then it is 

reflected in the premium funding target to the extent vested.” PBGC staff answered the 

2012 scenario by saying that the later adoption date did not change the answer. 

Does this suggest that any time a mid-year benefit increase is included in the funding target 

for the year in which it takes effect for purposes of determining the minimum required 

contribution, it should be considered vested for premium purposes? 

RESPONSE 

No. The earlier questions related to a mid-year ad-hoc retiree COLA and the answers did 

not explicitly address the issue of whether that COLA should be considered vested. The 

answers did, however, suggest that the COLA should be considered vested because the 

affected retirees would need do nothing more than survive until the effective date to receive 

the increase. 

In the case of a mid-year amendment involving active participants, it is possible the 

participant may terminate from employment before the amendment takes effect (or in the 

case of the 2012 Q&A, before the amendment is even adopted). Although the premium 

regulation does not address these situations explicitly, it would be reasonable to treat the 

increase as not being vested for the current plan year if in order to receive the increase the 

participant must continue working until the effective date. 

2013 Enrolled Actuaries Meeting Blue Book Page 1 
 

QUESTION 2 

Premiums: Use of Plan Assets to Pay Premiums for Plan Year in Which Distress or 

Involuntary Termination is Initiated 

Section 4007.12(b) of PBGC’s regulations on payment of premiums (29 CFR Part 4007) provides 

that, for any plan year in which a plan administrator issues a notice of intent to terminate in a 

distress termination or PBGC initiates a termination proceeding under ERISA section 4042, and for 

each plan year thereafter, the obligation to pay PBGC premiums (and any interest or penalties 

thereon) for a single-employer plan is an obligation solely of the contributing sponsor and the 

members of its controlled group, if any; that is, the plan has no such obligation. 

Where a plan pays premiums for a plan year at a time when no distress or involuntary termination 

has yet been initiated, but later such a termination is initiated during that plan year, how should the 

plan administrator and the controlled group of the plan sponsor address and resolve this conflict? 

RESPONSE 

If your client is in this situation, please contact PBGC. We will try to resolve the issue based on the 

facts and circumstances. 

2013 Enrolled Actuaries Meeting Blue Book Page 2 
QUESTION 3 

Standard Terminations: PBGC Treatment of Hybrid Plan Market Rate of Interest in Standard 

Termination Audits 

Please explain how the PBGC is dealing with the hybrid plan market rate of interest on plan 

termination in the absence of final IRS and PBGC rules in the context of standard termination 

audits. 

RESPONSE 

Pending finalization of an IRS hybrid plan rule, PBGC is following its interim policy regarding this 

issue, which is available through FOIA and is consistent with the proposed IRS rule. PBGC’s 

audits of standard terminations of hybrid plans are completed on a case-by-case basis. PBGC will 

not challenge any plan that follows the guidance set forth in the proposed IRS rule. 

The same policy applies to distress and involuntary terminations. See Question 10. 

2013 Enrolled Actuaries Meeting Blue Book Page 3 
 

QUESTION 4 

Standard Terminations: Offering a Second Election to Current Retirees 

In connection with a standard termination, some plan sponsors are interested in offering current 

retirees in pay status a second election with one of the optional forms being a lump sum. IRC 

Regulation §1.401(a)(9)-6 Q&A 13 specifically contemplates this approach. However, the notice of 

plan benefits required by §4041.24 only communicates the amount and form of the annuity for 

retirees in pay status. 

Would it be acceptable to provide the information in §4041.24(c) plus the information for 

participants who have made lump sum elections in §4041.24(d)(4), and offer a second election to 

retirees as part of the standard termination process? 

RESPONSE 

A plan terminating in a standard termination may offer current retirees in pay status a second 

election with one of the optional forms being a lump sum to the extent permitted under the 

Code. However, PBGC has concerns about plans offering lump sum payment options to retirees 

who are receiving benefits in the form of an annuity. Any retiree who elects a lump sum will 

immediately lose the benefits of a lifetime income and will be responsible for taking care of their 

own investments and making sure the money lasts through retirement. That said, if a decision is 

made to offer current retirees in pay status a second election with one of the optional forms being a 

lump sum, the plan administrator may provide the §4041.24(c) information together with the 

§4041.24(d)(4) information provided the additional information meets the requirements of 

§4041.3(c)(4). 

PBGC is considering whether to amend its regulation on termination of single-employer plans (part 

4041) to require plan administrators to disclose to affected parties (participants and beneficiaries) 

the consequences of electing a lump sum upon termination (as a first election or subsequent 

election). If PBGC were to impose new disclosure requirements, it would strive to do so with 

minimal burden on plans (e.g., by providing model language). 

2013 Enrolled Actuaries Meeting Blue Book Page 4 
 

 

 

QUESTION 5 

Standard Terminations: New Definition of Majority Owner 

PPA amended ERISA section 4022(b)(5) to change the limitations on guaranteed benefits for 

“substantial” owners. In doing so it substituted a new definition of “majority” owner. Such an owner 

is defined using a 60 month look-back - i.e. a person that had the requisite ownership in the 

preceding 60 months is considered a majority owner and subject to the phase-in. 

Section 4041.21(b)(2) of PBGC’s regulations on Termination of Single-Employer Plans (29 CFR 

Part 4041) provides that a majority owner may waive a portion of his benefit to the extent needed to 

allow an underfunded plan to terminate in a standard termination. Regulation §4041.2 defines 

majority owner, and in doing so makes no mention of a look-back. Indeed, in the 2004 Blue book, 

Q5, the PBGC made it clear that a participant has to be a majority owner at the time of the waiver 

for the waiver to be valid. 

Did the PPA change to ERISA section 4022(b)(5) change the definition of majority owner for 

purposes of a majority owner waiver on plan termination to now include a 60-month look-back? 

RESPONSE 

No. The preamble to the existing regulation explained that the majority owner definition in the 

regulation had been developed using the substantial owner definition and specifically did not 

incorporate the 60 month look-back. The changes in PPA were aimed at other purposes and 

create no compelling reason to modify the regulation to change the individuals who are permitted to 

waive benefits. 

2013 Enrolled Actuaries Meeting Blue Book Page 5 
QUESTION 6 

Distress or Involuntary Termination: PBGC Treatment of DC Account Balance Purchases of 

Annuities from DB Plans 

In Rev. Rul. 2012-4, dealing with individuals using their DC account balances to purchase annuities 

from their employer’s DB plans, IRS states that PBGC will address Title IV consequences. 

Pending development of that guidance, can you address some of the issues being considered? 

For example: 

a) The revenue ruling indicates that the rollover is treated as employee mandatory contributions 

for purposes of IRC §415. Does this mean that the amounts are in priority category 2? 

b) Are there issues relating to whether the amounts should be treated as pre-tax vs. post-tax 

money? 

c) In determining Title IV treatment, will PBGC take into account the administrative difficulty in 

determining what part of an annuity is derived from prior rolled over amounts to determine the 

split between priority categories particularly if a portion of the benefit obtained with rolled over 

assets reflects a subsidy? 

d) Can you address some of the administrative difficulties PBGC has seen in PBGC-trusteed 

plans? 

RESPONSE 

PBGC is in the process of developing a proposed regulation that would address some, or all, of 

these questions. The process is fairly far along. 

2013 Enrolled Actuaries Meeting Blue Book	 Page 6 
QUESTION 7 

Distress or Involuntary Termination: Allocation of Combined PBGC Recoveries 

In 2012 Blue Book Q&A 22, PBGC stated that its policy for allocating its recoveries among various 

claims and plans (“PBGC Operating Policy 8.2-1: Valuation and Allocation of Recoveries”) was “still 

under review.” Please provide an update as to the status of that review and as to whether PBGC is 

still following that policy pending issuance of a new or revised policy. 

RESPONSE 

PBGC’s Operating Policy 8.2-1 was revised on October 1, 2012. Among other things, the revision: 

 Simplifies PBGC’s valuation and allocation methodology, by discounting PBGC’s recoveries to 

the plan’s termination date and allocating them to PBGC’s claims as of that date. 

 Clarifies that PBGC interprets the PPA 2006 amendments to ERISA section 4062(c) to refer to 

the same liability as under the pre-PPA provision – i.e., liability for due and unpaid minimum 

required contributions. 

 Clarifies that PBGC will treat post-termination contributions to a plan as recoveries on PBGC’s 

claim for unpaid contributions rather than as part of the plan assets. 

 Clarifies PBGC’s treatment of termination premiums – including them in the valuation and 

allocation process when termination premiums are part of a global claims settlement and either 

(i) the sponsor is reorganizing in Chapter 11 or continuing in business under a distress test 3 or 

4 termination, or (ii) the sponsor is liquidating outside of bankruptcy. In most other cases, 

termination premiums are excluded from the valuation and allocation process. 

A copy of the revised policy may be obtained by submitting a FOIA request to PBGC’s Disclosure 

Office. 

2013 Enrolled Actuaries Meeting Blue Book	 Page 7 
 

QUESTION 8 

Distress or Involuntary Terminations: Treatment of §4062(c) Claim 

When a plan terminates in a distress or involuntary termination, PBGC, in its role as statutory 

trustee under ERISA section 4042, will generally have a claim against the employer for due and 

unpaid minimum funding contributions (the “DUEC Claim”), as well as a claim against the employer 

for certain shortfall amortization charges and installments (and, where applicable, for certain waiver 

amortization charges and installments) under section 4062(c) (the “§4062(c) Claim”). 

a) The amounts of the DUEC Claim and §4062(c) Claim may overlap with one another and, if 

PBGC determines its claim against the employer for unfunded benefit liabilities under 

§4062(b) (the “UBL Claim”) without making any adjustment relating to either of these claims, 

there will be overlap between each of these claims and the UBL Claim. When PBGC 

finalizes the amounts of its DUEC Claim, §4062(c) Claim, and UBL Claim (e.g., for purposes 

of making benefit determinations), how does PBGC make adjustments for any such overlap? 

b) ERISA section §4044(f) provides generally for the use of an historical recovery ratio, in lieu of 

use of the recovery ratio in a particular case, to determine the value of PBGC’s recovery on 

its §4062(c) Claim that is allocable as a plan asset under ERISA section 4044 for purposes 

of determining the amount of benefits payable by PBGC. Does PBGC use this or any other 

historical recovery ratio to determine the value of PBGC’s recovery on its DUEC Claim for 

any purpose, or is PBGC continuing, as it did in the pre-PPA context, to determine the value 

of its recovery on its DUEC Claim for all purposes based solely on its experience in the 

particular case in which it had that claim? 

RESPONSE 

a) As explained in our answer to Question 7, PBGC interprets the PPA 2006 amendments to 

refer to the same liability as under the pre-PPA provision – i.e., liability for due and unpaid 

minimum required contributions. Under this interpretation, there is no duplication between the 

DUEC Claim and the §4062(c) Claim; they are one and the same. PBGC has ceased filing 

these as separate claims and is now filing only the one claim. 

As it has always done, PBGC reduces its UBL claim by the amount it receives (or expects to 

receive) on its DUEC claim. The valuation and allocation policy described in the answer to 

Question 7 describes how PBGC makes this adjustment. 

b) Yes, as provided under ERISA section 4044(f), for “small” plans PBGC uses a historical 

recovery ratio to determine the value of its claim under section 4062(c) for purposes of 

determining the amount of benefits payable by PBGC. A “small” plan for this purpose is one 

in which the value of the plan’s unfunded nonguaranteed benefits is $20 million or less. 

PBGC staff refer to this ratio as the Small Plan DUEC Recovery Ratio, or SPDRR. For “large” 

plans (those with unfunded nonguaranteed benefits over $20 million), PBGC determines 

benefits based on its actual recoveries for that plan. 

2013 Enrolled Actuaries Meeting Blue Book	 Page 8 
 

QUESTION 9 

Distress or Involuntary Terminations: Guaranteed Benefit for High 25 HCE 

Assume one of the 25 highest paid HCEs elects a lump sum, but the distribution is restricted in 

accordance with Treasury Reg. §1.401(a)(4)-5(b). Consistent with the arrangement described in 

Rev. Rul. 92-76, the lump sum is rolled into an individual retirement account, which is covered by 

an escrow agreement. The escrow agreement includes a restriction schedule that reduces the 

restricted amount in the account every month, for a specified period of time, in an amount equal to 

the straight life annuity amount (adjusted for interest). The participant may withdraw any amount in 

the account that is in excess of 125% of the restricted amount. 

a) If the plan terminates before the full amount of the lump-sum distribution has become 

unrestricted, will PBGC require return of the restricted amount and how will PBGC determine 

the participant’s benefit? 

b) Will PBGC use whatever interest-rate method was being used under the plan, or is there some 

restriction on the interest credit provided on the unpaid balance? 

RESPONSE 

a) Yes, PBGC will demand repayment of the restricted amount, according to the terms of the 

escrow agreement. The restricted amount is considered part of plan assets for purposes of the 

ERISA section 4044 allocation. Once the restricted amount has been paid to PBGC, the 

benefit is treated as a term-certain benefit. PBGC will make monthly payments equal to the 

amount that becomes unrestricted each month under the restriction schedule, subject to 

PBGC’s guarantee limits and the 4044 allocation rules, for the period remaining under the 

restriction schedule. 

b) PBGC will generally use the interest rate method that was being used under the plan when the 

payment was made. 

2013 Enrolled Actuaries Meeting Blue Book	 Page 9 
QUESTION 10 

Distress or Involuntary Terminations: PBGC Treatment of Hybrid Plan Market Rate of 

Interest in Trusteed Plans 

Please explain how the PBGC is dealing with the hybrid plan market rate of interest on plan 

termination in the absence of final IRS and PBGC rules when PBGC trustees a plan. 

RESPONSE 

Pending finalization of an IRS hybrid plan rule, PBGC is following its interim policy regarding this 

issue, which is available through FOIA and is consistent with the proposed IRS rule. PBGC’s 

audits of standard terminations of hybrid plans are completed on a case-by-case basis. PBGC will 

not challenge any plan that follows the guidance set forth in the proposed IRS rule. 

The same policy applies to audits of standard terminations. See Question 3. 

2013 Enrolled Actuaries Meeting Blue Book Page 10 
 

 

QUESTION 11 

Reporting: ERISA Section 4010 Reporting: Compliance Regarding Reporting Triggers 

PBGC announced, in its Plan for Regulatory Review1

 that it “is considering waiving reporting for 

plans that must file 4010 information solely on the basis of either (i) a statutory lien resulting from 

missed required contributions of over one million dollars or (ii) outstanding funding waivers 

exceeding the same amount.” Has PBGC made, or is it still considering, any changes in its 

approach to enforcing compliance with the two above-noted reporting triggers? 

RESPONSE 

ERISA section 4010 requires that PBGC submit to Congress a report summarizing, in the 

aggregate, the information received in 4010 filings. In order to provide as full information 

as possible, PBGC is continuing to enforce these statutory reporting triggers. At this time, 

changing the approach to enforcing compliance with these reporting triggers is not a top 

priority. PBGC has, however, recommended that Congress consider modifying the statute 

in ways that would reduce burden more significantly. Specifically, the Recommendations 

section of PBGC’s Summary 4010 Report2

 to Congress states: 

“In theory, the 4010 data greatly enhance PBGC’s ability to identify and monitor 

potential risks to the pension insurance system, to focus PBGC resources on 

situations that pose the greatest risks to the system, to assert appropriate 

claims in bankruptcy against members of a controlled group of the plan 

sponsor of a terminated plan, and to prepare PBGC’s financial statements. 

However, in practice, the 4010 reporting criteria fail to properly target plans, 

resulting in both over- and under-inclusiveness. Companies whose financial 

soundness is widely recognized are forced to file 4010 reports while companies
 

that are on the verge of bankruptcy (or even, in bankruptcy) are exempt from
 

reporting simply because their plans were over 80% funded. In fact, in the past 

few years, PBGC incurred more than $2 billion in total claims from companies 

that were not required to submit 4010 information. 

It is clear that the funding percentage is a poor predictor of termination risk. 

PBGC has found the risk of termination of a plan depends most significantly on 

the plan sponsor’s financial strength, not on its current funding level. Congress 

could, by better targeting of reporting requirements, both take a substantial and 

unnecessary reporting burden off companies and help PBGC do its job better. 

Therefore, PBGC recommends Congress create reporting criteria based on the 

sponsor’s financial soundness using risk measurement tools already widelyemployed in business, such as credit scores, rather than relying solely on the 

plan’s funding percentage.
 

The Recommendations section of that report also includes a suggestion to simplify the 

reporting process: 

“PBGC also recommends eliminating the requirement to report the funding 

target of the plan determined as if the plan has been in at-risk status for at least 

5 plan years (ERISA Section 4010(d)(1)(B)). PBGC does not use this
 

information because termination liability, which is also reported ... is the 

relevant amount. It is burdensome and costly for companies to calculate the 

4010(d)(1)(B) amount and that amount is not used for any purpose other than 

reporting under ERISA Section 4010.”
 

1 http://www.pbgc.gov/documents/plan-for-regulatory-review.pdf 

2 http://www.pbgc.gov/documents/PBGC-4010-report-harkin.pdf 

2013 Enrolled Actuaries Meeting Blue Book Page 11 
QUESTION 12 

Reporting: Form 200 Reporting Requirement Created by Mandatory Funding Balance 

Reduction 

In 2010 Blue Book Q&A 19, PBGC stated that it would consider a request to waive penalties for 

late reporting of a Form 200 where there was a mandatory reduction of a carryover or prefunding 

balance (that is, a “deemed election”) that retroactively created a late quarterly contribution by 

rendering invalid a prior election to apply a funding balance against the quarterly required 

contribution and thus retroactively created a “missed” quarterly contribution. 

As a follow-up to 2010 Blue Book Q&A 19, to reduce burdens on employers, would PBGC be 

willing to consider granting an automatic penalty waiver, instead of requiring submission of a formal 

request for a penalty waiver, in the circumstances described in Q&A 19, at least where the plan 

meets a specified funding threshold? 

RESPONSE 

PBGC has no plans to provide for an automatic penalty waiver at this time. If you have a client in 

this situation, we suggest you contact us to discuss the specific facts and circumstances. 

2013 Enrolled Actuaries Meeting Blue Book Page 12 
 

QUESTION 13 

ERISA Section 4062(e): Enforcement Pilot Program (Creditworthiness Threshold) 

In the “4062(e) Enforcement Pilot Program” that PBGC announced on November 2, 2012, PBGC 

stated that: (1) it will “generally” not enforce downsizing liability under section 4062(e) against 

“financially sound” or “creditworthy” companies; (2) in evaluating creditworthiness, PBGC “will use 

the standards already used by businesses throughout the world: common financial measures of 

financial soundness such as credit ratings, credit scores, indebtedness, liquidity, and profitability"; 

and (3) where a company is "financially sound" or "creditworthy", PBGC will take no action to 

enforce section 4062(e) liability, provided that there are no "other indicators of financial weakness" 

or "other risks". 

a) What is the level of creditworthiness that will be needed to qualify for this relief? In particular, 

will the relief apply, in general, where the company involved, based on “the standards already 

used by businesses throughout the world”, is investment grade rather than below investment 

grade, or is the general threshold higher or lower than that? 

b) What criteria would be used to determine whether there are "other indicators of financial 

weakness" or "other risks" that would override a determination of financial soundness or 

creditworthiness? 

c) The announcement does not explicitly address controlled group liability. In particular, it states 

that PBGC is modifying its enforcement program under which it has previously “enforced all 

4062(e) cases without regard to . . . the financial health of the company sponsor”, and refers 

throughout, under its new approach, to the creditworthiness or financial soundness of “a 

company.” 

Will PBGC be taking into account the creditworthiness or financial soundness not just of the 

sponsor, but also of all entities within the sponsor’s controlled group? 

RESPONSE 

For purposes of the pilot program, a company generally is financially sound if it has an investment 

grade credit rating of its unsecured debt, or an equivalent credit score and no significant secured 

debt. However, a company is not financially sound if it presents signs of financial weakness, such 

as existing or imminent transactions or changes in business fundamentals that could affect credit 

ratings, lack of ongoing operations, or an insignificant U.S. presence. Because liability under 

section 4062(e) is joint and several, PBGC will typically review the financial soundness of the entire 

controlled group. 

2013 Enrolled Actuaries Meeting Blue Book	 Page 13 
 

 

QUESTION 14 

ERISA Section 4062(e): Enforcement Pilot Program (Small Plan Threshold) 

In the “4062(e) Enforcement Pilot Program” that PBGC announced on November 2, 2012, PBGC 

stated that it will “generally” not enforce downsizing liability under Section 4062(e) in small plan 

situations based on a 100-participant threshold. 

a) Does the relief apply where the participant count is 100? 

b) Will PBGC be aggregating all plans maintained by a company, or by the entire controlled 

group, in determining whether the small plan relief applies and, if so, under what aggregation 

rules? 

c) What definition of “participant” will PBGC be using in determining whether the small plan relief 

applies? 

d) As of what date(s) will participants be counted in determining whether the small plan relief 

applies?
 

RESPONSE 

a) No. The relief applies only to plans with fewer than 100 participants. 

b) No. Plans are not aggregated for this purpose. 

c) The definition of participant used for determining the flat-rate premium is used for this 

purpose. 

d) For this purpose, PBGC uses the participant count reported on the comprehensive premium 

filing most recently submitted prior to the date the cessation of operations giving rise to the 

4062(e) event began. 

2013 Enrolled Actuaries Meeting Blue Book	 Page 14 
QUESTION 15 

ERISA Section 4062(e): Enforcement Pilot Program (Pending or Settled Cases) 

In the “4062(e) Enforcement Pilot Program” that PBGC announced on November 2, 2012, P

stated that it will “generally” not enforce downsizing liability under section 4062(e) against 

BGC 

“financially sound” or “creditworthy” companies, or in small plan situations based on a 100-

participant threshold. 

a) Does the pilot program apply to pending cases? 

b) Will PBGC release the employer from its settlement obligations if a settlement of section 

4062(e) liabilities has been reached between the employer and PBGC, and the employer has 

future obligations under the agreement (for example, making contributions in addition to the 

minimum required contribution), but would qualify for relief under the new policy? 

RESPONSE 

a) Yes, the pilot program applies to pending cases. 

b) PBGC will not release a financially sound employer from its obligations under a settlement 

agreement. Rather, PBGC will offer to suspend enforcement of future obligations under the 

agreement on the condition that the obligations will be reinstated if the employer ceases to be 

financially sound. However, PBGC will release an employer from its obligations under a 

settlement agreement with respect to a plan that would qualify for relief under the pilot 

program because it has fewer than 100 participants. See question 14. 

2013 Enrolled Actuaries Meeting Blue Book	 Page 15 
 

QUESTION 16 

ERISA Section 4062(e): Liable Parties and Liability Period 

ERISA section 4062(e) provides for a liability that may be assessed against the employer (that is, 

the entire controlled group maintaining the affected plan), with the liability serving to protect the 

plan if it terminates in a distress or involuntary termination within a specified five-year period. When 

does the five-year period start—the date the cessation of operations occurs, the date the resulting 

headcount reduction first exceeds 20 percent, or the later of those two dates? 

RESPONSE 

Our experience has been that the reduction in active participants has exceeded 20 percent before 

or at about the same time as the cessation date, and PBGC’s historical practice – predating the 

2010 proposal – has been to treat the cessation date as the start of the five-year liability period. 

2013 Enrolled Actuaries Meeting Blue Book Page 16 
QUESTION 17 

Multiemployer Plans: Mass Withdrawal 

ERISA section 4219(c)(1)(B) provides for a cap on the withdrawal liability assessment to a 

withdrawn employer by limiting the payment schedule to only the first 20 annual payments. Upon 

mass withdrawal, special rules apply with respect to determining withdrawal liability, including a 

redetermination and reallocation of withdrawal liability. Among these rules, §4219.12(b) provides 

that certain employers may lose the benefit of the 20-year cap on withdrawal liability payments. 

In PBGC Opinion Letter 94-3, it is noted that which employers lose the 20-year cap protection 

varies depending upon the circumstances under which the mass withdrawal takes place. 

a) If the mass withdrawal occurs by the withdrawal of substantially all employers pursuant to an 

agreement or arrangement to withdraw, only those employers withdrawing pursuant to the 

agreement or arrangement lose the benefit of any reduction in their initial withdrawal liability 

assessment as a result of the 20-year cap limitation and are subject to the full allocation (or 

reallocation) of the plan’s unfunded vested benefits. 

b) If the mass withdrawal occurs by the withdrawal of every employer from the plan, all employers 

withdrawing from the plan that terminates by the withdrawal of every employer lose the benefit 

of any reduction due to the 20-year cap limitation, regardless of when the employer withdraws. 

For (b), does the elimination of the 20-year cap limitation apply only with respect to the employers 

who withdrew after the beginning of the second full plan year preceding the date the plan 

terminates by the withdrawal of the last employer, or does the mass withdrawal serve to eliminate 

the 20-year cap limitation with respect to all employers, including those who may have withdrawn 

prior to the second full plan year preceding the withdrawal of the last employer (including 

employers who have paid off the full 20-years of payments under the initial withdrawal 

assessment)? 

RESPONSE 

The Agency’s opinion has not changed since Op Ltr. 94-3. In Op. Ltr. 94-3, all employers lose the 

benefit of the 20-year cap limitation when the plan terminates by mass withdrawal. Further, PBGC 

regulations do not provide for a limitation on who loses the 20-year cap. 

2013 Enrolled Actuaries Meeting Blue Book	 Page 17 
QUESTION 18 

Multiemployer Plans: Developments of Interest 

Please provide an update on situations under the multiemployer program that may be of interest to 

enrolled actuaries, such as withdrawal liability formulas or plan mergers that have been approved 

or disapproved, or significant litigation in which the PBGC has been involved. 

RESPONSE 

 PBGC has given approval of alternative withdrawal liability allocation methods in several 

cases; PBGC hopes that these approvals will encourage other plans to apply. The allocation 

methods involved splitting unfunded vested benefits between old and new employers for 

purposes of withdrawal liability. (The split is not for funding purposes; there is still only one 

funding standard account.) 

 PBGC has also approved mergers. 

 On or about September 11, 2012, Quality Automotive Services, LLC filed suit against PBGC 

seeking to reverse its July 31, 2012 determination that the company’s permanent cessation of 

contributions to the Freight Drivers and Helpers Local Union No. 557 Pension Fund (a trucking 

industry plan) resulted in substantial damage to the contribution base of the fund. That 

litigation is currently pending in federal court in the District of Columbia. 

 PBGC has also filed an amicus brief with the U.S. Court of Appeals for the First Circuit 

regarding the definition of “trade or business” under ERISA §4001(b)(1) in the currently 

pending Sun Capital Partners III, et. al. v. New England Teamsters & Trucking Industry 

Pension Fund case, Appellate Case No. 12-2312. 

 

2013 Enrolled Actuaries Meeting Blue Book	 Page 18 
QUESTION 19 

Multiemployer Plans: Question 13 of Form 5500 Schedule R 

Question 13 of Schedule R to the Form 5500 asks for employers that made 5% or more of the 

contributions. Please confirm that in identifying those employers, withdrawal liability is ignored in 

both the numerator and the denominator. 

RESPONSE 

Because it pertains to the Form 5500, this issue involves other agencies. PBGC staff’s view is that 

withdrawal liability payments are not intended to be included in item 13 of Form 5500. The 

involved agencies are aware of this issue and it is being considered in connection with a possible 

revision to the Form 5500, but no decisions have been made. 

2013 Enrolled Actuaries Meeting Blue Book Page 19 
 

 

QUESTION 20 

Multiemployer Plans: Guarantee Cutbacks 

For multiemployer plans, PBGC guarantees 100% of the first $11 of the monthly benefit rate, 75% 

of the next $33 of the monthly benefit rate and 0% of the monthly benefit rate to the extent it is in 

excess of $44. Assuming the plan is terminated and there are insufficient assets to pay more than 

the guaranteed amounts, how are benefits cut back to the multiemployer guarantee amounts in 

these various situations? 

a) Do the PBGC multiemployer guarantee cutbacks apply to the monthly amount of the benefit 

and not the present value? 

b) Is the guarantee applied against the single life normal retirement benefit or the form that is 

elected? 

c) Does the answer to (b) depend on whether the participant is in pay status in an optional form 

before the guarantee limit applies? 

d) If the participant is already collecting a Social Security Leveling Option when the cutback 

occurs, how does the cutback work (assuming the monthly guarantee is below the monthly 

single life annuity equivalent and below the monthly amount of payment before Social Security 

Age but greater than the monthly payment after Social Security Age)? 

e) What happens to a survivor benefit in the following cases: 

i) If the participant dies after electing a QJSA but before the cutback? 

ii) If the participant dies after electing a QJSA and after the cutback? 

iii) If the survivor is receiving a QPSA before the cutback? 

iv) If the survivor is receiving a QPSA as a result of a participant dying after the cutback and 

before electing a payment form? 

RESPONSE 

a) Yes. As provided in ERISA section 4022A(c), the PBGC guarantee is based on the monthly 

benefit amount and not a present value. 

b) The guarantee is applied against the benefit form elected so long as that benefit is no greater 

than the monthly benefit which would be payable under the plan at normal retirement age in 

the form of a single life annuity. 

c) No. The PBGC guarantee would be calculated based on the benefit the participant is 

receiving based on the option elected, so long as this benefit is no greater than the monthly 

benefit which would be payable under the plan at normal retirement age in the form of a single 

life annuity. 

d) The PBGC guaranteed amount before Social Security Age is calculated based on the amount 

the participant is receiving from the plan at the time of insolvency or would have received from 

the plan but for insolvency, so long as this benefit is no greater than the monthly benefit which 

would be payable under the plan at normal retirement age in the form of a single life annuity. 

The PBGC guaranteed amount at and after Social Security Age is also calculated based on 

the amount the participant is receiving from the plan at the time of insolvency or would have 

received from the plan but for insolvency, so long as this benefit is no greater than the 

monthly benefit which would be payable under the plan at normal retirement age in the form of 

a single life annuity. 

2013 Enrolled Actuaries Meeting Blue Book	 Page 20 
e) Whether the participant dies before or after the plan becomes insolvent and benefits become 

subject to PBGC’s guarantee has no effect on the guaranteed amount of survivor’s QJSA. 

The PBGC guarantee amount is based on the QJSA benefit the survivor is receiving from the 

plan at the time of the insolvency or would have received from the plan but for the plan’s 

insolvency. 

The facts provided do not have sufficient information to fully answer the QPSA questions. A 

QPSA in a multiemployer plan is not guaranteed unless the participant dies prior to plan 

termination. But assuming the plan terminated before the participant’s death, the QPSA is not 

guaranteed (but may be paid until plan insolvency if such payment is approved by PBGC 

under ERISA section 4041A(f)). Assuming the plan terminated after the participant’s death, 

then the survivor’s guarantee is calculated the same as above, based on the QPSA benefit 

the survivor is receiving before plan insolvency or would have received but for plan 

insolvency. 

2013 Enrolled Actuaries Meeting Blue Book	 Page 21 
 

QUESTION 21 

Other: Litigation Issues 

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

interest to enrolled actuaries. 

RESPONSE 

PBGC v. Bendix Commercial Vehicle Sys., 2012 WL 629928 (N.D. Ohio Feb. 24, 

2012) – This was PBGC’s first lawsuit under ERISA section 4062(e), which imposes contingent 

liability when a company ceases operations at a facility, resulting in a separation from employment 

of more than 20 percent of employees who are participants in its pension plan. PBGC filed the 

administrative record supporting the agency’s determination of liability, and Bendix sought extrarecord discovery. The court rejected all three bases for discovery that the company asserted, 

emphasizing that a presumption of regularity is accorded to an agency’s submission and 

certification of the administrative record. 

Davis v. PBGC, 864 F. Supp. 2d 148 (2012), appeal docketed, No. 12-5274 (D.C. Cir. Aug. 30, 

2012); previous decisions at 596 F. Supp. 2d 1 (D.D.C. 2008), aff’d 571 F.3d 1288 (D.C. Cir. 2009); 

No. 08-1064 (D.D.C. Mar. 17, 2009); 815 F. Supp. 2d 283 (2011) – A group of retired participants 

of a terminated pension plan sued PBGC, asserting that the agency erred in making benefit 

determinations and breached its fiduciary duty. The court ruled in PBGC’s favor on all counts 

regarding PBGC’s benefit determinations. The court held that the agency is entitled to broad 

deference in interpreting the statute and plan provisions, and rejected the participants’ argument 

that PBGC functions under a conflict of interest. The court also denied participants’ motion for a 

preliminary injunction prohibiting PBGC from recouping benefit overpayments from them while the 

suit was pending. The D.C. Circuit affirmed that denial, holding that PBGC’s interpretations of 

ERISA are entitled to deference. The participants’ appeal is pending in the D.C. Circuit. The 

participants’ fiduciary duty claim was dismissed in January 2013. 

Deppenbrook v. PBGC, No. 11-600 (D.D.C. Mar. 12, 2012); previous decision at 2011 WL 1045765 

(W.D. Pa. Mar. 17, 2011); – A group of participants challenged PBGC’s denial of shutdown 

benefits. The Pennsylvania district court transferred the case to the District of Columbia, the only 

proper venue under section 4003(f) of ERISA. The participants then sought to supplement the 

agency’s administrative record with declarations and other documents. The District of Columbia 

court denied the motion, holding that the documents were not considered by PBGC and could shed 

no light on the determination. 

PBGC v. Asahi Tec Corp., 839 F. Supp. 2d 118 (D.D.C. 2012); No. 12-8007 (D.C. Cir. July 16, 

2012) – In this case of first impression, the district court agreed with PBGC that it had jurisdiction 

over a foreign member of a plan sponsor’s controlled group for purposes of enforcing termination 

liability. A foreign auto-parts manufacturer bought a U.S. manufacturer. When the U.S. company 

sold its assets under Chapter 11, its pension plan was terminated. The court held that because 

ERISA bases liability on the fact of ownership alone, the foreign manufacturer’s deliberate and 

knowing decision to acquire a U.S. company and subject itself to ERISA is a sufficient minimum 

contact for specific jurisdiction in this context. The circuit court subsequently denied the foreign 

manufacturer’s petition for interlocutory appeal. 

2013 Enrolled Actuaries Meeting Blue Book Page 22 
PBGC v. Town & Country Bank and Trust Co., 2012 WL 4753352 (W.D. Ky. Oct. 4, 2012) – A plan 

sponsor informed participants that their plan would perform a standard termination on a given date. 

Two days after that date, a Saturday, the sponsor amended the plan to change the assumptions for 

valuing lump sums, and later paid benefits using the amended assumptions, resulting in reduced 

lump sums in violation of ERISA regulations. After an audit, PBGC informed the plan sponsor of 

the violation and its need to pay additional benefits. The plan sponsor refused to comply, and 

PBGC sued to enforce its audit findings. The district court rejected the plan sponsor’s arguments, 

holding that PBGC is entitled to deference on its interpretation of its regulations, and that the 

agency’s determination was reasonable. 

Stephens v. US Airways Group, Inc., No. 07-1264 (RMC) (D.D.C. Dec. 7, 2012) (denying class 

certification after remand); previous decisions at 555 F. Supp. 2d 112 (D.D.C. 2008) (initial 

decision); 696 F. Supp. 2d 84 (2010), aff’d in part, rev’d in part and remanded, 644 F.3d 437 (D.C. 

Cir. 2011) – A group of retirees brought suit while the plan was ongoing, asserting that the 

company’s payment of lump sum benefits without interest up to 45 days after the benefit 

commencement date specified in the plan violated both the plan’s benefit commencement provision 

and ERISA’s actuarial equivalence provision. After the plan terminated, PBGC assumed defense 

of the case. The district court ruled for PBGC on all grounds. The D.C. Circuit held that the 

participants’ lump sum benefits were the actuarial equivalent of their annuitized benefits under their 

pension plan, but that they may be entitled to interest to the extent of any unreasonable delay in 

paying their lump sum benefits. The court also held that the participants were not entitled to 

attorneys’ fees from PBGC. On remand, the district court denied the participants’ two motions for 

class certification because only one of the participants had exhausted the plan’s administrative 

remedies. The court rejected the participants’ arguments that a statutory violation was at issue, 

and that exhaustion was excused due to futility. 

United Steel, paper and Forestry, Rubber, Manufacturing, Energy, Allied Indus. and Service 

Workers Int’l Union, AFL-CIO-CLC v. PBGC, 2013 WL 135265 (D.C. Cir. Jan. 11, 2013) – The D.C. 

Circuit affirmed the district court in upholding PBGC’s determination that employees did not earn 

shutdown benefits before plan termination. The court confirmed that the arbitrary and capricious 

standard applies to PBGC’s determination of whether a “permanent shutdown occurred, and 

emphasized that weighing the evidence is not the court’s function when reviewing agency 

action. Accordingly, the court concluded that PBGC’s record contained sufficient support for its 

determination, and thus should be upheld. 

2013 Enrolled Actuaries Meeting Blue Book Page 23 
 

 

 

QUESTION 22 

Other: “Risk Mitigation Program” 

In Technical Update 00-3 (“PBGC’s Early Warning Program”), PBGC announced that it “contacts a 

company for further information about a transaction only if” certain screening criteria are met 

(emphasis added). More recently, in its response to 2011 Blue Book Q&A 19, PBGC stated that 

“[g]enerally, PBGC monitors employers with pension plans that in the aggregate have $50M or 

more in underfunding or 5,000 or more participants,” and noted that “PBGC also monitors 

employers for other reasons as appropriate.” 

a) Does PBGC still have screening criteria that, as under Technical Update 00-3, provide 

companies with certainty that, if the criteria are not met, they will not be included in PBGC’s 

Early Warning Program? If so, what are they? 

b) The screening criteria announced in Technical Update 00-3 explicitly took into account 

bond ratings. Does PBGC currently take bond ratings into account in deciding which 

employers to monitor under its Early Warning Program? If so, how? 

c) How does PBGC calculate the “$50M or more in underfunding” test it announced in its 

response to 2011 Blue Book Q&A 19? In particular, is it based on numbers reported (for 

all plans maintained by the controlled group) for Variable Rate Premium (VRP) purposes, 

for funding purposes, for §4010 purposes, or for some other purpose? 

d) How does PBGC calculate the “5,000 or more participants” test it announced in its 

response to 2011 Blue Book Q&A 19? In particular, is it based on the participant counts 

reported (for all plans maintained by the controlled group) for flat-rate premium purposes, 

for Form 5500 purposes, or for some other purpose? 

e) Does PBGC have any plans to modify the guidance provided in Technical Update 00-3? 

RESPONSE 

a) No. The screening criteria in Technical Update 00-3, which incorporate pre-PPA funding 

concepts, are no longer applicable given the enactment of PPA. Typically, PBGC will look 

at employers with plans that in the aggregate have $50 million or more in underfunding or 

5,000 or more participants, but other companies may also be monitored, depending upon 

the facts and circumstances. Currently, there are approximately 1,000 employers being 

monitored in the Early Warning Program. 

b) PBGC may monitor an employer without regard to its credit rating. However, PBGC may 

take an employer’s bond rating into account in determining whether a situation involves a 

risk to PBGC. 

c) The calculation of $50M or more in underfunding takes into account the aggregate 

underfunding of all plans maintained by the controlled group. The numbers for each plan 

are based on the most recent and best information available to PBGC. The underfunding 

may be taken directly from submitted filings (e.g., ERISA section 4010, premium filings or 

Schedule SB of Form 5500). Alternatively, it may be an estimate prepared by PBGC 

actuaries in which available assets and liability data is adjusted to reflect underfunding on a 

termination basis. 

2013 Enrolled Actuaries Meeting Blue Book	 Page 24 
d) The calculation of 5,000 or more participants is based on numbers reported for all plans 

maintained by the controlled group. The participant count is based on the most recent data 

available to PBGC and is derived from a variety of sources, including §4010 information, 

Form 5500 and PBGC premium filings and responses to PBGC inquiries to the plan 

sponsor. 

e) Yes. PBGC is currently working on updated guidance for the Early Warning 

Program. Issuing this guidance is a priority for our Corporate Finance and Restructuring 

Department. 

2013 Enrolled Actuaries Meeting Blue Book	 Page 25 
QUESTION 23 

Other: PBGC Administrative Decisions of Interest 

Please describe any decisions of PBGC’s Appeals Board that would be of interest to enrolled 

actuaries. 

RESPONSE 

PBGC Appeals Board decisions are available on PBGC's Website at 

http://vvww.pbgc.gov/practitioners/law-regulations-informalguidance/contenUpage15626.html. 

There is a search feature that can be used to find decisions that address topics and issues that 

may be of interest. There are two decisions of note from 2012. 

 Delphi Hourly Plan — The Board’s decision addressed the “divorce pop-up” feature of the 

Delphi Hourly Plan’s normal form of benefit for married participants. The Delphi Hourly Plan’s 

normal form of benefit for a married participant included a Joint and 65% Survivor Annuity with 

a “popup” provision allowing the benefit to increase to the Straight Life Annuity amount upon 

the death of the spouse or following a divorce, if a domestic relations order so provides or a 

notarized written consent of the former spouse is obtained. PBGC determined that a 

cancellation of the surviving spouse’s benefit in the event of a divorce would not be allowed 

after the Plan’s termination date because it was a change in the form of benefit, not permitted 

under PBGC regulations. In a 14-page decision the Appeals Board upheld PBGC’s 

determination. The full decision is available at: 

http://www.pbgc.gov/Documents/apbletter/Decision--Delphi-Hourly-Rate-Employees-2012-11-

14.pdf 

 Lukens Steel — In 1998, a Lukens Steel salaried employee was laid off and under the terms of 

his employment contract was entitled to a severance payment. To mitigate tax liabilities, a 

portion of the severance payment ($400,000) was paid from the qualified Plan which was 

amended on June 1, 1998 to provide a new Cash Balance Benefit for the employee in addition 

to the benefit the Plan already provided. The June 1st amendment provided for distribution of 

the Cash Balance on July 1, 1998. The participant elected, with his spouse’s consent, to 

receive his $400K lump sum payment in lieu of an annuity that would have started at the same 

time, his actual retirement date ( “ARD”). The Luken’s Plan later merged into the Bethlehem 

Steel Plan. The rather complicated facts of this case are outlined in the Board’s 13-page 

decision. The Appeals Board determined that PBGC had failed to fully account for the lumpsum payment when determining PBGC’s maximum guaranteed benefit limit. Thus, the Board 

determined no benefit remained to be paid under PBGC’s guarantee to this participant. The full 

decision can be found at http://www.pbgc.gov/Documents/apbletter/Decision--BethlehemSteel-Corp-2012-12-18.pdf 

2013 Enrolled Actuaries Meeting Blue Book	 Page 26