Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Rules and Regulations 25667 

* * * * * 

By direction of the Commission. 

Donald S. Clark, 

Secretary. 

[FR Doc. 2014–09821 Filed 5–5–14; 8:45 am] 

BILLING CODE 6750–01–C 

PENSION BENEFIT GUARANTY 

CORPORATION 

29 CFR Part 4022 

RIN 1212–AB18 

Benefits Payable in Terminated SingleEmployer Plans; Limitations on 

Guaranteed Benefits; Shutdown and 

Similar Benefits 

AGENCY: Pension Benefit Guaranty 

Corporation. 

ACTION: Final rule. 

SUMMARY: This final rule amends 

PBGC’s regulation on Benefits Payable 

in Terminated Single-Employer Plans, 

which sets forth rules on PBGC’s 

guarantee of pension plan benefits, 

including rules on the phase-in of the 

guarantee. The amendments implement 

the Pension Protection Act of 2006 

provision that the phase-in period for 

the guarantee of benefits that are 

contingent upon the occurrence of an 

‘‘unpredictable contingent event,’’ such 

as a plant shutdown, starts no earlier 

than the date of the shutdown or other 

unpredictable contingent event. 

DATES: Effective June 5, 2014. 

FOR FURTHER INFORMATION CONTACT: 

Catherine B. Klion, Assistant General 

Counsel for Regulatory Affairs, Office of 

the General Counsel, Pension Benefit 

Guaranty Corporation, 1200 K Street 

NW., Washington, DC 20005, 202–326– 

4224 or klion.catherine@pbgc.gov. 

(TTY/TDD users may call the Federal 

relay service toll-free at 1–800–877– 

8339 and ask to be connected to 202– 

326–4224.) 

SUPPLEMENTARY INFORMATION: 

Executive Summary 

This rule is needed to conform 

PBGC’s benefit payment regulation to 

Pension Protection Act of 2006 changes 

to the phase-in of PBGC’s guarantee of 

benefits that are contingent upon the 

occurrence of an ‘‘unpredictable 

contingent event,’’ such as a plant 

shutdown. 

PBGC’s legal authority for this action 

comes from section 4002(b)(3) of the 

Employee Retirement Income Security 

Act of 1974 (ERISA), which authorizes 

PBGC to issue regulations to carry out 

the purposes of Title IV of ERISA, and 

section 4022 of ERISA, which sets forth 

rules on PBGC’s guarantee of benefits in 

terminated single-employer plans. 

This final regulation codifies the 

Pension Protection Act of 2006 

provision that the phase-in period for 

the guarantee of benefits that are 

contingent upon the occurrence of an 

‘‘unpredictable contingent event,’’ such 

as a plant shutdown, starts no earlier 

than the date of the shutdown or other 

unpredictable contingent event. The 

regulation incorporates the definition of 

an unpredictable contingent event 

benefit under Title II of ERISA and 

Treasury regulations; provides that the 

guarantee of an unpredictable 

contingent event benefit is phased in 

from the latest of the date the benefit 

provision is adopted, the date the 

benefit is effective, or the date the event 

that makes the benefit payable occurs; 

and includes eight examples that show 

how the phase-in rules apply in various 

situations. 

PBGC received one public comment 

on its 2011 proposed regulation. PBGC 

has made a change to the final 

regulation in response to the comment. 

Background 

The Pension Benefit Guaranty 

Corporation (PBGC) administers the 

single-employer pension plan 

termination insurance program under 

Title IV of the Employee Retirement 

Income Security Act of 1974 (ERISA). 

The program covers certain privatesector, single-employer defined benefit 

plans, for which premiums are paid to 

PBGC each year. 

Covered plans that are underfunded 

may terminate either in a distress 

termination under section 4041(c) of 

ERISA or in an involuntary termination 

(one initiated by PBGC) under section 

4042 of ERISA. When such a plan 

terminates, PBGC typically is appointed 

statutory trustee of the plan, and 

becomes responsible for paying benefits 

in accordance with the provisions of 

Title IV. 

Under sections 4022(b)(1) and 

4022(b)(7) of ERISA and §§ 4022.24 

through .26 of PBGC’s regulation on 

Benefits Payable in Terminated SingleEmployer Plans, 29 CFR part 4022, 

PBGC’s guarantee of new pension 

benefits and benefit increases is 

‘‘phased in’’ over a five-year period, 

which begins on the date the new 

benefit or benefit increase is adopted or 

effective, whichever is later. 

The Pension Protection Act of 2006, 

Public Law 109–280 (PPA 2006), 

amended section 4022 of ERISA by 

adding a new section 4022(b)(8), which 

changes the start of the phase-in period 

for plant shutdown and other 

‘‘unpredictable contingent event 

benefits.’’ Under section 4022(b)(8), the 

phase-in rules are applied as if a plan 

amendment creating an unpredictable 

contingent event benefit (UCEB) was 

adopted on the date the unpredictable 

contingent event (UCE) occurred rather 

than as of the actual adoption date of 

the amendment, which is almost always 

earlier. As a result of the change, the 

guarantee of benefits arising from plant 

shutdowns and other UCEs that occur 

within five years of plan termination (or 

the date the plan sponsor entered 

bankruptcy, if applicable under PPA 

2006, as explained below) generally will 

be lower than under prior law. This 

provision, which does not otherwise 

change the existing phase-in rules, 

applies to benefits that become payable 

as a result of a UCE that occurs after July 

26, 2005. 

Phase-In of PBGC Guarantee 

Under section 4022(b)(7) of ERISA, 

the guarantee of benefits under a new 

plan or of a new benefit or benefit 

increase under an amendment to an 

existing plan (all of which are referred 

to in PBGC’s regulations as ‘‘benefit 

increases’’) is ‘‘phased in’’ based on the 

number of full years the benefit increase 

is in the plan. The time period that a 

benefit increase has been provided 

under a plan is measured from the later 

of the adoption date of the provision 

creating the benefit increase or the 

effective date of the benefit increase. 

Generally, 20 percent of a benefit 

increase is guaranteed after one year, 40 

percent after two years, etc., with full 

phase-in of the guarantee after five 

years. If the amount of the monthly 

benefit increase is below $100, the 

annual rate of phase-in is $20 rather 

than 20 percent. 

The phase-in limitation generally 

serves to protect the insurance program 

from losses caused by benefit increases 

that are adopted or made effective 

shortly before plan termination. This 

protection is needed because benefit 

increases can create large unfunded 

liabilities. An example is a plan 

amendment that significantly increases 

credit under the plan benefit formula for 

service performed prior to the 

amendment. Such increases generally 

are funded over time under the ERISA 

minimum funding rules. Congress 

determined that an immediate full 

guarantee would result in an 

inappropriate loss for PBGC if a plan 

terminated before an employer 

significantly funded a benefit increase. 

Phase-in of the guarantee allows time 

for some funding of new liabilities 

before they are fully guaranteed. 

Funding of liabilities created by a 

benefit increase generally starts at the 


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25668 Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Rules and Regulations 

1The Technical Explanation of PPA 2006 

prepared by the Joint Committee on Taxation Staff 

specifies that UCEBs include benefits payable with 

respect to ‘‘facility shutdowns or reductions in 

workforce.’’ Joint Committee on Taxation, 

Technical Explanation of H.R. 4, the ‘‘Pension 

Protection Act of 2006,’’ as passed by the House on 

July 26, 2006, and as considered by the Senate on 

August 3, 2006 (JCX–38–06), August 3, 2006, at 90 

(hereinafter Technical Explanation of PPA 2006). 

2Public Law 100–203, 10 Stat. 1330, 339–41 

(codified as amended at 26 U.S.C. 412(l) (1987)); see 

S. Rep. No. 100–63 at 171–72, 175–76 (1987). 

3Treasury Regulations under Code sections 430 

and 436 also apply for purposes of the parallel rules 

in ERISA sections 303 and 206(g). 

4 74 FR 53004, 53062 (Oct. 15, 2009). Treas. Reg. 

§ 1.436–1(a)(4)(iii) permits all or any portion of 

prohibited UCEBs to be restored by a plan 

amendment that meets the requirements of section 

436(c) of the Code and Treas. Reg. § 1.436–1(c) and 

other applicable requirements. Such an amendment 

would create a ‘‘benefit increase’’ under § 4022.2 

and therefore PBGC’s guarantee of UCEBs restored 

by such an amendment would be phased in from 

the later of the adoption date of the amendment or 

the effective date as of which the UCEB is restored, 

as provided under § 4022.27(c) of the final 

regulation. 

same time as the PBGC guarantee first 

applies under the phase-in rule. Under 

ERISA and the Internal Revenue Code 

(Code), liability created by a benefit 

increase must be reflected in a plan’s 

required contribution no later than the 

plan year following adoption of the 

benefit increase. For example, a benefit 

increase that is adopted and effective in 

the 2009 plan year must be reflected in 

the minimum funding contribution 

calculations for a plan year not later 

than the 2010 plan year. Similarly, such 

a benefit increase would become 

partially guaranteed during the 2010 

plan year. 

Over the years, legislative reforms, 

including those in PPA 2006, have 

generally shortened the permitted 

funding period from thirty years to 

seven years (or less in certain cases). 

This closer coordination between the 

permitted funding period and five-year 

guarantee phase-in period generally 

enhanced the effectiveness of the phasein provisions in protecting the PBGC 

insurance program against losses due to 

unfunded benefit increases. However, as 

explained below, before the PPA 2006 

changes to the phase-in of UCEBs, this 

coordination generally failed in the case 

of UCEBs. 

Unpredictable Contingent Event 

Benefits 

UCEBs, described more specifically 

below, are benefits or benefit increases 

that become payable solely by reason of 

the occurrence of a UCE such as a plant 

shutdown. UCEBs typically provide a 

full pension, without any reduction for 

age, starting well before an unreduced 

pension would otherwise be payable. 

The events most commonly giving rise 

to UCEBs are events relating to full or 

partial plant shutdowns or other 

reductions in force. UCEBs, which are 

frequently provided in pension plans in 

various industries such as the steel and 

automobile industries, are payable with 

respect to full or partial plant 

shutdowns as well as shutdowns of 

different kinds of facilities, such as 

administrative offices, warehouses, 

retail operations, etc. UCEBs are also 

payable, in some cases, with respect to 

layoffs and other workforce reductions.1

A typical shutdown benefit provision 

in the steel industry—the so-called ‘‘70/ 

80 Rule’’—generally allows participants 

who lose their jobs due to the complete 

or partial closing of a facility or a 

reduction-in-force and whose age plus 

service equals 70 (if at least age 55) or 

80 (at any age) to begin receiving their 

full accrued pension immediately, even 

though they have not reached normal 

retirement age. Similar UCEBs are 

common in the automobile industry 

with respect to shutdowns and layoffs. 

The purpose of these benefits is to assist 

participants financially in adjusting to a 

permanent job loss. 

Time Lag Between Start of Guarantee 

Phase-In and Funding of UCEBs 

A UCEB provision typically has been 

in a plan many years before the 

occurrence of the event that eventually 

triggers the benefit, such as a plant 

shutdown. As a result, before PPA 2006, 

shutdown benefits, for example, were 

often fully guaranteed under the phasein rules when a shutdown occurred. 

Because the benefit is contingent on the 

occurrence of an unpredictable event, 

plan sponsors typically did not make 

contributions to provide for advance 

funding of such benefits; funding of 

such benefits often did not begin until 

after the UCE had occurred. If, as often 

happened, plan termination occurred 

within a few years after a shutdown, the 

time lag between the start of the phasein period and the start of funding 

resulted in an increased loss to the 

insurance program. 

Treatment of UCEBs in OBRA 1987 

Congress first explicitly addressed 

UCEBs in funding reforms contained in 

the Pension Protection Act of 1987, 

enacted as part of Public Law 100–203, 

the Omnibus Budget Reconciliation Act 

of 1987 (OBRA 1987). The OBRA 1987 

rules for deficit reduction contributions 

required employers to recognize UCEBs 

on an accelerated basis (generally, 

within five to seven years), beginning 

after the triggering event occurred.2

However, the rules did not address the 

mismatch of the funding and guarantee 

phase-in periods discussed above. They 

also did not address the fact that UCEBs 

are likely to be triggered when the 

employer is experiencing financial 

difficulty, which threatens both funding 

and continuation of the plan. For these 

reasons, in the years since OBRA 1987, 

PBGC has assumed more than $1 billion 

of unfunded benefit liabilities from 

shutdown and similar benefits. 

Treatment of UCEBs in PPA 2006 

Congress further addressed UCEBs in 

PPA 2006. PPA 2006 affected UCEBs in 

two important ways. 

First, PPA 2006 added new ERISA 

section 206(g) and parallel Code section 

436(b) that restrict payment of UCEBs 

with respect to a UCE if the plan is less 

than 60 percent funded for the plan year 

in which the UCE occurs (or would be 

less than 60 percent funded taking the 

UCEB into account). Unless the 

restriction is removed during that plan 

year as a result of additional 

contributions to the plan or an actuarial 

certification meeting certain 

requirements, the restriction becomes 

permanent and, under Treas. Reg. 

§ 1.436–1(a)(4)(iii),3 the plan is treated 

as if it does not provide for those 

UCEBs.4 Because PBGC guarantees only 

benefits that are provided under a plan, 

a UCEB that is treated as not provided 

under the plan because of this 

restriction is not guaranteeable by PBGC 

at all, and the phase-in rules that are the 

subject of this final regulation do not 

come into play for such a UCEB. 

Moreover, under Treas. Reg. § 1.436– 

1(a)(3)(ii), benefit limitations under 

ERISA section 206(g) that were in effect 

immediately before plan termination 

continue to apply after termination. 

Second, PPA 2006 better aligns the 

starting dates of the funding and 

guarantee phase-in of UCEBs. Under 

PPA 2006, phase-in of the PBGC 

guarantee does not start until the UCE 

actually occurs. Specifically, ERISA 

section 4022(b)(8), added by section 403 

of PPA 2006, provides: ‘‘If an 

unpredictable contingent event benefit 

(as defined in section 206(g)(1)) is 

payable by reason of the occurrence of 

any event, this section shall be applied 

as if a plan amendment had been 

adopted on the date such event 

occurred.’’ The provision applies to 

UCEs that occur after July 26, 2005. 

Thus, for purposes of the phase-in 

limitation, the date a UCE occurs is 

treated as the adoption date of the plan 

provision that provides for the related 

UCEB. This statutory change provides 


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Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Rules and Regulations 25669 

5 In addition, Treas. Reg. § 1.430(d)–(1)(f)(6) 

requires that calculation of the funding target for a 

single-employer plan take into account, based on 

information as of the valuation date, the probability 

that UCEBs will become payable. Under that 

Treasury regulation, the probability may be 

assumed to be zero if there is not more than a de 

minimis likelihood that the UCE will occur. 

6With one exception, explained below under the 

heading ‘‘Bankruptcy filing date treated as deemed 

termination date,’’ the other provisions of PPA 2006 

affecting PBGC’s guarantee do not affect phase-in of 

the guarantee of UCEBs and thus were not 

addressed in the proposed rule. 

7The comment is posted on PBGC’s Web site, 

www.pbgc.gov. 

8The examples are not an exclusive list of UCEs 

or UCEBs and are not intended to narrow the 

statutory definition, as further delineated in 

Treasury Regulations. 

9As explained in Technical Explanation of PPA 

2006, supra note 1, ‘‘layoff benefits,’’ as that term 

is used in Treas. Reg. § 1.401–1(b)(1)(i), are 

severance benefits that may not be included in taxqualified pension plans. In contrast, the benefits 

covered in this regulation are retirement benefits 

payable in the event of certain workforce 

reductions. These retirement benefits—generally 

subsidized early retirement benefits—may be 

provided in tax-qualified plans insured by PBGC. 

the PBGC insurance program a greater 

measure of protection than prior law 

from losses due to unfunded UCEBs— 

most notably, benefits that become 

payable by reason of a plant shutdown 

or similar event such as a permanent 

layoff.5

ERISA section 206(g)(1), as added by 

section 103(a) of PPA 2006, defines 

‘‘unpredictable contingent event 

benefit’’ as any benefit payable solely by 

reason of a plant shutdown (or similar 

event, as determined by the Secretary of 

the Treasury), or an event other than the 

attainment of any age, performance of 

any service, receipt or derivation of any 

compensation, or occurrence of death or 

disability. 

PPA 2006 did not alter the rule that 

UCEBs are not guaranteed at all unless 

the triggering event occurred prior to the 

plan termination date (see PBGC v. 

Republic Tech. Int’l, LLC, 386 F.3d 659 

(6th Cir. 2004)). 

Treasury Final Regulation 

On October 15, 2009 (at 74 FR 53004), 

the Department of the Treasury 

(Treasury) published a final rule on 

Benefit Restrictions for Underfunded 

Pension Plans that defines UCEB for 

purposes of ERISA section 206(g)(1), 

and thus also for purposes of section 

4022(b)(8). Treasury’s final regulation 

clarifies the following points regarding 

UCEBs: 

• UCEBs include only benefits or 

benefit increases to the extent such 

benefits or benefit increases would not 

be payable but for the occurrence of a 

UCE. 

• The reference to ‘‘plant shutdown’’ 

in the statutory definition of UCEB 

includes a full or partial shutdown. 

Treasury’s final regulation also states 

that a UCEB includes benefits triggered 

by events similar to plant shutdowns. 

Treas. Reg. § 1.436–1(j)(9) defines a 

UCEB at 26 CFR 1.436(j)(9). 

PBGC Proposed Rule and Public 

Comment 

On March 11, 2011 (at 76 FR 13304), 

PBGC published a proposed rule to 

implement section 403 of PPA 2006.6

PBGC received one comment on the 

proposed rule, from an association of 

labor organizations.7 The commenter 

requested that the final rule limit 

PBGC’s discretion to determine the 

beginning date of the phase-in period 

for the guarantee of a UCEB and require 

PBGC to notify participants affected by 

the phase-in of the date of the UCE. The 

commenter also expressed concern 

about the participant-by-participant 

basis for determining the date on which 

a UCE occurs in the case of a reduction 

in force. PBCG’s response to the 

comment is discussed below. 

Overview of Final Regulation 

The final regulation incorporates the 

definition of UCEB under section 

206(g)(1)(C) of ERISA and Treas. Reg. 

§ 1.436–1(j)(9). It also provides that the 

guarantee of a UCEB is phased in from 

the latest of the date the benefit 

provision is adopted, the date the 

benefit is effective, or the date the UCE 

that makes the benefit payable occurs. 

The final rule includes eight examples 

that show how the UCEB phase-in rules 

apply in the following situations: 

• Shutdown that occurs later than the 

announced shutdown date. 

• Sequential permanent layoffs. 

• Skeleton shutdown crews. 

• Permanent layoff benefit for which 

the participant qualifies shortly before 

the sponsor enters bankruptcy. 

• Employer declaration during a 

layoff that return to work is unlikely. 

• Shutdown benefit with age 

requirement that can be met after the 

shutdown. 

• Retroactive UCEB. 

• Removal of IRC Section 436 

restriction.8

The final regulation is nearly the same 

as the proposed regulation. As 

explained below, PBGC has made one 

change in the regulation in response to 

the public comment. In addition, PBGC 

has updated the dates in the examples. 

Regulatory Changes 

UCEBs Covered 

As explained above, ERISA section 

4022(b)(8), added by section 403 of PPA 

2006, changes the rules for phasing in 

the guarantee of UCEBs in the case of 

UCEs that occur after July 26, 2005. 

Section 4022(b)(8) covers shutdowntype benefits, including benefits payable 

by reason of complete shutdowns of 

plants, and benefits payable when 

participants lose their jobs or retire as a 

result of partial closings or reductionsin-force at all kinds of facilities, in 

addition to other UCEBs. Accordingly, 

§ 4022.27(a) expressly refers to benefits 

payable as a result of ‘‘plant shutdowns 

or other unpredictable contingent events 

. . ., such as partial facility closings and 

permanent layoffs.’’ 9

As stated above, a UCEB is defined by 

section 206(g)(1)(C) of ERISA to include 

benefits payable solely by reason of (1) 

a plant shutdown or similar event, or (2) 

an event other than an event such as 

attainment of a certain age or 

performance of service, that would 

trigger eligibility for a retirement 

benefit. The final regulation provides 

that PBGC will determine whether a 

benefit is a UCEB based on the facts and 

circumstances; the substance of the 

benefit, not what it is called, determines 

whether the benefit would be a UCEB 

covered by the new phase-in rule. 

Accordingly, under § 4022.27(b), the 

guarantee of any benefit that PBGC 

determines, based on plan provisions 

and facts and circumstances, is a 

shutdown benefit or is otherwise a 

UCEB will be phased in as a UCEB. 

The definition of UCEB under 

§ 4022.2 provides that a benefit does not 

cease to be a UCEB for phase-in 

purposes merely because the UCE has 

already occurred or its occurrence has 

become reasonably predictable. This 

interpretation is supported by the plain 

language of ERISA section 4022(b)(8), 

which incorporates ERISA section 

206(g)(1)(C). Section 206(g)(1)(C) 

expressly defines a UCEB not in terms 

of degree of predictability, but rather 

whether a benefit is ‘‘payable solely by 

reason of a shutdown or similar event 

. . . or an event other than the 

attainment of any age, performance of 

any service, receipt or derivation of any 

compensation, or occurrence of death or 

disability.’’ In other words, section 

206(g)(1)(C) provides that a UCEB 

remains a UCEB after the UCE occurs. 

Because many events that are not 

reliably and reasonably predictable 

become predictable immediately before 

they occur, and the concept of 

predictability does not apply to events 

after they have occurred, PBGC 

interprets ERISA section 4022(b)(8) to 

apply to benefits such as shutdown 

benefits regardless of whether the events 


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25670 Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Rules and Regulations 

10 In contrast, where the plan provides that a 

UCEB is payable only when all participants are laid 

off and the plant is permanently shut down, the 

plan itself has created a benefit trigger that is 

actually a single event, and therefore phase-in 

would commence as of the same date for all 

participants. 

triggering those benefits have already 

occurred or have become predictable. 

Date UCE Occurs 

Under the final regulation, PBGC 

determines the date a UCE occurs based 

on the plan provisions and other facts 

and circumstances, including the nature 

and level of activity at a facility that is 

closing and the permanence of the 

event. Statements or determinations by 

the employer, the plan administrator, a 

union, an arbitrator under a collective 

bargaining agreement, or a court about 

the date of the event may be relevant but 

are not controlling. Where a plan 

provides that a UCEB is payable only 

upon the occurrence of more than one 

UCE, the regulation provides that the 

guarantee is phased in from the latest 

date when all such UCEs have occurred. 

For example, if a UCEB is payable only 

if a participant is laid off and the layoff 

continues for a specified period of time, 

the phase-in period begins at the end of 

the specified period of time. Similarly, 

if a UCEB is payable only if both the 

plant where an employee worked is 

permanently shut down and it is 

determined that the employer has no 

other suitable employment for the 

employee, the phase-in period begins 

when it is determined that the employer 

had no other suitable employment for 

the employee (assuming that date was 

later than the shutdown date). 

The commenter expressed concern 

that the proposed ‘‘facts and 

circumstances’’ standard granted PBGC 

broad discretionary authority to reduce 

participants’ guaranteed benefits and 

requested that this discretion should be 

limited, in general, by granting 

deference to eligibility determinations 

made by the plan sponsor (when acting 

as plan administrator), or that PBGC 

should be bound by the decision of an 

arbitrator, benefit agreement or judicial 

decision construing a collective 

bargaining agreement. The commenter 

points out that such deference is 

especially appropriate where 

participants are receiving benefits and 

have relied upon those determinations. 

Because shutdowns and similar 

situations are fact-specific, PBGC 

continues to believe that a facts-andcircumstances approach is the best way 

to implement the statute. However, 

PBGC agrees with the commenter that 

determinations made by a plan, 

arbitrator, or court regarding the date 

when participants became entitled to 

the UCEB may be relevant. Accordingly, 

in response to the comment, 

§ 4022.27(d) of the final regulation 

specifically includes determinations 

and statements by such parties as factors 

that will be considered, to the extent 

relevant, in establishing the UCE date. 

PBGC will not, however, treat any such 

determinations or statements as 

controlling. 

This change does not alter the 

principle that PBGC is ultimately 

responsible for determining 

participants’ guaranteed benefits. The 

agency administers a program that 

places statutory limits on benefits, and 

it is not generally bound by a private 

party’s determination of benefits. 

Whether a UCEB phase-in 

determination applies on a participantby-participant basis, as opposed to 

facility-wide or some other basis, will 

depend largely upon plan provisions. 

For example, a benefit triggered by a 

reduction-in-force would be determined 

with respect to each participant, and 

thus layoffs that occur on different dates 

would generally be distinct UCEs. See 

Example 2 of the final regulation 

(§ 4022.27(e)(2)). But a benefit payable 

only upon the complete shutdown of 

the employer’s entire operations applies 

plan-wide, and thus the shutdown date 

generally is the date of the UCE for all 

participants. 

The commenter expressed concern 

that in cases of sequential layoffs, 

participants laid off early in a shutdown 

process would obtain a greater phase-in 

percentage than participants laid off 

later in the process. The commenter 

suggested that sequential layoffs 

resulting in a shutdown should be 

viewed as a single event, and the UCE 

date should be the date on which the 

sponsor decided upon the layoffs, or at 

the latest, the date on which the first 

participants are laid off. PBGC has not 

adopted this suggestion. 

In the case of a sequential layoff 

where the plan provides that benefits 

become payable as of the layoff date, it 

is true that a participant-by-participant 

determination of the UCE date could 

result in participants laid off early in a 

shutdown process receiving a greater 

phase-in percentage than participants 

laid off later in the process. However, 

that result is dictated by plan language 

that conditions a benefit upon the 

participant’s layoff, and ERISA section 

4022(b)(8), which requires that the 

phase-in period commence no earlier 

than the date of the event that triggers 

the UCEB. Setting a phase-in date that 

is prior to the date of the event that 

made the layoff benefit payable would 

not accord with the statute and therefore 

would be beyond PBGC’s authority.10

The commenter also requested that 

the final rule require that PBGC explain 

in detail, as part of the benefit 

determination process, the reasons for 

its selection of the triggering date on 

which the phase-in is based, if that date 

is different from the triggering date used 

by the plan. PBGC’s regulations do not 

specify the amount of detail to be 

included in benefit determinations, in 

order to preserve flexibility in dealing 

with a wide variety of plans and plan 

provisions. In issuing benefit 

determinations to participants and 

beneficiaries, PBGC carefully balances 

providing additional information with 

reducing the potential for confusion 

from undue complexity. However, 

PBGC understands the commenter’s 

concern and is committed to 

transparency in its communications 

with participants and beneficiaries. In 

response to the comment, PBGC’s policy 

will be to provide the UCE date and the 

information necessary to understand it, 

in all benefit determinations, with the 

amount of additional information 

necessarily varying from case to case. 

Date Phase-In Begins 

ERISA sections 4022(b)(1) and 

4022(b)(7) provide that PBGC’s 

guarantee of a benefit increase is phased 

in from the date the benefit increase is 

‘‘in effect,’’ i.e., from the later of the 

adoption date or effective date of the 

increase. ERISA section 4022(b)(8) 

(added by PPA 2006) provides that, for 

phase-in purposes, shutdown benefits 

and other UCEBs are deemed to be 

‘‘adopted on the date . . . [the UCE] 

occurs.’’ Thus ERISA section 4022(b)(8) 

protects PBGC in the typical situation 

where a shutdown or permanent layoff 

occurs long after a shutdown benefit 

provision was originally adopted. 

Section 4022(b)(8) could be read to 

produce an incongruous result in an 

unusual situation where the UCE occurs 

first and a UCEB is adopted later, 

effective retroactive to the UCE. Because 

the date of the UCE would be treated 

under section 4022(b)(8) as the adoption 

date of the UCEB, in this situation the 

phase-in arguably would begin on the 

date of the UCE, rather than on the 

actual adoption date of the plan 

amendment, as under pre-PPA 2006 

law. The result would be a more 

generous—and more costly—guarantee 

of UCEBs than under pre-PPA 2006 law. 

To avoid this incongruous result, 

§ 4022.27(c) provides that a benefit 

increase due solely to a UCEB is ‘‘in 

effect’’ as of the latest of the adoption 

date of the plan provision that provides 


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11By contrast, three other provisions of PPA 2006 

that changed PBGC’s guarantee of benefits 

specifically provide changes to the asset allocation 

scheme under section 4044. See PPA 2006 sections 

404 (treatment of bankruptcy filing date as deemed 

termination date), 402(g)(2)(A) (special termination 

rules for commercial airlines), and 407 (relating to 

majority owners), enacting respectively sections 

4044(e), 4022(h), and 4044(b)(3) of ERISA. 

12See definition of ‘‘PPA 2006 bankruptcy 

termination’’ in § 4001.2. 

for the UCEB, the effective date of the 

UCEB, or the date the UCE occurs. 

Finally, if a UCEB becomes payable 

because a restriction under IRC section 

436 is removed after, for example, an 

adequate funding contribution is made, 

the effective date of the UCEB for phasein purposes is determined without 

regard to the restriction. 

Allocation of Assets 

When PBGC becomes trustee of a 

pension plan that terminates without 

sufficient assets to provide all benefits, 

it allocates plan assets to plan benefits 

in accordance with the statutory priority 

categories in section 4044 of ERISA. The 

category to which a particular benefit is 

assigned in the asset allocation can 

affect insurance program costs and the 

extent to which participants receive 

nonguaranteed benefits. 

Priority category 3 in the asset 

allocation is particularly important, 

because it often includes benefits that, 

depending on the level of the plan 

assets, may be paid by PBGC even 

though not guaranteed. Priority category 

3 contains only those benefits that were 

in pay status at least three years before 

the termination date of the plan (or that 

would have been in pay status if the 

participant had retired before that threeyear period). An individual’s benefit 

amount in priority category 3 is based 

on the plan provisions in effect during 

the five-year period preceding plan 

termination under which the benefit 

amount would be the least. Thus 

priority category 3 does not include 

benefit increases that were adopted or 

became effective in the five years before 

plan termination or, in some cases as 

discussed below, the bankruptcy filing 

date. 

PBGC considered whether the UCEBs 

that are not guaranteed under the PPA 

2006 changes should be excluded from 

priority category 3. Under that 

approach, plan assets would go farther 

to pay for other benefits, especially 

guaranteed benefits, and participants 

would be less likely to receive UCEBs 

that are not guaranteed. Alternatively, if 

UCEBs that are not guaranteed under 

the PPA 2006 changes were included in 

priority category 3—as they are under 

pre-PPA law and PBGC’s current 

regulation on Allocation of Assets (part 

4044)—plan assets would be less likely 

to reach other benefits, especially 

guaranteed benefits, and participants 

would be more likely to receive UCEBs 

that are not guaranteed. 

Because section 403 of PPA 2006 does 

not make any reference to section 

4044,11 PBGC concluded that the latter 

interpretation is the better one, and thus 

the final regulation, like the proposed 

regulation, does not amend part 4044. 

Bankruptcy Filing Date Treated as 

Deemed Termination Date 

On June 14, 2011 (76 FR 34590), 

PBGC published a final rule, 

‘‘Bankruptcy Filing Date Treated as Plan 

Termination Date for Certain Purposes; 

Guaranteed Benefits; Allocation of Plan 

Assets; Pension Protection Act of 2006,’’ 

to implement section 404 of PPA 2006, 

which added a new section 4022(g) to 

ERISA. This section provides that when 

an underfunded plan terminates while 

its contributing sponsor is in 

bankruptcy, the amount of guaranteed 

benefits under section 4022 will be 

determined as of the date the sponsor 

entered bankruptcy (bankruptcy filing 

date) rather than as of the termination 

date. The provision applies to plans 

terminating while the sponsor is in 

bankruptcy, if the bankruptcy filing date 

is on or after September 16, 2006.12

Section 4022(g) applies to all types of 

plan benefits, including UCEBs. Under 

this provision, if a permanent shutdown 

(or other UCE) occurs after the 

bankruptcy filing date, UCEBs arising 

from the UCE are not guaranteed 

because the benefits are not 

nonforfeitable as of the bankruptcy 

filing date. Similarly, if the shutdown 

(or other UCE) occurs before the 

bankruptcy filing date, the five-year 

phase-in period for any resulting UCEBs 

is measured from the date of the UCE to 

the bankruptcy filing date, rather than to 

the plan termination date. For example, 

if a permanent shutdown occurs three 

years before the bankruptcy filing date, 

the guarantee of any resulting UCEBs 

will be only 60 percent phased in, even 

if the shutdown was more than five 

years before the plan’s termination date. 

This rule is illustrated by Examples 4 

and 5 in the regulation (§ 4022.27(e)(4) 

and (5), respectively). 

PBGC considered whether UCEBs 

could be excepted from the section 

4022(g) bankruptcy provision on the 

ground that the general phase-in rule in 

section 4022(g) is superseded by the 

specific section 4022(b)(8) phase-in rule 

for UCEBs. However, PBGC concluded 

that the language of the bankruptcy and 

UCEB statutory provisions does not 

allow for any such exception. The UCEB 

provision alters the starting date for 

phase-in of UCEBs, while the 

bankruptcy provision alters the date 

beyond which no further phase-in is 

allowed for any benefit increase, 

including a UCEB. PBGC sees no 

conflict in applying both provisions to 

UCEBs. 

Estimated Guaranteed Benefits 

ERISA section 4041(c)(3)(D)(ii)(IV) 

requires administrators of plans 

terminating in a distress termination to 

limit payment of benefits to estimated 

guaranteed benefits and estimated nonguaranteed benefits funded under 

section 4044, beginning on the proposed 

termination date. Section 4022.62 of 

PBGC’s regulation on Benefits Payable 

in Terminated Single-Employer Plans 

contains rules for computing estimated 

guaranteed benefits, including 

provisions for estimating guaranteed 

benefits when a new benefit or benefit 

increase was added to the plan within 

five years before plan termination. The 

final regulation, like the proposed 

regulation, amends § 4022.62 to provide 

that the date the UCE occurs is treated 

as the date the UCEB was adopted, i.e., 

the date the plan was amended to 

include the UCEB. 

Applicability 

The amendments in this final rule, 

like section 403 of PPA 2006, will apply 

to UCEBs that become payable as a 

result of a UCE that occurs after July 26, 

2005. 

Regulatory Procedures 

Executive Order 12866 ‘‘Regulatory 

Planning and Review’’ and Executive 

Order 13563 ‘‘Improving Regulation and 

Regulatory Review’’ 

PBGC has determined, in consultation 

with the Office of Management and 

Budget, that this final rule not is a 

‘‘significant regulatory action’’ under 

Executive Order 12866. 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. Executive 

Orders 12866 and 13563 require that a 

comprehensive regulatory impact 


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analysis be performed for any 

economically significant regulatory 

action, defined as an action that would 

result in an annual effect of $100 

million or more on the national 

economy or which would have other 

substantial impacts. In accordance with 

OMB Circular A–4, PBGC has examined 

the economic and policy implications of 

this final rule and has concluded that 

the action’s benefits justify its costs. 

Under Section 3(f)(1) of Executive 

Order 12866, a regulatory action is 

economically significant if ‘‘it is likely 

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

an annual effect on the economy of $100 

million or more or adversely affect in a 

material way the economy, a sector of 

the economy, productivity, competition, 

jobs, the environment, public health or 

safety, or State, local, or tribal 

governments or communities.’’ This 

final rule does not cross the $100 

million threshold for economic 

significance and is not otherwise 

economically significant. 

The economic effect of the final rule 

is entirely attributable to the economic 

effect of section 403 of PPA 2006. Three 

factors tend to reduce the economic 

impact of section 403. 

First, before section 403 went into 

effect, PBGC often involuntarily 

terminated plans with shutdown 

liabilities before company-wide 

shutdowns, under the ‘‘long-run loss’’ 

provision in section 4042(a)(4) of 

ERISA. That provision allows PBGC to 

initiate termination proceedings if its 

long-run loss ‘‘may reasonably be 

expected to increase unreasonably if the 

plan is not terminated.’’ A sudden 

increase in PBGC’s liabilities resulting 

from a shutdown could create just such 

an unreasonable increase in long-run 

loss. Section 403 avoids the need for 

PBGC to make case-by-case decisions 

whether to initiate such ‘‘pre-emptive’’ 

terminations. Although it is difficult to 

make assumptions about PBGC’s ability 

and intent to pursue such terminations 

if section 403 had not gone into effect, 

this factor tends to reduce its economic 

impact. 

Second, another PPA 2006 

amendment provides that if a plan 

terminates while the sponsor is in 

bankruptcy, the amount of benefits 

guaranteed by PBGC is fixed at the date 

of the bankruptcy filing rather than at 

the plan termination date. Because of 

that provision, if a plant shutdown or 

other UCE occurred between the 

bankruptcy filing date and the 

termination date, the resulting UCEB 

would not be guaranteed at all, and thus 

section 403 would have no economic 

effect. 

Third—and perhaps most important— 

as also discussed above, other PPA 2006 

provisions restrict payment of UCEBs if 

a plan is less than 60 percent funded. If, 

because of those restrictions, a UCEB 

was not payable at all, section 403 again 

would have no economic effect. 

As stated above in Applicability, 

section 403 of PPA 2006 applies to any 

UCEB that becomes payable as a result 

of a UCE that occurs after July 26, 2005. 

PBGC estimates that, to date, the total 

effect of section 403—in terms of lower 

benefits paid to participants and 

associated savings for PBGC—is less 

than $4 million. Although PBGC cannot 

predict with certainty which plans with 

UCEBs will terminate, the funding level 

of such plans, or what benefits will be 

affected by the guarantee limits, given 

the relatively low estimate of the effect 

of the statutory provision to date, PBGC 

has determined that the annual effect of 

the rule will be less than $100 million. 

Regulatory Flexibility Act 

PBGC certifies under section 605(b) of 

the Regulatory Flexibility Act that this 

final rule will not have a significant 

economic impact on a substantial 

number of small entities. The 

amendments implement and in some 

cases clarify statutory changes made in 

PPA 2006; they do not impose new 

burdens on entities of any size. Virtually 

all of the statutory changes affect only 

PBGC and persons who receive benefits 

from PBGC. Accordingly, sections 603 

and 604 of the Regulatory Flexibility 

Act do not apply. 

List of Subjects in 29 CFR Part 4022 

Pension insurance, Pensions, 

Reporting and recordkeeping 

requirements. 

For the reasons given above, PBGC is 

amending 29 CFR part 4022 as follows: 

PART 4022—BENEFITS PAYABLE IN 

TERMINATED SINGLE-EMPLOYER 

PLANS 

■ 1. The authority citation for part 4022 

continues to read as follows: 

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

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

■ 2. In § 4022.2: 

■ a. Amend the definition of ‘‘benefit 

increase’’ by removing the final ‘‘and’’ 

in the second sentence and adding in its 

place, ‘‘an unpredictable contingent 

event benefit, and’’; and 

■ b. Add in alphabetical order 

definitions for unpredictable contingent 

event (UCE) and unpredictable 

contingent event benefit (UCEB) to read 

as follows: 

§ 4022.2 Definitions. 

* * * * * 

Unpredictable contingent event (UCE) 

has the same meaning as unpredictable 

contingent event in section 206(g)(1)(C) 

of ERISA and Treas. Reg. § 1.436–1(j)(9) 

(26 CFR 1.436–1(j)(9)). It includes a 

plant shutdown (full or partial) or a 

similar event (such as a full or partial 

closing of another type of facility, or a 

layoff or other workforce reduction), or 

any event other than the attainment of 

any age, performance of any service, 

receipt or derivation of any 

compensation, or occurrence of death or 

disability. 

Unpredictable contingent event 

benefit (UCEB) has the same meaning as 

unpredictable contingent event benefit 

in section 206(g)(1)(C) of ERISA and 

Treas. Reg. § 1.436–1(j)(9) (26 CFR 

1.436–1(j)(9)). Thus, a UCEB is any 

benefit or benefit increase to the extent 

that it would not be payable but for the 

occurrence of a UCE. A benefit or 

benefit increase that is conditioned 

upon the occurrence of a UCE does not 

cease to be a UCEB as a result of the 

contingent event having occurred or its 

occurrence having become reasonably 

predictable. 

■ 3. Revise § 4022.24(e) to read as 

follows: 

§ 4022.24 Benefit increases. 

* * * * * 

(e) Except as provided in § 4022.27(c), 

for the purposes of §§ 4022.22 through 

4022.28, a benefit increase is deemed to 

be in effect commencing on the later of 

its adoption date or its effective date. 

* * * * * 

§ 4022.27 [Redesignated as § 4022.28] 

■ 4. Section 4022.27 is redesignated as 

§ 4022.28. 

■ 5. New § 4022.27 is added to read as 

follows: 

§ 4022.27 Phase-in of guarantee of 

unpredictable contingent event benefits. 

(a) Scope. This section applies to a 

benefit increase, as defined in § 4022.2, 

that is an unpredictable contingent 

event benefit (UCEB) and that is payable 

with respect to an unpredictable 

contingent event (UCE) that occurs after 

July 26, 2005. 

(1) Examples of benefit increases 

within the scope of this section include 

unreduced early retirement benefits or 

other early retirement subsidies, or 

other benefits to the extent that such 

benefits would not be payable but for 

the occurrence of one or more UCEs. 

(2) Examples of UCEs within the 

scope of this section include full and 

partial closings of plants or other 


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facilities, and permanent workforce 

reductions, such as permanent layoffs. 

Permanent layoffs include layoffs 

during which an idled employee 

continues to earn credited service 

(creep-type layoff) for a period of time 

at the end of which the layoff is deemed 

to be permanent. Permanent layoffs also 

include layoffs that become permanent 

upon the occurrence of an additional 

event such as a declaration by the 

employer that the participant’s return to 

work is unlikely or a failure by the 

employer to offer the employee suitable 

work in a specified area. 

(3) The examples in this section are 

not an exclusive list of UCEs or UCEBs 

and are not intended to narrow the 

statutory definitions, as further 

delineated in Treasury Regulations. 

(b) Facts and circumstances. If PBGC 

determines that a benefit is a shutdown 

benefit or other type of UCEB, the 

benefit will be treated as a UCEB for 

purposes of this subpart. PBGC will 

make such determinations based on the 

facts and circumstances, consistent with 

these regulations; how a benefit is 

characterized by the employer or other 

parties may be relevant but is not 

determinative. 

(c) Date phase-in begins. (1) The date 

the phase-in of PBGC’s guarantee of a 

UCEB begins is determined in 

accordance with subpart B of this part. 

For purposes of this subpart, a UCEB is 

deemed to be in effect as of the latest 

of— 

(i) The adoption date of the plan 

provision that provides for the UCEB, 

(ii) The effective date of the UCEB, or 

(iii) The date the UCE occurs. 

(2) The date the phase-in of PBGC’s 

guarantee of a UCEB begins is not 

affected by any delay that may occur in 

placing participants in pay status due to 

removal of a restriction under section 

436(b) of the Code. See the example in 

paragraph (e)(8) of this section. 

(d) Date UCE occurs. For purposes of 

this section, PBGC will determine the 

date the UCE occurs based on plan 

provisions and other facts and 

circumstances, including the nature and 

level of activity at a facility that is 

closing and the permanence of the 

event. PBGC will also consider, to the 

extent relevant, statements or 

determinations by the employer, the 

plan administrator, a union, an 

arbitrator under a collective bargaining 

agreement, or a court, but will not treat 

such statements or determinations as 

controlling. 

(1) The date a UCE occurs is 

determined on a participant-byparticipant basis, or on a different basis, 

such as a facility-wide or company-wide 

basis, depending upon plan provisions 

and the facts and circumstances. For 

example, a benefit triggered by a 

permanent layoff of a participant would 

be determined with respect to each 

participant, and thus layoffs that occur 

on different dates would generally be 

distinct UCEs. In contrast, a benefit 

payable only upon a complete plant 

shutdown would apply facility-wide, 

and generally the shutdown date would 

be the date of the UCE for all 

participants who work at that plant. 

Similarly, a benefit payable only upon 

the complete shutdown of the 

employer’s entire operations would 

apply plan-wide, and thus the 

shutdown date of company operations 

generally would be the date of the UCE 

for all participants. 

(2) For purposes of paragraph 

(c)(1)(iii) of this section, if a benefit is 

contingent upon more than one UCE, 

PBGC will apply the rule under Treas. 

Reg. § 1.436–1(b)(3)(ii) (26 CFR 1.436– 

1(b)(3)(ii)) (i.e., the date the UCE occurs 

is the date of the latest UCE). 

(e) Examples. The following examples 

illustrate the operation of the rules in 

this section. Except as provided in 

Example 8, no benefit limitation under 

Code section 436 applies in any of these 

examples. Unless otherwise stated, the 

termination is not a PPA 2006 

bankruptcy termination. 

Example 1. Date of UCE. (i) Facts: On 

January 1, 2006, a Company adopts a plan 

that provides an unreduced early retirement 

benefit for participants with specified age 

and service whose continuous service is 

broken by a permanent plant closing or 

permanent layoff that occurs on or after 

January 1, 2007. On January 1, 2013, the 

Company informally and without 

announcement decides to close Facility A 

within a two-year period. On January 1, 2014, 

the Company’s Board of Directors passes a 

resolution directing the Company’s officers to 

close Facility A on or before September 1, 

2014. On June 1, 2014, the Company issues 

a notice pursuant to the Worker Adjustment 

and Retraining Notification (WARN) Act, 29 

U.S.C. 2101, et seq., that Facility A will close, 

and all employees will be permanently laid 

off, on or about August 1, 2014. The 

Company and the Union representing the 

employees enter into collective bargaining 

concerning the closing of Facility A and on 

July 1, 2014, they jointly agree and announce 

that Facility A will close and employees who 

work there will be permanently laid off as of 

November 1, 2014. However, due to 

unanticipated business conditions, Facility A 

continues to operate until December 31, 

2014, when operations cease and all 

employees are permanently laid off. The plan 

terminates as of December 1, 2015. 

(ii) Conclusion: PBGC would determine 

that the UCE is the facility closing and 

permanent layoff that occurred on December 

31, 2014. Because the date that the UCE 

occurred (December 31, 2014) is later than 

both the date the plan provision that 

established the UCEB was adopted (January 

1, 2006) and the date the UCEB became 

effective (January 1, 2007), December 31, 

2014, would be the date the phase-in period 

under ERISA section 4022 begins. In light of 

the plan termination date of December 1, 

2015, the guarantee of the UCEBs of 

participants laid off on December 31, 2014, 

would be 0 percent phased in. 

Example 2. Sequential layoffs. (i) Facts: 

The same facts as Example 1, with these 

exceptions: Not all employees are laid off on 

December 31, 2014. The Company and Union 

agree to and subsequently implement a 

shutdown in which employees are 

permanently laid off in stages—one third of 

the employees are laid off on October 31, 

2014, another third are laid off on November 

30, 2014, and the remaining one-third are 

laid off on December 31, 2014. 

(ii) Conclusion: Because the plan provides 

that a UCEB is payable in the event of either 

a permanent layoff or a plant shutdown, 

PBGC would determine that phase-in begins 

on the date of the UCE applicable to each of 

the three groups of employees. Because the 

first two groups of employees were 

permanently laid off before the plant closed, 

October 31, 2014, and November 30, 2014, 

are the dates that the phase-in period under 

ERISA section 4022 begins for those groups. 

Because the third group was permanently 

laid off on December 31, 2014, the same date 

the plant closed, the phase-in period would 

begin on that date for that group. Based on 

the plan termination date of December 1, 

2015, participants laid off on October 31, 

2014, and November 30, 2014, would have 20 

percent of the UCEBs (or $20 per month, if 

greater) guaranteed under the phase-in rule. 

The guarantee of the UCEBs of participants 

laid off on December 31, 2014, would be 0 

percent phased in. 

Example 3. Skeleton shutdown crews. (i) 

Facts: The same facts as Example 1, with 

these exceptions: The plan provides for an 

unreduced early retirement benefit for age/

service-qualified participants only in the 

event of a break in continuous service due to 

a permanent and complete plant closing. A 

minimal skeleton crew remains to perform 

primarily security and basic maintenance 

functions until March 31, 2015, when 

skeleton crew members are permanently laid 

off and the facility is sold to an unrelated 

investment group that does not assume the 

plan or resume business operations at the 

facility. The plan has no specific provision or 

past practice governing benefits of skeleton 

shutdown crews. The plan terminates as of 

January 1, 2015. 

(ii) Conclusion: Because the continued 

employment of the skeleton crew does not 

effectively continue operations of the facility, 

PBGC would determine that there is a 

permanent and complete plant closing (for 

purposes of the plan’s plant closing 

provision) as of December 31, 2014, which is 

the date the phase-in period under ERISA 

section 4022 begins with respect to 

employees who incurred a break in 

continuous service at that time. The UCEB of 

those participants would be a nonforfeitable 

benefit as of the plan termination date, but 

PBGC’s guarantee of the UCEB would be 0 

percent phased in. In the case of the skeleton 


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crew members, such participants would not 

be eligible for the UCEB because they did not 

incur a break in continuous service until after 

the plan termination date. (If the plan had a 

provision that there is no shutdown until all 

employees, including any skeleton crew are 

terminated, or if the plan were reasonably 

interpreted to so provide in light of past 

practice, PBGC would determine that the 

date that the UCE occurred was after the plan 

termination date. Thus the UCEB would not 

be a nonforfeitable benefit as of the plan 

termination date and therefore would not be 

guaranteeable.) 

Example 4. Creep-type layoff benefit/

bankruptcy of contributing sponsor. (i) Facts: 

A plan provides that participants who are at 

least age 55 and whose age plus years of 

continuous service equal at least 80 are 

entitled to an unreduced early retirement 

benefit if their continuous service is broken 

due to a permanent layoff. The plan further 

provides that a participant’s continuous 

service is broken due to a permanent layoff 

when the participant is terminated due to the 

permanent shutdown of a facility, or the 

participant has been on layoff status for two 

years. These provisions were adopted and 

effective in 1990. Participant A is 56 years 

old and has 25 years of continuous service 

when he is laid off in a reduction-in-force on 

May 15, 2014. He is not recalled to 

employment, and on May 15, 2016, under the 

terms of the plan, his continuous service is 

broken due to the layoff. He goes into pay 

status on June 1, 2016, with an unreduced 

early retirement benefit. The contributing 

sponsor of Participant A’s plan files a 

bankruptcy petition under Chapter 11 of the 

U.S. Bankruptcy Code on September 1, 2017, 

and the plan terminates during the 

bankruptcy proceedings with a termination 

date of October 1, 2018. Under section 

4022(g) of ERISA, because the plan 

terminated while the contributing sponsor 

was in bankruptcy, the five-year phase-in 

period ended on the bankruptcy filing date. 

(ii) Conclusion: PBGC would determine 

that the guarantee of the UCEB is phased in 

beginning on May 15, 2016, the date of the 

later of the two UCEs necessary to make this 

benefit payable (i.e., the first UCE is the 

initial layoff and the second UCE is the 

expiration of the two-year period without 

rehire). Since that date is more than one year 

(but less than two years) before the 

September 1, 2017, bankruptcy filing date, 20 

percent of Participant A’s UCEB (or $20 per 

month, if greater) would be guaranteed under 

the phase-in rule. 

Example 5. Creep-type layoff benefit with 

provision for declaration that return to work 

unlikely. (i) Facts: A plan provides that 

participants who are at least age 60 and have 

at least 20 years of continuous service are 

entitled to an unreduced early retirement 

benefit if their continuous service is broken 

by a permanent layoff. The plan further 

provides that a participant’s continuous 

service is broken by a permanent layoff if the 

participant is laid off and the employer 

declares that the participant’s return to work 

is unlikely. Participants may earn up to 2 

years of credited service while on layoff. The 

plan was adopted and effective in 1990. On 

March 1, 2014, Participant B, who is age 60 

and has 20 years of service, is laid off. On 

June 15, 2014, the employer declares that 

Participant B’s return to work is unlikely. 

Participant B retires and goes into pay status 

as of July 1, 2014. The employer files for 

bankruptcy on September 1, 2016, and the 

plan terminates during the bankruptcy. 

(ii) Conclusion: PBGC would determine 

that the phase-in period of the guarantee of 

the UCEB would begin on June 15, 2014—the 

later of the two UCEs necessary to make the 

benefit payable (i.e., the first UCE is the 

initial layoff and the second UCE is the 

employer’s declaration that it is unlikely that 

Participant B will return to work). The phasein period would end on September 1, 2016, 

the date of the bankruptcy filing. Thus 40 

percent of Participant B’s UCEB (or $40 per 

month, if greater) would be guaranteed under 

the phase-in rule. 

Example 6. Shutdown benefit with special 

post-employment eligibility provision. (i) 

Facts: A plan provides that, in the event of 

a permanent shutdown of a plant, a 

participant age 60 or older who terminates 

employment due to the shutdown and who 

has at least 20 years of service is entitled to 

an unreduced early retirement benefit. The 

plan also provides that a participant with at 

least 20 years of service who terminates 

employment due to a plant shutdown at a 

time when the participant is under age 60 

also will be entitled to an unreduced early 

retirement benefit, provided the participant’s 

commencement of benefits is on or after 

attainment of age 60 and the time required 

to attain age 60 does not exceed the 

participant’s years of service with the plan 

sponsor. The plan imposes no other 

conditions on receipt of the benefit. Plan 

provisions were adopted and effective in 

1990. On January 1, 2014, Participant C’s 

plant is permanently shut down. At the time 

of the shutdown, Participant C had 20 years 

of service and was age 58. On June 1, 2015, 

Participant C reaches age 60 and retires. The 

plan terminates as of September 1, 2015. 

(ii) Conclusion: PBGC would determine 

that the guarantee of the shutdown benefit is 

phased in from January 1, 2014, which is the 

date of the only UCE (the permanent 

shutdown of the plant) necessary to make the 

benefit payable. Thus 20 percent of 

Participant C’s UCEB (or $20 per month, if 

greater) would be guaranteed under the 

phase-in rule. 

Example 7. Phase-in of retroactive UCEB. 

(i) Facts: As the result of a settlement in a 

class-action lawsuit, a plan provision is 

adopted on September 1, 2014, to provide 

that age/service-qualified participants are 

entitled to an unreduced early retirement 

benefit if permanently laid off due to a plant 

shutdown occurring on or after January 1, 

2014. Benefits under the provision are 

payable prospectively only, beginning March 

1, 2015. Participant A, who was age/servicequalified, was permanently laid off due to a 

plant shutdown occurring on January 1, 

2014, and therefore he is scheduled to be 

placed in pay status as of March 1, 2015. The 

unreduced early retirement benefit is paid to 

Participant A beginning on March 1, 2015. 

The plan terminates as of February 1, 2017. 

(ii) Conclusion: PBGC would determine 

that the guarantee of the UCEB is phased in 

beginning on March 1, 2015. This is the date 

the benefit was effective (since it was the first 

date on which the new benefit was payable), 

and it is later than the adoption date of the 

plan provision (September 1, 2014) and the 

date of the UCE (January 1, 2014). Thus 20 

percent of Participant A’s UCEB (or $20 per 

month, if greater) would be guaranteed under 

the phase-in rule. 

Example 8. Removal of IRC section 436 

restriction. (i)(A) Facts: A plan provision was 

adopted on September 1, 1989, to provide 

that age/service-qualified participants are 

entitled to an unreduced early retirement 

benefit if permanently laid off due to a plant 

shutdown occurring after January 1, 1990. 

Participant A, who was age/service-qualified, 

was permanently laid off due to a plant 

shutdown occurring on April 15, 2014. The 

plan is a calendar year plan. 

(B) Under the rules of Code section 436 

(ERISA section 206(g)) and Treasury 

regulations thereunder, a plan cannot 

provide a UCEB payable with respect to an 

unpredictable contingent event, if the event 

occurs during a plan year in which the plan’s 

adjusted funding target attainment 

percentage is less than 60%. On March 17, 

2014, the plan’s enrolled actuary issued a 

certification stating that the plan’s adjusted 

funding target attainment percentage for 2014 

is 58%. Therefore, the plan restricts payment 

of the unreduced early retirement benefit 

payable with respect to the shutdown on 

April 15, 2014. 

(C) On August 15, 2014, the plan sponsor 

makes an additional contribution to the plan 

that is designated as a contribution under 

Code section 436(b)(2) to eliminate the 

restriction on payment of the shutdown 

benefits. On September 15, 2014, the plan’s 

enrolled actuary issues a certification stating 

that, due to the additional section 436(b)(2) 

contribution, the plan’s adjusted funding 

target attainment percentage for 2014 is 60%. 

On October 1, 2014, Participant A is placed 

in pay status for the unreduced early 

retirement benefit and, as required under 

Code section 436 and Treasury regulations 

thereunder, is in addition paid retroactively 

the unreduced benefit for the period May 1, 

2014 (the date the unreduced early 

retirements would have become payable) 

through September 1, 2014. The plan 

terminates as of September 1, 2016. 

(ii) Conclusion: PBGC would determine 

that the guarantee of the UCEB is phased in 

beginning on April 15, 2014, the date the 

UCE occurred. Because April 15, 2014, is 

later than both the date the UCEB was 

adopted (September 1, 1989) and the date the 

UCEB became effective (January 1, 1990), it 

would be the date the phase-in period under 

ERISA section 4022 begins. Commencement 

of the phase-in period is not affected by the 

delay in providing the unreduced early 

retirement benefit to Participant A due to the 

operation of the rules of Code section 436 

and the Treasury regulations thereunder. 

Thus 40 percent of Participant A’s UCEB (or 

$40 per month, if greater) would be 

guaranteed under the phase-in rule. 

■ 6. In § 4022.62(c)(2)(i), add a sentence 

after the third sentence to read as 

follows: 


emcdonald on DSK67QTVN1PROD with RULES
Federal Register / Vol. 79, No. 87 / Tuesday, May 6, 2014 / Rules and Regulations 25675 

§ 4022.62 Estimated guaranteed benefit. 

* * * * * 

(c) * * * 

(2) * * * 

(i) * * * ‘‘New benefits’’ also result 

from increases that become payable by 

reason of the occurrence of an 

unpredictable contingent event 

(provided the event occurred after July 

26, 2005), to the extent the increase 

would not be payable but for the 

occurrence of the event; in the case of 

such new benefits, the date of the 

occurrence of the unpredictable 

contingent event is treated as the 

amendment date for purposes of Table 

I. * * * 

* * * * * 

Issued in Washington, DC, this 30th day of 

April 2014. 

Joshua Gotbaum, 

Director, Pension Benefit Guaranty 

Corporation. 

[FR Doc. 2014–10357 Filed 5–5–14; 8:45 am] 

BILLING CODE 7709–02–P 

DEPARTMENT OF DEFENSE 

Office of the Secretary 

32 CFR Part 60 

[Docket ID: DOD–2008–OS–0128] 

RIN 0790–AI40 

Family Advocacy Command 

Assistance Team (FACAT) 

AGENCY: Office of the Under Secretary of 

Defense for Personnel and Readiness, 

DoD. 

ACTION: Final rule. 

SUMMARY: This final rule updates 

Department of Defense (DoD) policy and 

responsibilities and prescribes 

procedures for the implementation and 

use of the FACAT in accordance with 10 

U.S.C. 1794. It is DoD policy to provide 

a safe and secure environment for DoD 

personnel and their families by 

promoting the prevention, early 

identification, and intervention in all 

allegations of child abuse and neglect. 

DATES: Effective Date: This rule is 

effective June 5, 2014. 

FOR FURTHER INFORMATION CONTACT: 

Mary Campise, 571–372–5346. 

SUPPLEMENTARY INFORMATION: 

Executive Summary 

I. Purpose of the Regulatory Action 

To establish DoD policy, assign 

responsibilities, and prescribe 

procedures for implementation and use 

of the multi-disciplinary Family 

Advocacy Command Assistant Team to 

respond to allegations of child sexual 

abuse in DoD-sanctioned childcare and 

youth activities. 

a. The need for the regulatory action 

and how the action will meet that need. 

Child sexual abuse allegations in DoD 

sponsored childcare and youth activities 

require a coordinated community 

response between law enforcement, 

child protection agencies, and the 

setting from which the allegation arose. 

Local teams who may not be sufficiently 

resourced to conduct large scale 

investigations and coordinate an 

effective multi-level response can 

request the deployment and support of 

the FACAT to foster cooperation among 

the DoD, other Federal agencies, and 

responsible civilian authorities when 

addressing allegations of child sexual 

abuse in DoD-sanctioned activities; 

promote timely and comprehensive 

reporting of all allegations; and actively 

seek prosecution of alleged perpetrators 

to the fullest extent of the law. 

b. Statement of legal authority for the 

regulatory action. 

Section 1794 of title 10, United States 

Code (U.S.C.) requires the Secretary of 

Defense to maintain a special task force 

to respond to allegations of widespread 

child abuse at a military installation. 

The task force shall be composed of 

personnel from appropriate disciplines, 

including, medicine, psychology, and 

child development. This task force will 

provide assistance to the commander of 

the installation, and to parents at the 

installation, to effectively deal with the 

allegations. 

II. Summary of the Major Provisions of 

the Regulatory Action in Question 

a. This regulatory action establishes a 

DoD multi-disciplinary Family 

Advocacy Command Assistant Team 

(FACAT) to support local installation 

personnel in responding to extrafamilial 

child sexual abuse allegations in DoD 

sanctioned childcare and youth 

activities. 

b. The deployment of the FACAT 

provides a coordinated and 

comprehensive DoD response to assist 

the Military Department upon DoD 

Component request to address 

allegations when local resources are 

limited. 

c. The goal of the FACAT is to foster 

cooperation among the DoD, other 

Federal agencies, and responsible 

civilian authorities when addressing 

allegations of extrafamilial child sexual 

abuse in DoD-sanctioned activities, to 

ensure the timely and comprehensive 

reporting of all incidents to the 

appropriate authorities, and to seek 

prosecution of alleged perpetrators to 

the fullest extent of the law when 

appropriate. 

III. Costs and Benefits 

The benefit to the Department and to 

the public is to provide safe and secure 

environments for children of DoD 

personnel and their families by 

promoting a coordinated community 

response to allegations of child sexual 

abuse arising in DoD sponsored 

childcare and youth activities settings. 

The deployment of the FACAT to 

support local communities ensures that 

alleged offenders are identified, 

assessed, investigated, and prosecuted 

to the full extent of the law. Further, the 

multidisciplinary and well-coordinated 

approach promotes the identification of 

all potential child victims and provides 

a safe and secure setting for these 

children to be interviewed, assessed, 

and supported. Per Section 1794 of Title 

10, United States Code, this rule has an 

internal reporting requirement that will 

cost the Department of Defense $600 

annually. Costs for this program include 

salaries of government employees, 

training costs of approximately $30,000 

every three years, and up to $15,000 to 

deploy a FACAT of five team members 

per response. There were no FACATs 

deployed in FY 2011, and there was one 

FACAT deployed in FY 2010. The cost 

of the FY 2010 deployment was 

approximately $7,500. 

Public Comments 

On Friday, April 26, 2013 (78 FR 

24694–24697), the Department of 

Defense published a proposed rule 

requesting public comment. No 

comments were received on the 

proposed rule and no changes have been 

made in the final rule. 

Regulatory Procedures 

Executive Order 12866, ‘‘Regulatory 

Planning and Review’’ and Executive 

Order 13563, ‘‘Improving Regulation 

and Regulatory Review’’ 

It has been certified that 32 CFR part 

60 does not: 

(1) Have an annual effect on the 

economy of $100 million or more or 

adversely affect in a material way the 

economy; a section of the economy; 

productivity; competition; jobs; the 

environment; public health or safety; or 

State, local, or tribal governments or 

communities; 

(2) Create a serious inconsistency or 

otherwise interfere with an action taken 

or planned by another Agency; 

(3) Materially alter the budgetary 

impact of entitlements, grants, user fees, 

or loan programs, or the rights and 

obligations of recipients thereof; or 


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