2005 Enrolled Actuaries Meeting

Questions to the PBGC

and Summary of Their Responses

April 2005
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Summary of Discussions between the Enrolled Actuaries Program Committee

and Staff of the Pension Benefit Guaranty Corporation

on February 7th and 24th, 2005

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

discussions on February 7th and 24th, 2005, 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, the 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

Bruce A. Cadenhead, Mercer Human Resource Consulting

Curtis M. Cartolano, Hewitt Associates LLC

Marjorie R. Martin, Aon Consulting

John H. Moore, Chicago Consulting Actuaries LLC

Jay P. Rosenberg, Mellon Human Resources & Investor Solutions

Donald J. Segal, The Segal Company

Kenneth A. Steiner, Watson Wyatt Worldwide

James A. Stinchcomb, Towers Perrin

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

James J. Armbruster, Acting Director, Legislative & Regulatory Department

C. David Gustafson, Acting Director, Policy, Research & Analysis Department

Jane D. Pacelli, Chief Research Actuary, Policy, Research & Analysis Department

Karen Krist Justesen, Chief Negotiating Actuary, Division of Insurance Supervision & Compliance

James L. Beller, Attorney, Legislative & Regulatory Department

Deborah Forbes, Attorney, Legislative & Regulatory Department

Catherine B. Klion, Attorney, Legislative & Regulatory Department

Constance Markakis, Attorney, Legislative & Regulatory Department 

Deborah C. Murphy, Attorney, Legislative & Regulatory Department

The Program Committee would like to thank the practitioners who submitted questions for this booklet.

Copyright © 2005, Enrolled Actuaries Meeting

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

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

instructional use, on the condition that the foregoing copyright notice is used so as to give reasonable notice 

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

consent of the Enrolled Actuaries Meeting does not extend to making copies for general distribution, for 

advertising or promotional purposes, for inclusion in new collective works, or for sale or resale.
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INDEX

Subject Matter Questions

1. Premiums....................................................................................................................... 1 - 5

2. Standard Terminations................................................................................................... 6 - 9

3. Guaranteed Benefits................................................................................................... 10 - 11

4. Valuations ..........................................................................................................................12

5. Participant Notice ...................................................................................................... 13 - 16

6. Reportable Events...................................................................................................... 17 - 19

7. Other Reporting .................................................................................................................20
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QUESTION 1

Premiums – Reasonable Delay in Payment/Retroactive Annuity Starting Date

Participant A terminates employment on December 10, 2004, with a vested benefit that 

has a present value equal to or less than $5,000 in Plan X. Plan X provides that 

mandatory cashouts will occur (i.e., the participant’s benefit will be valued) upon 

termination of employment. Participant A receives payment on February 1, 2005. Is 

Participant A treated as having an accrued benefit on December 31, 2004, for purposes of 

the 2005 premium payment year? 

Participant B terminates employment in 2000. He files an application for retirement on 

November 20, 2004, electing to receive his benefit in the form of a lump sum payment 

with a retroactive annuity starting date as of September 1, 2003, his normal retirement 

date. Participant B receives his lump sum payment on February 1, 2005. Is Participant B 

treated as having an accrued benefit on December 31, 2004, for purposes of the 2005 

premium payment year? 

RESPONSE:

In order for Plan X to exclude Participant A from the participant count for the 2005 

premium payment year, two conditions must be met: (i) the cashout date under the terms 

of Plan X (December 10, 2004) must be a date on or before the premium snapshot date 

(December 31, 2004), and (ii) there must be no more than a reasonable administrative 

delay between the cashout date and the date of actual payment (February 1, 2005) to 

Participant A. A determination of whether an administrative delay in payment is 

reasonable is based on the facts and circumstances in any particular case. (See 29 CFR 

§ 4006.6(c), Ex. 3.) These facts and circumstances include the reasonableness of the 

typical time period required by the plan to calculate the benefit amount in mandatory 

cashout cases, how the time period in the particular case compares to that typical time 

period, and any other facts and circumstances surrounding the delay in the participant’s 

case.

In the case of a retroactive annuity starting date, the date that a completed benefit election 

form (with spousal consent, if applicable) is filed with the plan is the relevant date for 

determining whether the participant has an accrued benefit on the premium snapshot date. 

Thus, in order for Participant B to be excluded from the participant count for the 2005 

premium payment year, two conditions must be met: (i) Participant B, on or before the 

premium snapshot date, must have filed a completed benefit election form (with spousal 

consent, if applicable) electing a lump sum payment; and (ii) there must be no more than 

a reasonable administrative delay between the date the election form is filed and the date 

of actual payment to Participant B (see standard for reasonableness above). (Note that 

Plan X must have treated Participant B as having an accrued benefit on December 31, 

2003, for purposes of the 2004 premium payment year, regardless of the plan’s 

provisions for a retroactive annuity starting date.)
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QUESTION 2

Premiums — Penalties and Interest on Underpayments

Due to a systemic error, Plan Q understated its unfunded vested benefits for plan years 

ending December 31, 2002, 2003, and 2004. As a result, Plan Q underpaid its PBGC 

variable rate premium for each of those years. What are the consequences of this error 

and what should the plan administrator of Plan Q do to correct it?

RESPONSE:

When the plan administrator of Plan Q discovers that there was an error in the calculation 

of the variable rate premium due, the plan administrator should make amended filings for 

each of the years, using the form for the specific year that is being corrected. The plan 

administrator of Plan Q should also pay the premiums due. PBGC will bill the plan 

administrator for the appropriate late payment charges, including both interest and 

penalties. Late payment charges are based on the outstanding premium amount that was 

due on the filing due date.

The late payment penalty charge is lower for premium underpayments that are "selfcorrected." The penalty rate is 1% of the late premium payment for each full or partial 

month overdue if the late payment is made on or before the date when PBGC first issues 

a written notification indicating that there is or may be a premium delinquency (e.g., a 

Statement of Account, Past Due Filing Notice, or letter initiating an audit). The penalty 

rate of 5% per month applies to underpayments not "self-corrected." Underpayments are 

subject to a minimum penalty of $25 and a maximum penalty of 100% of the unpaid 

premium.

Interest charges are also assessed for any premium amount not paid when due. The 

interest rate charged is established on a quarterly basis and the interest rates are published 

on or about the 15th of January, April, July, and October in the Federal Register. These 

interest rates are also posted on PBGC's Web site. Interest is compounded daily.

The PBGC exercises its authority to waive penalties (29 CFR § 4007.8) where there is 

reasonable cause and in other limited circumstances; it has no authority to waive 

premiums or interest charges, except in the case of interest charges as provided in section 

4002(i) of ERISA (Special Rules Regarding Disasters, etc.). 
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QUESTION 3

Premiums — ACM — Significant Event Adjustments for Collectively-Bargained 

Increases

Plan A is a collectively-bargained single-employer plan with 500 or more participants. 

Its plan year is the calendar year and its valuation date is the first day of the plan year.

An agreement adopted and effective on 1/1/2004 increases Plan A’s current flat benefit 

multiplier of $35 to $36 at 7/1/2004, $38 at 7/1/2005, $40 at 7/1/2006, and $42 at 

7/1/2007. The multiplier is applied to all service and the increases only apply to active 

participants.

In accordance with Internal Revenue Code section 412(c)(12), the ERISA minimum 

contribution calculations under section 412(b) of the Code for the 1/1/2004 valuation take 

into account all the increases in the amendment through and including the $42 multiplier. 

However, the current liability shown on the Schedule B for 2004 is based on the $35 

multiplier.

The plan sponsor decides to use the Alternative Calculation Method (ACM) for Plan A’s 

2005 variable-rate premium.

What adjustments to the plan’s unfunded vested benefits, if any, must the enrolled 

actuary make to reflect “significant events” during the 2004 plan year?

RESPONSE:

Section 4006.4(d) of PBGC’s premium regulations provides that the enrolled actuary 

must make adjustments to the value of unfunded vested benefits (UVBs) to reflect certain 

significant events that have occurred between the first day of the plan year preceding the 

premium payment year and the premium snapshot date (usually the last day of the plan 

year).

Significant event 1 is triggered by an amendment that increases the plan’s “actuarial 

costs” by 5% or more. Actuarial costs are defined as the § 412(b) costs, i.e., the sum of 

the plan’s normal cost and amortization costs. Because the plan’s actuarial costs already 

reflect the $42 multiplier, there is no expected increase due to the amendment and 

therefore this significant event would not apply.

Significant event 7 is “Any other event or trend that results in a material increase in the 

value of unfunded vested benefits.” The plan’s vested benefits at the end of the year will 

reflect the increase in the benefit multiplier from $35 to $36. Taking into account the 

leveraging effect of plan assets, the effect on UVBs could be material. In that case, the 

enrolled actuary must reflect the effect of the increase.
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QUESTION 4

Premiums: Use of Valuation as of First Day of Premium Payment Year

Under the General Rule, if the premium snapshot date is the last date of the prior plan 

year, calculations may be done as of the first day of the premium payment year provided 

that the enrolled actuary adjusts the values to reflect any material difference between the 

values as of that date and the values as of the last day of the plan year preceding the 

premium payment date. If the General Rule calculations are done as of 1/1/2005 for a 

calendar year 2005 plan year, which date should appear in line 2 of Schedule A —

1/1/2005 or 12/31/2004?

RESPONSE:

The instructions state the date entered must be the premium snapshot date, which is 

12/31/2004 in this example. The use of the January 1 option for the General Rule 

calculations does not shift the snapshot date to January 1.
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QUESTION 5

Premiums: Asset Valuation Under New Method

Assume that Plan A is a calendar year plan and the premium snapshot date is the last day 

of the plan year preceding the premium payment year. Let MVyyyy be the market value 

of assets at the beginning of the year yyyy and Gyyyy be the asset gain or loss (i.e., the 

difference between actual and expected return on market value) for the year yyyy. 

For the 2003 valuation, the actuarial value of assets was equal to the following:

MV2003 - G2002*4/5 - G2001*3/5 - G2000*2/5 - G1999/5. In other words, the method 

phases in each year’s asset gain or loss evenly over five years.

For the 2004 valuation, the asset method is changed to the method described in approval 

16 of Rev Proc 2000-40, using a three-year averaging period and phasing in from market.

Under the new method the asset value is as follows:

2004 MV2004

2005 MV2005 - G2004*2/3

2006 MV2006 - G2005*2/3 - G2004/3

Under this method, each year’s asset gain or loss in phased in evenly over three years, 

after a fresh start in which actuarial value is set equal to market value.

The general method is used for determining PBGC variable premiums. There are no 

mergers, spinoffs, or similar transactions during any relevant time period under 

consideration.

Which of the following calculations (or other calculations) may or must be used to 

determine the actuarial value of assets under the general rule for each of the premium 

payment years 2004 through 2006?

Premium Payment 

Year

Calculation 1 Calculation 2

2004 MV2004 - G2003*4/5 -

G2002*3/5 - G2001*2/5 -

G2000/5

MV2004

2005 MV2005 MV2005 - G2004*2/3

2006 MV2006 - G2005*2/3 MV2006 - G2005*2/3 -

G2004/3
- 9 -

RESPONSE:

Under the general rule, plan assets and liabilities used to determine “unfunded vested 

benefits” (“UVBs”) to calculate the VRP for a premium payment year are determined as 

of the premium snapshot date, which, in this case, is the last day of the plan year 

preceding the premium payment year. Plan A’s UVBs must be determined using 

actuarial assumptions and methods for the plan year preceding the premium payment 

year, except to the extent that other assumptions or methods are prescribed or are 

necessary to reflect a significant event.

In the absence of a merger, spinoff, or other plan amendment affecting plan assets, the 

actuarial value of assets under a particular asset valuation method is the same whether 

valued at the “stroke of midnight” at the end of 12/31 or at the beginning of 1/1. 

Thus, the 2004 VRP calculation is done as of 12/31/03 using the 2003 asset valuation 

method. Under a special “proviso” in the premium payment regulations, the plan could 

compute UVBs as of 1/01/04 using the 2004 method and assumptions. However, the 

result may only be used if it produces UVBs not materially lower than those determined 

as of 12/31/03 using the 2003 methods and assumptions. (See Q&A 5 of the 1998 Blue 

Book.)

For the 2005 VRP calculation, the actuarial value of assets is determined as of 12/31/04 

using the asset valuation method in effect for the year ending on 12/31/04 (i.e., the new 

asset valuation method as it would be applied one year into the phase-in period). 

Similarly, the assets for later VRP calculations are based on the new asset valuation 

method with assets determined as of the 12/31 preceding the premium payment year.

Therefore,

• use Calculation 1 for 2004 (Calculation 2 could be used if UVBs produced are not 

materially less than those as of 12/31/03 under Calculation 1)

• use Calculation 2 for 2005, and

• use Calculation 2 for 2006.
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QUESTION 6

Standard Terminations — Alternative Treatment of Majority Owner’s Benefits

A plan is terminating in a standard termination. A majority owner elected alternative 

treatment of his plan benefits in order to make the plan sufficient to satisfy plan benefits. 

There are plan assets remaining after the plan benefits of all other participants are 

satisfied. May those remaining plan assets be distributed to those other participants or 

revert to the employer, under the terms of the plan?

RESPONSE:

Under 29 CFR § 4041.21(b)(2), a majority owner may elect to forgo receipt of his or her 

plan benefits to the extent necessary to enable the plan to satisfy all other plan benefits 

(through priority category 6 under section 4044 of ERISA) in a standard termination. 

Any plan assets remaining after all such other plan benefits are satisfied must be 

distributed to the majority owner to satisfy his plan benefits (through priority category 6). 

Any plan assets remaining after these majority owner’s plan benefits are satisfied must be 

distributed to the other participants or revert to the employer, under the terms of the plan 

and applicable law. See preamble to final rule, 57 FR 59206 at 59212 (Dec. 14, 1992).
- 11 -

QUESTION 7

Standard Terminations — Application of Constructive Ownership Rules in 

Determining Majority Owner Status

A plan is terminating in a standard termination. A husband and wife are both participants 

in the plan and the husband is the 100% owner of the stock of the corporation that is the 

contributing sponsor of the plan. Is the wife a majority owner and therefore able to elect 

an alternative treatment of her benefit in accordance with 29 CFR § 4041.21(b)(2)?

RESPONSE:

It depends. For voluntary termination purposes, the definition of “majority owner” in 29 

CFR § 4041.2 takes into account the constructive ownership rules of Code section 

414(b), which refers to Code Section 1563(a), which in turn brings in Code section 

1563(e)(5). Under Code section 1563(e)(5), an individual’s ownership interest in the 

stock of a corporation is attributed to his spouse, except in the case of a corporation with 

respect to which each of the following conditions is satisfied for a taxable year: 

• The spouse does not, at any time during the taxable year, own directly any 

stock in such corporation;

• The spouse is not a director or employee and does not participate in the 

management of such corporation at any time during the taxable year;

• Not more than 50 percent of the corporation's gross income for the taxable 

year was derived from royalties, rents, dividends, interest, and annuities; and 

• The stock in the corporation is not, at any time during the taxable year, 

subject to conditions that substantially restrict or limit the individual’s right to dispose of 

the stock and that run in favor of his spouse or his children under age 21.

Thus, for example, the wife would be a majority owner for a taxable year in which she 

does not own directly any stock in the corporation but in which she is an employee of the 

corporation. Therefore she would be permitted to elect an alternative treatment of her 

benefit during that taxable year.
- 12 -

QUESTION 8

Standard Terminations — Inability to Complete the Termination

A plan is terminating in a standard termination. Having determined that plan assets will 

be sufficient to satisfy plan benefits, the plan administrator begins the process of 

distributing plan assets. Sometime during the process of distributing plan assets, the plan 

administrator determines that plan assets in fact will not be sufficient to satisfy plan 

benefits. What must the plan administrator do?

RESPONSE:

Under 29 CFR § 4041.28(b), the plan administrator may not make any further 

distribution of assets to effect the plan's termination and must promptly notify the PBGC. 

The plan administrator should also notify all other affected parties; the Notice of Intent to 

Terminate was required to include a statement that the plan administrator will notify the 

affected party if the termination does not occur. The plan is an ongoing plan for all 

purposes. The plan administrator may wish to seek guidance from the Department of 

Labor on any fiduciary issues arising with respect to plan assets already distributed or 

from the Internal Revenue Service on any tax issues arising with respect to those plan 

assets.
- 13 -

QUESTION 9

Standard Terminations – Missing Participant Cashing Plan Check 

Under the PBGC’s regulations governing the Missing Participants program, “if the PBGC 

or the plan administrator locates a missing participant within 30 days after the PBGC 

receives the missing participant’s designated benefit, the PBGC may in its discretion 

return the missing participant’s designated benefit to the plan administrator, and the plan 

administrator must make distribution to the individual in such manner as the PBGC will 

direct” (29 CFR § 4050.12(a)). Assume that the plan administrator determines that an 

individual is a missing participant after having sent a check to the individual and after 

having conducted a diligent search. Assume further that the check is not returned to the 

plan administrator but, rather, cashed by the individual after the plan administrator has 

paid the designated benefit to the PBGC. Under what circumstances, if any, will the 

PBGC refund the designated benefit to the plan?

RESPONSE:

Provided that it has not already paid the individual the designated benefit, the PBGC 

generally will be able to refund the designated benefit to the plan. However, plan 

administrators can avoid this problem by stopping payment on the benefit check once the 

designated benefit is paid to the PBGC.
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QUESTION 10

Guaranteed Benefits — Partial Lump Sum Payments

How does the PBGC take into account a partial lump-sum payment previously received 

by a participant from the same plan (as part of the accrued benefit) for purposes of 

determining guaranteed benefits under ERISA section 4022?

RESPONSE:

For purposes of determining guaranteed benefits under ERISA section 4022, when a 

participant has received part of his or her benefit in the form of a lump-sum payment, the 

PBGC will offset the participant’s maximum guaranteeable benefit by the annuity 

equivalent of the lump-sum payment received by the participant.

Examples.

(1) Normal Retirement. Assume that a participant had earned a monthly $6,000 annuity 

payable at age 65 (the participant’s normal retirement age under the plan) and (as 

permitted by the plan document) elected to take half of his benefit in the form of a lump 

sum at age 63 and the other half as a $3,000 annuity payable at age 65. Assume that the 

only potential limitation on benefits is the maximum guarantee and that this plan’s 

termination date is in 2004, one week before the participant turns age 65. The limitation 

on the maximum guaranteeable benefit for this participant is $3,698.86 per month. 

However, since the participant has already received part of his benefit in a lump sum, the 

$3,698.86 per month must be offset. The amount of the offset is equal to the early 

retirement annuity equivalent of the lump sum, using the plan’s factors. In this case, 

assume an early retirement factor of .9 at age 63. Thus, the early retirement annuity 

equivalent is $2,700 (.9 x $3,000). Therefore, the participant’s remaining guaranteed 

monthly annuity from the PBGC would be $998.86 ($3,698.86 - $2,700).

(2) Early Retirement. Assume the same facts as in the previous example, except that the 

participant elected to take his benefit in two parts as follows: (1) at age 57, he received a 

lump sum payment representing the value of a $3,000 monthly annuity payable at age 65; 

and (2) at age 60, he will start to receive a straight life annuity of $3,000 per month, 

reduced for early commencement. Assume the plan reduces benefits by an amount equal 

to 5% times the number of years prior to age 65 the benefit commences. Assume the 

plan’s termination date is one week before the participant turns age 60. The limitation on 

the maximum guaranteeable benefit for this participant is $2,404.26 per month 

($3,698.86 reduced using the PBGC early retirement factor of .65). However, this 

monthly amount is offset by $1,800. This amount represents the portion of the 

participant’s monthly annuity benefit that has been paid as a lump sum, adjusted to age 

57 using the plan’s early retirement factor (.6). Thus, the participant’s remaining 

guaranteed monthly annuity from the PBGC would be $604.26 ($2,404.26 - $1,800).
- 15 -

QUESTION 11

Guaranteed Benefits – Newly-Covered Substantial Owner Plan; Effective Date 

Assume that Plan A, a calendar year plan, has been exempt from coverage under ERISA 

section 4021(b)(9) as a substantial owner plan since it was established. On December 15, 

2004, Individual X, who is not a substantial owner, starts to earn participation service 

under Plan A, and becomes a Plan A participant on July 1, 2005. Individual X earns a 

year of service for benefit accrual purposes during the service computation period that 

ends on December 31, 2005. 

(a) What is the date as of which the plan becomes covered under ERISA section 

4021?

(b) What is the date as of which the phase-in period begins for the plan under 

ERISA section 4022(b)(7)?

RESPONSE:

(a) July 1, 2005.

(b) July 1, 2005.
- 16 -

QUESTION 12

Valuations: Asset Allocation Category for Temporary Supplements

Plan N is being terminated. The plan was not amended during the five years prior to plan 

termination. The plan provides for a temporary early retirement supplement (not a 

QSUPP) of $300 monthly payable from early retirement to age 62. This provision is not 

being amended out of the plan as part of the plan termination.

One day before the beginning of the 3-year period ending on the plan termination date, 

Participant A retired at age 55, the plan’s earliest retirement age. At retirement, the 

participant’s accrued deferred retirement benefit commencing at normal retirement age 

(65) was $1000 monthly. The individual’s reduced early retirement benefit was $800 

monthly, and the participant was eligible for the temporary supplement of $300 monthly 

payable until age 62. Thus, as of the plan termination three years later, the participant is 

age 58 and receiving $1100 monthly.

Participant B is also 58 years old and could have retired at the same time as Participant A 

and with the same benefits. However, Participant B is still actively employed by the plan 

sponsor. Participant C is 55 years old and just retired with the same benefits as 

Participant A. Participant D is 55 years old and could retire with the same benefits as 

Participant A, but is still actively employed.

Into which priority categories do the benefits for each of these participants fall?

RESPONSE:

For all four participants, the temporary supplement is a nonforfeitable benefit as defined 

for purposes of plan termination under 29 CFR § 4001.2 by reference to ERISA section 

4001(a)(8). The first $200 of the monthly temporary supplement is a basic-type benefit, 

as defined in § 4001.2. Because of the operation of § 4022.21(a)(1), the remaining $100 

of the monthly temporary supplement is a nonbasic-type benefit and not guaranteed. 

For Participants A and B, both the $800 early retirement benefit and the entire $300 

temporary supplement fall into priority category (PC) 3. Thus, even though $100 of the 

temporary monthly supplement is a nonbasic-type benefit and not guaranteed, plan assets 

may be allocated to this benefit in PC3, subject to the allocation rules detailed in 

§ 4044.10(e) and (f).

For Participants C and D, the $800 early retirement benefit and $200 of the monthly 

temporary supplement fall into PC4 as basic-type, guaranteed benefits. The remaining 

$100 of monthly temporary supplement falls into PC5 as a nonforfeitable benefit that has 

not been assigned to an earlier priority category. 
- 17 -

QUESTION 13

Participant Notice — Variable Rate Premium

A plan administrator did not provide a Participant Notice for the 2003 plan year. No 

variable rate premium for the plan was payable for the 2003 plan year, but a variable rate 

premium would have been payable if vested benefits were valued using 85% of 30-year 

Treasuries rather than 100% of 30-year Treasuries. The plan was less than 80% funded 

for the 2003 and 2002 plan years. Is there a Participant Notice failure for the 2003 plan 

year?

RESPONSE:

No. The Job Creation and Workers Adjustment Act of 2002 increased the interest rate 

used to value vested benefits for purposes of PBGC’s variable-rate premium for the 2002 

and 2003 plan years from 85% to 100% of 30-year Treasuries. However, it did not 

permit use of the 100% rate when determining PBGC disclosure (or reporting) 

obligations. Section 403(d) of the Working Families Tax Relief Act of 2004 retroactively 

allows use of the 100% rate for both PBGC disclosure and reporting purposes. For 

PBGC disclosure purposes, the effect of the provision is to retroactively cure any 

Participant Notice failures for 2002 or 2003 that were based on use of the 100% rate 

rather than the 85% rate.
- 18 -

QUESTION 14

Participant Notice — Voluntary Correction Program

What is the Participant Notice Voluntary Correction Program? Is it still in effect?

RESPONSE:

The Participant Notice Voluntary Correction Program (“VCP”) is a program announced 

in the Federal Register on May 7, 2004. The VCP generally covers Participant Notices 

for the 2002 or 2003 plan year that were not issued timely and in accordance with all 

other requirements. The PBGC will not assess a penalty for a 2002 or 2003 Partic ipant 

Notice failure if the failure is corrected in accordance with the VCP guidelines. The 

PBGC also will not pursue any failure to provide a pre-2002 Participant Notice unless 

there is a 2002 or 2003 Participant Notice failure that is covered by the VCP but that does 

not meet the requirements for penalty relief under the VCP. 

The PBGC anticipated that many plan administrators would want to participate in the 

VCP as a precaution, even in the absence of a known Participant Notice failure. 

Participation in the VCP will not affect the likelihood that a plan will be selected for audit 

of compliance with the Participant Notice requirement for a post-VCP plan year, the 

PBGC premium requirement for any plan year, or any other PBGC requirement.

Some plan administrators may still be able to participate in the VCP. However, it is too 

late for most calendar year plans. The deadline for issuing a VCP corrective notice is the 

due date for the plan’s 2004 Participant Notice — two months after the plan’s due date, 

with extensions, if any, for filing the Form 5500 for the 2003 plan year — or, if the plan 

administrator is not required to issue a 2004 Participant Notice, the due date that would 

apply if the plan administrator were required to issue it.

If there is a 2002 or 2003 Participant Notice failure and it is too late to participate in the 

VCP, the plan administrator should correct the failure as soon as possible to cut off 

penalties under ERISA section 4071. The plan administrator may wish to contact the 

PBGC to discuss how best to correct the failure. The plan administrator may e-mail the 

PBGC at pnotice@pbgc.gov or call the toll-free telephone number at the PBGC's 

Practitioner Customer Service Center (1-800-736-2444).
- 19 -

QUESTION 15

Participant Notice — Participant Count

Why might the number of persons entitled to receive a plan’s Participant Notice for a 

plan year differ from the plan’s Form 1 participant count for that plan year?

RESPONSE: 

The number of persons entitled to receive a plan’s Participant Notice for a plan year 

might differ from the plan’s Form 1 participant count for that plan year because of 

different snapshot dates, different definitions of “participant,” and different treatment of 

beneficiaries and alternate payees. 

A plan’s Form 1 participant count for a plan year is the number of participants in the 

plan, generally determined as of the last day of the prior plan year. For premium 

purposes, a “participant” is defined in 29 CFR § 4006.6. Under § 4006.6, an individual is 

considered to be a participant in a plan on any date if the plan has benefit liabilities with 

respect to the individual on that date. A deceased individual with respect to whom the 

plan has benefit liabilities and any beneficiaries of that individual would be counted as 

one participant. Similarly, an individual with respect to whom the plan has benefit 

liabilities and any alternate payees with respect to that individual would be counted as 

one participant. 

Under 29 CFR § 4011.7, the persons entitled to receive the plan’s Participant Notice for a 

plan year are participants, beneficiaries of deceased participants, alternate payees, and 

unions, determined on any date selected by the plan administrator during the period 

beginning with the last day of the prior plan year and ending with the date on which the 

Participant Notice is due, provided that a change in the date from one plan year to the 

immediately succeeding plan year does not exclude a substantial number of participants 

and beneficiaries. For Participant Notice purposes, a “participant” is defined in 29 CFR § 

4041.2. Under § 4041.2, in general, a participant is an individual who is earning or 

retaining credited service under the plan or who is receiving benefits under the plan or is 

entitled to begin receiving benefits under the plan in the future. Any beneficiaries of a 

deceased participant would be entitled to receive separate Participant Notices. Similarly, 

a participant and any alternate payees with respect to that participant would be entitled to 

receive separate Participant Notices. 
- 20 -

QUESTION 16

Participant Notice – Volatility Relief in Spinoff Cases 

Calendar-year Plan A spins off calendar-year Plan B on December 31, 2004. A variablerate premium is payable for both Plan A and Plan B for the 2005 plan year. For purposes 

of the DRC Exception Test that is used to determine whether a Participant Notice is 

required for the 2005 plan year, the funded current liability percentages of Plans A and B 

are as follows for the listed plan years:

2005 2004 2003 2002 2001

Plan A 83% 79% 91% 91% 85%

Plan B 83%

May the plan administrators of Plan A and Plan B each use the historical funded current 

liability percentages of Plan A, and thereby meet the DRC Exception Test described in 29 

CFR § 4011.3(b) for the 2005 plan year (based on the volatility test described in ERISA 

section 302(d)(9)(B)), notwithstanding the intervening spinoff of the assets and liabilities 

associated with Plan B?

PROPOSED RESPONSE:

Yes. Both Plan A and Plan B should be regarded as continuations of Plan A for this 

purpose. Therefore Plan A’s historical funded current liability percentages can be used 

when determining whether the DRC Exception Test is met. (See question 11 from the 

2004 (IRS) “Gray Book.”)
- 21 -

QUESTION 17

Reportable Events — “Retroactively Missed” Contributions

In question 13 of the 2004 Blue Book, the PBGC described certain situations in which 

there may have been missed quarterly contributions but, as a matter of enforcement 

discretion the PBGC would neither assess a penalty based on failure to file a timely 

reportable events notice or Form 200 nor perfect or enforce a lien, provided that a 

reportable events notice or Form 200 (as applicable) is filed with the PBGC within 30 

days (in the case of a reportable events notice) or within 10 days (in the case of a Form 

200) after the relevant Schedule B is filed. 

(a) Was that response (as applied to situations where there may have been missed 

quarterlies due to “recharacterized” contributions) intended to apply to a situation 

in which an amended Schedule B is filed after the original due date (including 

extensions) of the Form 5500?

(b) If a Form 200 is required, must the filer include financial statements or can the 

filer wait until the PBGC asks for them?

RESPONSE:

(a) No. The response in question 13 of the 2004 Blue Book (as applied to situations 

where there may have been missed quarterlies due to “recharacterized” 

contributions) applies only when the “recharacterization” is reflected on the 

original Schedule B as filed in a timely manner.

(b) Financial statements are required as part of the Form 200 filing. The contributing 

sponsor, its parent, or its authorized representative may apply for a waiver of this 

requirement. For information on applying for such a waiver, contact PBGC’s 

Division of Insurance Supervision & Compliance at (202) 326-4070.
- 22 -

QUESTION 18

Reportable Events – Missed Liquidity Contributions

IRC § 412(m)(5)(C) states that a liquidity shortfall contribution that is missed is treated 

as unpaid until the close of the quarter in which the due date for such installment occurs. 

Because the missed contribution is no longer considered unpaid for purposes of the 

interest charge in IRC § 412(m)(1) after the end of the quarter, must a Form 10 or Form 

200 be filed reporting the missed contribution?

RESPONSE:

Yes. Once the liquidity shortfall contribution is missed, a reportable event occurs. Even 

though the contribution may no longer be considered unpaid for certain IRC purposes, 

unless a reporting waiver applies, reporting is still required.
- 23 -

QUESTION 19

Reportable Events — Multiple Employer Plan Split

A multiple employer plan (Plan XY) covers employees of two unrelated companies X 

and Y. The plan is split into two plans – Plan X covers employees of Company X, and 

Plan Y covers employees of Company Y. Assume that the plan split is legally binding on 

December 15, 2004, and is effective on December 31, 2004. Also, assume that neither 

Company X nor Company Y is subject to advance reporting under §4043.61(b). What 

are the reporting requirements, if any? 

RESPONSE:

Unless reporting is waived, the plan administrators and the plan sponsors are responsible 

for reporting a change in controlled group (See 29 CFR § 4043.29). In this example, one 

or more persons ceased to be a member of the plan’s controlled group. (Note that for this 

reporting, the controlled group is determined with respect to the plan. The controlled 

group of plan XY before the plan split would consist of Company X and Company Y and 

all members of Company X’s controlled group and all members of Company Y’s 

controlled group.) After the split, Company Y is not a member of the controlled group of 

Plan XY. From the perspective of the Company X portion of Plan XY, Company Y was 

split off from the plan. Similarly, after the split, Company X is not a member of the 

controlled group of Plan XY. Therefore, from the perspective of the plan, both 

companies X and Y have left the controlled group. (See 29 CFR § 4043.29(e)(2).)

Company X, Company Y, and the plan administrators of Plan X and Plan Y are 

responsible for any required reporting. Section 4043.20 provides that “if there is a 

change in plan administrator or contributing sponsor, the reporting obligation applies to 

the person who is the plan administrator or contributing sponsor of the plan on the 30th 

day after the reportable event occurs.” (This reportable event occurred on December 15,

2004 -- the date the plan split became legally binding). However, a filing by any person 

will be deemed to be a filing by all persons required to notify the PBGC. (See 29 CFR 

§ 4043.3(a)(3).)

Similarly, the transfer of liabilities that occurs when Plan XY is split into Plan X and Plan 

Y would constitute a transfer of benefit liabilities to plans maintained by persons that are 

not members of the controlled group of Plan XY. This would be a reportable event 

occurring as of the date of transfer, which is based on the facts and circumstances. (See 

29 CFR § 4043.32). Any required notice may be combined with the notice for the change 

in controlled group. (See 29 CFR § 4043.3(a)(3).)

There has been an active participant reduction for Plan XY. This would be a reportable 

event occurring on December 31, 2004. (See 29 CFR § 4043.23). Any required notice 

may be combined with the other notice. (See 29 CFR § 4043.3(a)(3).)

Finally, there may have been a withdrawal of a substantial employer. (See section 

4063(a) of ERISA). If so, the plan administrator of Plan XY must notify the PBGC 

within 60 days of the withdrawal.
- 24 -

QUESTION 20

Other Reporting — Notice under Section 307(e) of ERISA

What must a plan sponsor do to comply with the notice requirements under section 

307(e) of ERISA? That section requires notice when the plan sponsor is required to 

provide security under section 307(a) of ERISA due to the adoption of a plan amendment 

resulting in significant underfunding.

RESPONSE:

If a plan adopts an amendment for which section 307(a) of ERISA requires the plan 

sponsor to provide security to the plan, the plan sponsor must notify the PBGC within 30 

days after the amendment takes effect. The notice should be sent to the PBGC’s Division 

of Insurance Supervision & Compliance. Failure to provide this notice in a timely 

manner is subject to penalties under ERISA section 4071.