Small Business Guide

Federal Pension Insurance
 PBGC’S CUSTOMER SERVICE STANDARDS

As customers, you deserve our best efforts. We are

committed to always showing you respect and courtesy

when you contact us. We further pledge that:

✓ With only one call from you, we will tell you —

• What can be done immediately or what you should

expect if it will take longer;

• When it will be done; and

• Who will handle your inquiry or request.

✓ If it will take longer than expected or anything changes

from what we first told you, we will call you with a

status report and tell you what will happen next.

✓ During normal business hours (8:00 a.m. to 5:00 p.m.

Eastern time), we will have someone available to take

your call, as necessary. However, any time you leave a

message, we will return your call within one work day.

✓ If you write to us, we will acknowledge your inquiry

within one week of receiving your request.
 Table of Contents

Introduction ..................................................................1

I. Overview ......................................................................2

II. Premiums to Be Paid to PBGC .....................................6

III. Disclosure to Participants .............................................9

IV. Reporting Business and Plan Events to PBGC ........... 12

V. Plan Terminations....................................................... 15

VI. Missing Participants Program ..................................... 20

VII. Penalties That May Be Assessed.................................. 22

VIII. The Law and Pertinent Regulations ........................... 24
Introduction

If you have a defined benefit pension plan, it is probably covered by the

federal pension insurance program administered by the Pension Benefit

Guaranty Corporation. That means the pensions of your workers are

protected up to certain limits if you should run into difficulty funding your

plan. Each year, you pay an annual insurance premium to PBGC and provide

certain information when required. This Guide is intended to help you and

your professional consultants understand PBGC requirements.

This Guide is an aid, but it does not replace the statutes and regulations

that contain the legal requirements for pension plans. PBGC forms and

instructions also provide more detailed guidance.

Defined benefit pension plans also are subject to legal requirements

separately administered by the U.S. Department of Labor and the Internal

Revenue Service.

Small Business Guide 1
I. Overview

The Pension Benefit Guaranty

Corporation is the federal corporation that

administers the pension insurance program

established by the Employee Retirement

Income Security Act, the pension law enacted

in 1974 to safeguard the pension security of

working Americans. PBGC insures workers

in most private-sector defined benefit pension

plans in the event that their plans do not have

sufficient assets to pay benefits if the plans are

terminated because of the bankruptcy or other

financial distress of the sponsoring employers.

PBGC protects the pensions of about

42 million working men and women in about 45,000 private defined benefit

pension plans.

PBGC insures both single-employer and multiemployer defined benefit

plans. A single-employer plan, which may be collectively bargained, provides

benefits for workers of one employer; or it may provide benefits to workers of

several unrelated employers but not be collectively bargained. Multiemployer

plans are collectively bargained plans involving two or more unrelated

employers. This Guide covers only single-employer plans.

PBGC insures only private-sector defined benefit pension plans. Defined

benefit plans provide a specified periodic benefit (usually monthly) at

retirement, generally based on salary or a stated dollar amount and years of

service. PBGC does not insure defined contribution plans, under which

contributions are made by or on behalf of employees into individual employee

accounts with no promise as to the amount of payouts. Defined contribution

plans include 401(k) plans, profit-sharing plans, money-purchase plans, and

employee stock ownership plans (ESOPs).

PBGC receives no funds from general tax revenues. Its operations are

financed by insurance premiums set by the Congress and paid by defined

benefit plans and the employers that sponsor them. PBGC also finances its

operations from assets acquired from pension plans that PBGC has taken over

as trustee (usually due to employer bankruptcies), any recoveries PBGC has

obtained from those bankrupt employers to cover plan underfunding, and

investment returns on its assets.

PBGC has an Internet

website on the World Wide

Web at http://www.pbgc.gov.

A section called “Business

Info” contains information for

employers and pension

professionals about PBGC

premiums, plan terminations,

required notices, and related

policies. Other areas include

information on PBGC’s

benefit guarantees, regulations,

technical releases, and various

PBGC forms.

2 Small Business Guide
I. Overview (continued)

PBGC reports to a Board of Directors consisting of the Secretaries of Labor,

Commerce, and Treasury. The Secretary of Labor chairs the Board. An

Executive Director administers PBGC’s day-to-day operations.

PBGC-insured plans

General. PBGC insures most tax-qualified defined benefit plans.

Exceptions. There are a number of types of defined benefit pension plans

that are not covered by PBGC insurance. Several of these may have particular

relevance to you as a small business owner.

• Plans established and maintained exclusively for substantial owners are not

insured. Generally, a substantial owner is an individual who owns the entire

interest in an unincorporated business, or a partner or shareholder who

owns (directly or indirectly) more than 10 percent of a partnership or

corporation.

• Plans of professional service employers that have always had 25 or fewer

active participants in their plans are not insured. Professional service

employers are firms owned or controlled by professional individuals who

principally provide professional services. The term “professional

individuals” includes physicians, dentists, chiropractors, osteopaths,

optometrists, other licensed practitioners of the healing arts, lawyers, public

accountants, public engineers, architects, draftspersons, actuaries,

psychologists, social or physical scientists, and performing artists.

• Unfunded plans maintained primarily to provide deferred compensation

for a select group of management or highly compensated employees are not

insured.

PBGC’s role

When, due to financial distress, a company with an underfunded PBGCinsured plan is unable to maintain the plan and the plan must be terminated,

PBGC becomes trustee of the plan. As trustee, PBGC uses both its own and

the plan’s funds to pay pension benefits. When PBGC becomes trustee, all

further benefit accruals, vesting, and employer administrative responsibilities

for the pension plan cease.

PBGC generally pays benefits to the participants of a terminated plan

according to the provisions of their plan up to the legal limits under Title IV of

ERISA. Most participants of plans taken over by PBGC receive the full benefit

Small Business Guide 3
I. Overview (continued)

 they would have received under their plan. However, some participants receive

less than their full benefit because their plan benefits exceed the PBGC guaranteed

benefit limits and their plan has insufficient assets to make up the difference.

PBGC is trustee for more than 2,500 terminated, underfunded pension

plans. The agency is responsible for paying retirement benefits to about

500,000 people, about half of whom are already receiving their pensions from

PBGC. The other half will receive their benefits when they become eligible to

retire in the future.

Guaranteed benefits

Under the law, PBGC guarantees the payment of vested pension benefits up

to a certain dollar amount, which is adjusted annually based on changes in the

Social Security contribution and benefit base. The guaranteed amount

becomes fixed for any terminating plan as of its date of termination. (For

example, for plans terminating in 1998, the maximum guaranteed amount is

$34,568.16 yearly, or $2,880.68 per month, for a single-life annuity beginning

at age 65.) The maximum is less if the benefit begins before age 65 or is paid in

a form other than for the participant’s life alone, such as a form that provides

survivor benefits.

PBGC Maximum Monthly Guarantees

(for a plan terminated in 1998)

Age 65 Age 62 Age 60 Age 55

$2,880.68 $2,275.74 $1,872.44 $1,296.31

PBGC guarantees payment of most pension benefits including normal and

early retirement benefits, disability benefits for participants who become

disabled before their plan terminates, and certain survivor benefits, all of which

are subject to the legal limit on PBGC’s maximum guarantee.

PBGC’s guarantee does not cover benefits that are not vested, benefits for

which a participant has not met all requirements at the time the plan is

terminated, or non-pension benefits such as health insurance, life insurance,

certain death benefits, vacation pay, or severance pay. PBGC also does not

guarantee certain early retirement payments (such as supplemental benefits

that stop when a participant becomes eligible for Social Security) that result in

an early retirement monthly benefit greater than the monthly amount the

participant would receive at the plan’s normal retirement age.

4 Small Business Guide
I. Overview (continued)

In addition, the law puts certain other limits on PBGC’s guarantee. Benefit

increases and new benefits may not be covered or may be only partially

covered by PBGC’s guarantee if they result from plan provisions that have been

in effect less than 5 years as of the date of plan termination. Additional limits

apply to a substantial owner who is a participant in a terminating plan.

Benefits that are not guaranteed will be paid by PBGC to the extent the

plan has sufficient funds to pay those benefits when it terminates or as a result

of PBGC’s recoveries of employer liabilities to terminated plans (in bankruptcy,

PBGC becomes a creditor for unfunded benefits, both on its own behalf and

on behalf of participants).

a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a

Applicable Laws and Regulations

ERISA — ERISA’s United States Code citation is 29 USC §§ 1001 et seq. See also Title 26 of the

U.S. Code for tax provisions and 26 Code of Federal Regulations for applicable Department

of Treasury regulations, 29 CFR Chapter XXV (Parts 2509-2590) for the regulations of the

Pension and Welfare Benefits Administration of the Department of Labor, and 29 CFR

Chapter XL (Parts 4000-4907) for Pension Benefit Guaranty Corporation regulations.

Pension Insurance Program (Title IV of ERISA) — See ERISA §§ 4001 et seq. (29 USC §§ 1301

et seq.) and 29 CFR Parts 4000 to 4907.

Plans Covered by PBGC — See ERISA § 4021 (29 USC § 1321).

Benefits Guaranteed by PBGC — See ERISA § 4022 (29 USC § 1322) and 29 CFR Part 4022.

Small Business Guide 5
If you are not sure whether your

plan is covered by PBGC insurance,

and thus whether you owe premiums, you should promptly request

a coverage determination by calling

(202) 326-4000 or writing to:

PBGC

Technical Assistance Branch,

Suite 930

1200 K Street NW

Washington, DC 20005-4026

A coverage determination

request does not extend the due

date for any premiums that are

due.

For TTY/TDD users, call the

Federal relay service toll-free at

1-800-877-8339 and ask to be

connected to the appropriate

telephone number given in this

Guide. Only the TTY/TDD

number is toll-free; all other

telephone numbers are not toll-free

and collect calls cannot be accepted.

II. Premiums to Be Paid to PBGC

Every year the plan administrator of any defined benefit pension plan that

is covered by PBGC insurance must file PBGC’s Annual Premium Payment

Form (PBGC Form 1) with PBGC and

pay the premium that is due. Each year,

PBGC issues a new Premium Payment

Package that includes the relevant forms

and detailed instructions for completing

the forms.

Types and amounts of premiums

to be paid

General. Single-employer plans pay

two kinds of premiums. All singleemployer plans pay a flat-rate premium;

underfunded plans pay an additional

variable-rate premium.

Flat-rate premium. The annual flatrate premium is $19 multiplied by the

number of participants. Participants

generally include any current employee

covered by the plan, former employees

receiving or entitled to receive benefits in

the future, and deceased participants who

have one or more beneficiaries entitled to

or receiving benefits. The number of

participants is measured as of the

premium snapshot date, which is the last day of the prior plan year in most

cases. For example, for calendar year plans, the premium snapshot date is

generally December 31 of the prior year.

Example: if your plan has 20 participants on the premium snapshot

date, your flat-rate premium is 20 x $19, or $380. If your plan does not

have any unfunded vested benefits (see following section), this is your

total premium.

Variable-rate premium. The variable-rate premium is $9 per $1000, or

fraction thereof, of unfunded vested benefits (UVB) as of the premium

6 Small Business Guide
For copies of premium forms and other

general premium-related inquiries and

assistance, including address changes:

Call ................ (202) 326-4242

FAX ............... (202) 326-4250

or write to:

Pension Benefit Guaranty Corporation

P.O. Box 64916

Baltimore, MD 21264-4916

II. Premiums to Be Paid to PBGC (continued)

snapshot date. The amount of

unfunded vested benefits is the

amount by which the present

value of the benefits in which

participants are vested exceeds the

present value of plan assets. The

law specifies (and PBGC’s Annual

Premium Payment Package

describes) the interest rate and

mortality table to use in calculating the value of UVBs.

Example: if your plan has unfunded vested benefits totaling $200,000

on the premium snapshot date, your variable-rate premium is $9 x

($200,000 ÷ $1,000), or $1,800. Continuing with the previous example,

if your plan has 20 participants, your total premium would be the sum

of your flat-rate premium ($380) and your variable-rate premium

($1,800), or $2,180.

Plans exempt from variable-rate premiums. Five types of plans are exempt

from reporting the value of benefits and assets and paying a variable-rate

premium:

• Plans with fewer than 500 participants and an actuarial certification that

there are no UVBs;

• Plans with a plan administrator certification that there are no vested

benefits;

• Insurance contract plans described in section 412(i) of the Internal Revenue

Code;

• Plans for which contributions (for the preceding plan year) were at the “full

funding limit” defined in section 302(c)(7) of ERISA and section 412(c)(7) of

the Internal Revenue Code; and

• Plans that have issued a Notice of Intent to Terminate (NOIT) in a

standard termination (see Chapter V. of this Guide) where the NOIT has a

proposed termination date that is on or before the premium snapshot date.

If your plan is exempt, you must still file a Form 1 and include with it a

Schedule A with the box for the appropriate exemption checked and zero (0)

entered for the variable-rate premium.

Small Business Guide 7
If you have a complaint about the

premium-related service you have received

or still need assistance after calling our

general premium telephone number

(listed earlier), please contact the

Problem Resolution Officer (Premiums):

Call ................ (202) 326-4136

E-mail ............ premiums.pro@pbgc.gov

or write to:

Pension Benefit Guaranty Corporation

Problem Resolution Officer (Premiums)

1200 K Street NW, Suite 670

Washington, DC 20005-4026

II. Premiums to Be Paid to PBGC (continued)

General filing rule

Generally, the administrator of any plan with fewer than 500 participants

must file the Form 1 (including the Schedule A) and pay the entire premium

due by the 15th day of the 8th full calendar month following the month in

which the plan year began. The plan year is the annual period for which plan

records are kept. For example, if your plan year is the calendar year, your

Form 1 is due by September 15th of each year. Photocopied forms are not

permitted because the forms are read by computer.

Special filing rules

Large plans (500 or more participants). Plans required to pay premiums for

500 or more participants for the preceding year generally must file an

Estimated Premium Payment Form (PBGC Form 1-ES), and pay the flat-rate

premium, by the last day of the second full calendar month following the close

of the preceding plan year. They must then file a Form 1, and pay the

variable-rate premium, and any unpaid flat-rate premium, by the 15th day of

the 8th full calendar month

following the month in which the

plan year began. For example, if

your plan year is the calendar year,

your Form 1-ES is due by the last

day of February and your Form 1

is due by September 15th of that

year.

First year filings; changes of plan

year; mergers and spinoffs. Special

filing rules apply to a plan that is

filing for its first plan year, to a

plan that changes its plan year as a

result of a plan amendment, and to certain plans involved in yearend mergers

and spinoffs. PBGC provides more detailed guidance for these situations in its

Annual Premium Payment Packages, which contain copies of the forms and

instructions for completing the forms.

a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a

 Applicable Laws and Regulations

PBGC Premiums — See ERISA §§ 4006 and 4007 (29 USC §§ 1306 and 1307), 29 CFR Parts

4006 and 4007, and PBGC’s Annual Premium Payment (Form 1) Package and Estimated

Premium Payment (Form 1-ES) Package.

8 Small Business Guide
III. Disclosure to Participants

A plan that owes the variable-rate

premium and that is less than 90%

funded may be required to issue an

annual Participant Notice about the

plan’s funding status and the limits

on PBGC’s guarantee of benefits.

There are special rules that apply

to a plan with 100 or fewer

participants to determine whether the plan may be exempt from the

participant notice requirement. In essence, these rules set out simplified ways

for small plans to calculate their funding levels. For purposes of this

requirement, all defined benefit plans maintained by the same employer

(including its affiliates) are considered to be one plan.

New plans are exempt from the notice requirement for the first plan year in

which they are insured by PBGC. This exemption does not apply in the case

of a plan resulting from a consolidation or spinoff.

Who must get the notice

The plan administrator must provide the Participant Notice to participants,

beneficiaries of deceased participants, alternate payees under qualified

domestic relations orders (QDROs), and any employee organization that

represents participants for collective bargaining purposes. A QDRO is an

order issued under state domestic relations law that meets certain requirements

of ERISA and gives the alternate payee, usually a former spouse, a right to all

or part of a participant’s pension benefits.

When to send the notice

The plan administrator must issue the Participant Notice for a given plan

year no later than two months after the due date (or extended due date) for the

filing of the Form 5500 for the previous plan year. This is generally the same

date by which the plan administrator must provide the plan’s Summary

Annual Report for the prior plan year to participants.

The Form 5500 is the annual information return/report filed for the

Internal Revenue Service, the Department of Labor, and PBGC. It must be

filed within 210 days of the close of the plan year (July 31 for calendar year

plans), although in certain cases a plan can receive an extension (for calendar

If you have a question about the

Participant Notice:

Call ................ (202) 326-4000

or write to:

Pension Benefit Guaranty Corporation

Technical Assistance Branch, Suite 930

1200 K Street NW

Washington, DC 20005-4026

Small Business Guide 9
year plans, to September 15 or, in some cases, October 15). The Summary

Annual Report is a short summary of the financial information contained on

the Form 5500.

Example: a calendar year plan that files the 1997 Form 5500 on its

extended due date, October 15, 1998, should issue the 1998 Participant

Notice no later than December 16, 1998. (If any due date or extended

due date falls on a Saturday, Sunday, or legal holiday, the applicable due

date is the next business day.)

Plan administrators must issue the Participant Notice in a manner

reasonably calculated to ensure actual receipt by the individuals who are

supposed to receive it. Plan administrators may not merely post the

Participant Notice (or a notice of its availability) at worksite locations. The

Participant Notice may be sent together with other information, including the

Summary Annual Report, so long as the Participant Notice and the other

information are in separate documents.

Notice contents

The Participant Notice must be written clearly so it is understandable by

the average participant and must include:

• Specified identifying information about the plan;

• A statement that the notice is required by law;

• The month and year the notice is issued;

• Certain information on the plan’s funding status (including information on

certain missed contributions and minimum funding waivers);

• The plan’s funding percentage; and

• Certain information on PBGC’s guarantee of benefits.

Model Participant Notice

 PBGC’s regulation provides a model Participant Notice that plan

administrators may use. The model Notice satisfies the legal requirements

when the required information is filled in. (Special rules apply to plans with

specified numbers or percentages of participants who are literate in only the

same non-English language.) The model Notice also may be found on PBGC’s

home page on the Internet.

III. Disclosure to Participants (continued)

10 Small Business Guide
III. Disclosure to Participants (continued)

a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a

Applicable Laws and Regulations

Participant Notice Requirements — See ERISA § 4011 (29 USC § 1311) and 29 CFR Part 4011.

Small Business Guide 11
If you have a question about a reportable

event or would like copies of the Form 10:

Call ................ (202) 326-4000

FAX ............... (202) 326-4072

or write to:

Pension Benefit Guaranty Corporation

Pre-Termination Processing Division,

Suite 870

1200 K Street NW

Washington, DC 20005-4026

IV. Reporting Business and Plan Events

to PBGC

Reportable events

ERISA requires that you report to PBGC certain events that may signal

problems with your plan or your

business. Notice of these events

alerts PBGC to situations that

may jeopardize workers’ pensions

or the pension insurance

program. PBGC’s regulation on

these “reportable events”

describes the events and notice

requirements in greater detail.

Generally, you must notify

PBGC within 30 days after you know (or should know) the reportable event

has occurred, although PBGC has extended the reporting deadline for some

events to make it easier for employers to comply. The notice to PBGC must

contain certain information about the plan, the plan administrator,

contributing employers and any affiliated companies, and a description of the

event. PBGC has developed an optional reporting form that you may use

(PBGC Form 10), which may be downloaded and/or completed from PBGC’s

website. PBGC also has available a package that includes the form and detailed

instructions on specific events.

Waivers and extensions of reporting requirements

PBGC may waive reporting requirements in particular cases. PBGC has

also established general rules for waiving reporting. Many of the general

waivers are based on the plan’s funding level, using specified actuarial

assumptions.

Reportable events most likely to be of concern to small businesses

The following reportable events are the ones that are most likely to impact

small businesses. They require notice to PBGC within 30 days after you know

(or should know) the event has occurred:

12 Small Business Guide
• Failure to Make Required Minimum Funding Payment

General. You must report any failure to make a required minimum

funding payment to the plan unless the full payment is made by the time

the report is due (30 days after the missed deadline).

Exception. You need not file a report solely because you missed a

quarterly pension contribution if (1) your plan had 100 or fewer

participants on each day of the prior plan year, or (2) your plan had 500 or

fewer participants on each day of the prior plan year and a Participant

Notice (see Chapter III. of this Guide) for the plan (a) is not required for

the current plan year or (b) was not required for the prior plan year. In

determining the number of participants, all defined benefit plans

maintained by the same employer (including its affiliates) are considered to

be one plan.

• Inability to Pay Benefits When Due

If your plan had 100 or fewer participants on each day during the

preceding plan year, you must report if there is a current or “projected”

inability to pay benefits. In determining the number of participants, all

defined benefit plans maintained by the same employer (including its

affiliates) are considered to be one plan. A “projected” inability exists if the

plan’s liquid assets at the end of a quarterly period are less than twice the

disbursements from the plan for that period. “Liquid assets” means cash,

marketable securities, and certain other assets. “Disbursements from the

plan” means all disbursements from the trust, including purchases of

annuities, payments of benefits including lump-sum distributions, and

administrative expenses.

• Distribution to a Substantial Owner

You must notify PBGC whenever total distributions to a substantial

owner for the past year exceed the greater of one percent of plan assets or a

specified dollar limit. The dollar limit for the year is equal to the

maximum annuity benefit that a plan can pay for the year under section

415 of the Internal Revenue Code ($130,000 for 1998). Thus, for example,

you must report a $150,000 distribution to a substantial owner in 1998 if

the plan’s assets total less than $15,000,000.

IV. Reporting Business and Plan Events to PBGC (continued)

Small Business Guide 13
IV. Reporting Business and Plan Events to PBGC (continued)

• Application for Minimum Funding Waiver

You must notify PBGC whenever you file an application with the

Internal Revenue Service for a minimum funding waiver.

• Loan Defaults

You must report certain defaults on loans with outstanding balances of

$10 million or more.

• Bankruptcy or Similar Settlement

You must report the commencement of any bankruptcy or any other

type of insolvency proceeding.

a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a

Applicable Laws and Regulations

Reportable Events — See ERISA § 4043 (29 USC § 1343), 29 CFR Part 4043, and PBGC’s

Form 10.

14 Small Business Guide
V. Plan Terminations

You may voluntarily terminate a defined benefit plan that is insured by

PBGC only through one of two procedures: a standard termination or a

distress termination. (Under certain circumstances, PBGC may terminate a

plan through an involuntary termination if necessary to protect the interests

of the plan participants or of the insurance program. PBGC must terminate

any plan that does not have assets available to pay benefits currently due.)

Filing for a standard

termination

You may file a standard

termination any time the plan

is projected to have sufficient

funds to pay all benefits,

whether or not vested, as of the

proposed distribution date.

Standard termination

procedures

The specific rules and forms for standard terminations can be obtained

from PBGC in the “Standard Termination Filing Instructions” booklet. The

highlights of the process are described below. (See also Chapter VI. for how to

handle missing participants in the standard termination process.)

Form of required notices. In general, PBGC does not require any particular

format for required notices (e.g., the NOIT and NOPB) but they must be

readable and written in a way calculated to be understood by the average

participant. Special rules apply to plans with specified numbers or percentages

of participants who are literate in only the same non-English language.

1. NOTICE OF INTENT TO TERMINATE (NOIT)

If you decide to terminate your pension plan, you must send out a Notice

of Intent to Terminate (NOIT) to people who will be affected. At least 60 days

and no more than 90 days before your proposed termination date, you must

issue the NOIT to all plan participants, beneficiaries of deceased participants,

alternate payees under qualified domestic relations orders (QDROs), and any

union representing participants. PBGC provides a Model NOIT in its

standard termination booklet.

If you have a question about a standard

termination of your plan or would like copies

of the standard termination booklet of forms

and instructions:

Call ................ (202) 326-4000

FAX ............... (202) 326-4001

or write to:

Pension Benefit Guaranty Corporation

Technical Assistance Branch, Suite 930

1200 K Street NW

Washington, DC 20005-4026

Small Business Guide 15
V. Plan Terminations (continued)

2. STANDARD TERMINATION NOTICE (Form 500)

Deadline for issuance. You must file a Form 500 with PBGC no later than

the 180th day after the proposed termination date.

Certification of sufficiency. You must include with the Form 500 a

certification by an enrolled actuary (on Schedule EA-S) that the plan’s assets

are projected to be sufficient as of the proposed distribution date to pay all plan

benefits.

3. NOTICE OF PLAN BENEFITS (NOPB)

You must issue an NOPB to all plan participants, beneficiaries of deceased

participants, and alternate payees under QDROs no later than the time you file

the Form 500 with PBGC. The NOPB tells participants and beneficiaries

what their benefit levels will be.

4. PBGC REVIEW PERIOD

Period and purpose of review. PBGC has 60 days from the date of receipt to

review the Form 500 for compliance with the law and regulations. If necessary

and appropriate, PBGC may provide the plan administrator with additional

time to complete a filing. Under certain circumstances, PBGC may issue a

Notice of Noncompliance (NONC) that cancels the termination and makes

the plan an ongoing plan. PBGC is required to take this action if assets will

not be sufficient to pay all benefits as of the proposed distribution date. PBGC

generally will not take this action for procedural defects if it finds it is not in

the interests of participants and beneficiaries to do so.

Extension of review period. PBGC’s 60-day review period may be extended

by agreement between you and PBGC.

Suspension of review period. The running of PBGC’s 60-day (or extended)

review period is suspended whenever PBGC asks you to submit additional

information.

5. DISTRIBUTION OF PLAN ASSETS

Time for distribution. You must distribute plan assets in satisfaction of all

plan benefits within the 180-day (or extended) period after PBGC’s 60-day (or

extended) review period.

Automatic extension. The period for distribution is automatically extended

until the 120th day after you receive a favorable tax-qualification determination

letter from the IRS if you submit a complete determination letter request to the

IRS on or before the date of filing the Form 500.

16 Small Business Guide
V. Plan Terminations (continued)

Form of distribution. Unless you pay in a lump sum, you must distribute

the plan assets in the form of a single-premium, nonsurrenderable annuity

contract from an insurer. The contract may be a participating contract only if

certain conditions are met. The annuity contract—often referred to as an

irrevocable commitment—must retain all the benefit options that were

contained in your plan as of the termination date. For married participants,

spousal consent is required for all benefit options (other than a qualified joint

and survivor annuity) unless the present value of the benefit is de minimis.

(The de minimis amount must be specified in your plan and cannot exceed

$5,000.)

Lump sum payments. Many, and perhaps most, of your distributions will

be in the form of lump sums. PBGC has noticed that many small employers

make calculation errors in valuing such amounts. Therefore, you (or your

actuary) are urged to follow carefully the detailed valuation instructions in

PBGC’s standard termination booklet.

6. NOTICE OF ANNUITY INFORMATION

Notice of identity of insurer(s). No later than 45 days before distribution,

you must send to all participants, beneficiaries of deceased participants, and

alternate payees (except those paid de minimis lump sums) a notice identifying

the insurer or insurers from whom (if known), or (if not yet known) a list of

insurers from among whom, the annuity will be purchased. This information

must be included in the NOIT if it is known at the time the NOIT is issued.

Notice of State Guaranty Association Coverage. The first time you identify

the insurer(s), you must give a Notice of Annuity Information. This Notice

must include specified information about state guaranty associations’ coverage

of annuities issued by insurance companies, and about how the addresses and

telephone numbers of these state guaranty associations may be obtained from

PBGC.

7. PROVIDING THE ANNUITY CONTRACT

Either you or the insurer (within 30 days after the annuity contract or

certificate is available) must provide each participant, beneficiary of a deceased

participant, or alternate payee who is receiving a distribution through an

annuity contract with a copy of the annuity contract or a certificate

identifying the insurer and clearly stating the insurer’s obligation to provide

the benefit.

Small Business Guide 17
If you have a question about a distress

termination of your plan or would like copies

of the distress termination booklet of forms

and instructions:

Call ................ (202) 326-4000

FAX ............... (202) 326-4072

or write to:

Pension Benefit Guaranty Corporation

Pre-Termination Processing Division,

Suite 870

1200 K Street NW

Washington, DC 20005-4026

V. Plan Terminations (continued)

If the contract or certificate has not been provided to each participant,

beneficiary, or alternate payee by the 90th day after the distribution deadline

(including extensions), you must provide each of those people with a notice

stating that the obligation for providing their benefits has transferred to the

insurer, identifying the insurer and the insurer’s contact person, and stating

that each person will receive a copy of the contract or a certificate that will also

identify the insurer and clearly state the insurer’s obligation to provide the

person’s benefits.

 8. POST-DISTRIBUTION CERTIFICATION

While the deadline for filing a Post-Distribution Certification (PBGC Form

501) with PBGC is the 30th day after you complete the distribution of plan

assets, PBGC will assess a penalty for a late filing of the Form 501 only to the

extent it is filed more than 90 days after the distribution deadline (including

extensions).

Filing for a distress termination

You may file for a distress

termination only if you and each

company affiliated with you

satisfy at least one of four

statutory distress tests (although

each company does not have to

satisfy the same test). The four

tests are:

• Liquidation under the U.S.

Bankruptcy Code or similar

federal or state law;

• Reorganization under the U.S. Bankruptcy Code or similar state law, in

which the bankruptcy judge determines that you will be unable to pay your

debts and continue in business unless the plan is terminated;

• Proving to PBGC’s satisfaction that, unless the plan is terminated, you’ll be

unable to pay your debts and continue in business; or

• Proving to PBGC’s satisfaction that the costs of providing pension coverage

have become unreasonably burdensome because of the decline in the

workforce covered by the plan.

18 Small Business Guide
V. Plan Terminations (continued)

If you are thinking about a distress termination, you should contact PBGC

and get the “Distress Termination Filing Instructions” booklet. The booklet

will give you the details of the process. However, you should be aware that, as

with a standard termination, the distress termination process begins with the

Notice of Intent to Terminate (NOIT). The NOIT must be issued to all plan

participants, beneficiaries of deceased participants, alternate payees under

qualified domestic relations orders, unions representing plan participants, and

PBGC at least 60 days and not more than 90 days before the date you propose

to terminate the plan. (PBGC’s Form 600 is the NOIT that must be filed with

PBGC.) After issuing the NOIT, the plan administrator must submit a distress

termination notice (PBGC Form 601) to PBGC that includes data on the

number of plan participants and the plan’s assets and liabilities.

a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a

Applicable Laws and Regulations

Standard Termination — See ERISA § 4041 (29 USC § 1341), 29 CFR Part 4041, and PBGC’s

Standard Termination Filing Instructions booklet.

Distress Termination — See ERISA § 4041 (29 USC § 1341), 29 CFR Part 4041, and PBGC’s

Distress Termination Filing Instructions booklet.

Small Business Guide 19
If you have a question about the missing

participants program or would like copies

of the booklet of forms and instructions

for the program:

Call ................ (202) 326-4000

FAX ............... (202) 326-4001

or write to:

Pension Benefit Guaranty Corporation

Technical Assistance Branch, Suite 930

1200 K Street NW

Washington, DC 20005-4026

VI. Missing Participants Program

The missing participants

program was created by the

Retirement Protection Act of 1994

to assist employers who are

terminating their defined benefit

plans in a standard termination.

Under this program PBGC

provides a clearinghouse for

locating participants, beneficiaries

of deceased participants, and

alternate payees under QDROs whom the employer is otherwise unable to

find. The program builds on PBGC’s successful efforts to locate missing

participants in plans taken over by PBGC because they terminated without

sufficient funds to pay all benefits.

Purpose of the program

An employer choosing to terminate a fully funded pension plan is required

to distribute all plan benefits to plan participants and beneficiaries. The funds

must be disbursed before the plan is allowed to wind up its affairs. Before the

missing participants program, plan administrators had to provide for the

benefits owed to missing participants (including beneficiaries of deceased

participants) either by purchasing annuities from private insurers in the names

of any missing participants or, in some cases, by depositing funds in a financial

institution on their behalf. Employers often had difficulty finding an

insurance company or financial institution willing to accept the funds in the

name of a missing participant. In addition, missing participants who later

sought to locate their benefits often had difficulty learning where the benefits

were deposited. Now, companies and their workers can turn to the Missing

Participants Program for help.

How the program works

Before turning to PBGC, the plan administrator of a terminating fully

funded plan is required to conduct a diligent search for missing participants,

including using a commercial locator service.

20 Small Business Guide
Plan actuaries determine the amount to be sent to PBGC based on plan

provisions and specified assumptions in PBGC’s Missing Participant

regulations. The plan provides PBGC with information about each missing

participant and the benefits owed, including the starting date for the benefit

and beneficiary information. PBGC then conducts periodic searches for the

missing participant.

Instead of sending the money to PBGC, the plan administrator may choose

to purchase an annuity for the missing participant, in which case the

administrator must give PBGC information identifying both the participant

and the insurance company. The plan administrator also must do a diligent

search before purchasing an annuity for a missing participant.

A plan administrator must submit the information about missing

participants to PBGC on PBGC’s form, the Schedule MP, along with the PostDistribution Certification (PBGC Form 501). The Post-Distribution

Certification is used by the plan administrator to tell PBGC that the plan has

satisfied benefit promises to all participants. Missing participants’ benefits are

paid to PBGC at the same time with a PBGC voucher form. The Schedule MP

and payment voucher are available in a booklet that also contains detailed

filing instructions.

When a missing participant or surviving beneficiary is found, PBGC will

pay the pension benefit or provide the participant or survivor with the name

of the private insurer holding the participant’s annuity.

Pension Search Directory

To help locate missing participants in terminated plans, PBGC has set up

the Pension Search Directory on its website at http://www.pbgc.gov. The

Directory lists missing participants by name, company and state. It is updated

quarterly as PBGC receives names of more missing participants. People who

find their names in the Directory should contact PBGC immediately to claim

their pensions.

a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a

Applicable Laws and Regulations

Missing Participants Program — See ERISA § 4050 (29 USC § 1350), 29 CFR Part 4050, and

PBGC’s Missing Participants Filing Instructions booklet.

VI. Missing Participants Program (continued)

Small Business Guide 21
VII. Penalties That May Be Assessed

PBGC may assess a reporting/disclosure penalty of up to $1,100 a day for

failure to provide, within the specified time limit, notices and other

information required to be reported to PBGC or other parties. In addition,

PBGC may assess a penalty for late payment of premiums; the amount of

the penalty may not exceed 100% of the amount of the premium that is not

timely paid. These penalties may be waived or reduced upon a showing of

reasonable cause.

Reporting/disclosure penalty

General. PBGC will generally assess a penalty of $25 a day for the first 90

days of a delinquency, and $50 for each day thereafter. The total penalty for

any violation generally will not exceed $100 times the number of plan

participants.

Small Plan Rule. For plans with fewer than 100 participants, the daily

penalty generally will be proportionately reduced according to the number of

participants, subject to a floor of $5 a day.

Exceptions. A larger daily penalty up to $1,100 may be assessed where

there is a willful failure to comply, a pattern or practice of failure to report, or

substantial harm to participants or PBGC from the lack of information.

Under another exception, which generally affects only large employers, PBGC

will assess the full $1,100-per-day penalty for failure to report a missed

contribution of $1 million or more or to provide advance notice about a

reportable event.

Penalty for late payment of premiums

The penalty for late premiums is 5% of the unpaid premium amount for

each month (or fraction thereof) that the amount remains unpaid. However,

for premiums owed for plan years beginning on or after January 1, 1996,

PBGC will assess a penalty of 1% of the unpaid amount for each month that

the amount remained unpaid if the premium is paid on or before the date

PBGC first issues a written notice to the premium payer that there is or may

be a premium delinquency. The PBGC notification may take various forms,

including a premium bill, a letter initiating an audit, or a letter questioning a

failure to make a premium filing. The minimum total penalty is $25.

22 Small Business Guide
Penalty waivers

In general, PBGC may waive all or part of a penalty upon a demonstration

of reasonable cause. PBGC will evaluate each request for a waiver to determine

whether the responsible person exercised ordinary business care and prudence

and the violation resulted from circumstances beyond that person’s control.

a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a

Applicable Laws and Regulations

PBGC Penalties — See ERISA §§ 4007 and 4071 (29 USC §§ 1307 and 1371), 29 CFR Parts 4007

and 4071, and PBGC’s Federal Register policy statements at 60 FR 36837 (July 18, 1995), 61

FR 63874 (December 2, 1996), and 61 FR 66338 (December 17, 1996).

VII. Penalties That May Be Assessed (continued)

Small Business Guide 23
VIII. The Law and Pertinent Regulations

ERISA — ERISA’s United States Code citation is 29 USC 1001 et seq. See also

Title 26 of the U.S. Code for tax provisions and 26 Code of Federal

Regulations for applicable Department of Treasury regulations, 29 CFR

Chapter XXV (Parts 2509-2590) for the regulations of the Pension and

Welfare Benefits Administration of the Department of Labor, and 29 CFR

Chapter XL (Parts 4000-4907) for Pension Benefit Guaranty Corporation

regulations.

Pension Insurance Program (Title IV of ERISA) — See ERISA §§ 4001 et

seq. (29 USC §§ 1301 et seq.) and 29 CFR Parts 4000 to 4907.

Plans Covered by PBGC — See ERISA § 4021 (29 USC § 1321).

Benefits Guaranteed by PBGC — See ERISA § 4022 (29 USC § 1322) and 29

CFR Part 4022.

PBGC Premiums — See ERISA §§ 4006 and 4007 (29 USC §§ 1306 and 1307),

29 CFR Parts 4006 and 4007, and PBGC’s Annual Premium Payment and

Estimated Premium Payment Packages (which include the relevant forms

and instructions).

Participant Notice Requirements — See ERISA § 4011 (29 USC § 1311) and

29 CFR Part 4011.

Form 5500/Annual Reporting Requirements — See the U.S. Department of

Labor’s regulation at 29 CFR Part 2520 and the instruction package for the

Form 5500 for information on the annual information report and other

annual reporting obligations.

Reportable Events — See ERISA § 4043 (29 USC § 1343), 29 CFR Part 4043,

and PBGC’s Form 10.

Standard Termination — See ERISA § 4041 (29 USC § 1341), 29 CFR Part

4041, and PBGC’s Form 500 booklet.

24 Small Business Guide
Distress Termination — See ERISA § 4041 (29 USC § 1341), 29 CFR Part

4041, and PBGC’s Form 600 booklet.

Missing Participants Program — See ERISA § 4050 (29 USC § 1350), 29 CFR

Part 4050, and PBGC’s Missing Participants Filing Instructions booklet.

PBGC Penalties — See ERISA §§ 4007 and 4071 (29 USC §§ 1307 and 1371),

29 CFR Parts 4007 and 4071, and PBGC’s Federal Register policy

statements at 60 FR 36837 (July 18, 1995), 61 FR 63874 (December 2, 1996),

and 61 FR 66338 (December 17, 1996).

VIII. The Law and Pertinent Regulations (continued)

Small Business Guide 25
Notes

26 Small Business Guide
OTHER PUBLICATIONS OF INTEREST

The PBGC publication “A Predictable, Secure Pension

for Life: Defined Benefit Pensions” provides useful

information about how traditional defined benefit pension

plans operate and the rights and options of the workers

covered by them. A free copy of the publication is

available from the Consumer Information Center, Dept.

639E, Pueblo, CO 81009.

Another publication with questions and answers about

the single-employer insurance program is “Your

Guaranteed Pension.” A free copy of “Your Guaranteed

Pension” is available from the Consumer Information

Center, Dept. YGP, Pueblo, CO 81009.

Both of these PBGC publications are on PBGC’s

Internet website at http://www.pbgc.gov.
Pension Benefit Guaranty Corporation

1200 K Street, N.W.

Washington, DC 20005-4026

http://www.pbgc.gov

PBGC Publication 1008

October 1998