NACCO Industries, Inc. 


Mary D. Maloney 

Assistant General Counsel and Assistant Secretary 

May 31,2013 

VIA Electronic Submission (reg.comments@pbgc.gov) 

Regulatory Affairs Group 

Office of the General Counsel 

Pension Benefit Guaranty Corporation 

1200K Street, N.W. 

Washington, DC 20005-4026 

Re: PBGC Reportable Events- Comments on Proposed Regulations CRIN 1212-AB06) 

I am providing comments in connection with the notice of proposed rulemaking issued by 

the PBGC under 29 CFR Parts 4000,4001,4043,4204,4206 and 4231 (the "Reportable Event 

Regulations"). 

I appreciate the PBGC's attempt to clarify and simplify the reportable event reporting 

requirements. However, I urge the PBGC to take into consideration the additional clarifications 

and/or changes described below. 

Effect of Reportable Event Regulations on Loan Agreements: The preamble to the 

Reportable Event Regulations downplays the significance that PBGC reportable events have on 

loan covenants and defaults. NACCO Industries, Inc. is a publicly-traded holding company with 

28 domestic subsidiaries and 8 international subsidiaries/branches. Prior to September 28, 2012, 

when NACCO spun-off one of its major subsidiaries (Hyster-Yale Materials Handling, Inc.), 

NACCO had 4 additional domestic subsidiaries and 38 additional international 

subsidiaries/registered offices. The members of the NACCO and Hyster-Yale controlled groups 

are parties to six different credit agreements, as well as several private placement note purchase 

agreements containing various ERISA representations, negative covenants and default events 

relating to "ERISA Events." In all instances, an ERISA Event is defined to include a PBGC 

reportable event. In most cases, we are required to provide written notice to the lenders ofANY 

reportable event, even for those events for which the PBGC has waived the notice requirement. In 

all cases, the representations and warranties must be true and correct at each borrowing and there 

is a representation that no non-waived PBGC reportable event has occurred. With respect to 

events of default, under one agreement the existence of a non-waived PBGC reportable event will 

result in an immediate default if any plan is less than 60% funded. 1agree that, in most other 

cases, a non-waived PBGC reportable event will not result in an automatic default, but it is up to 

the creditor (not to the sponsor) to determine whether the reportable event results in a "material 

adverse effect." These provisions require negotiations with lenders that cost plan sponsors time 

and money, especially in large, complicated controlled group situations, where an action taken by 

a distant sister corporation results in a non-waived reportable event that has to be reported to all 

creditors. I estimate that I annually spend between 5%-10% ofmy time monitoring and revising 

corporate events to avoid PBGC reportable events, which time could be better spent on other 

matters. As a result, it is imperative that the PBGC limit the non-waived reportable events to 

those that truly present a risk to the PBGC. 
Pension Benefit Guaranty Corporation 

May 31,2013 

Page2 

Company Financial Soundness Safe Harbor: Under the proposed regulations, a notice of 

various reportable events is waived by the PBGC if"for each contributing sponsor ofthe plan, 

either the sponsor or the sponsor's highest level controlled group parent that is a U.S. entity is 

financially sound when the event occurs." 

Please provide an example. Assume that parent company P has four 1 00% directly owned 

subsidiaries, Sub A (who is the sponsor of Plan A that covers only the employees of Sub A); Sub 

B (who does not sponsor or participate in any pension plan); Sub C (who is the sponsor of Plan C 

that covers employees of Sub C and Sub D); and Sub D (who is a participating employer under 

Plan C). 

• 	 If Parent Company P is "financially sound" (as defined in the Reportable Event 

Regulations), but Subs A, B, C and Dare not "financially sound," does the waiver 

apply to a reportable event incurred by Plan A or Plan C (for those reportable events 

which contain a company financial soundness waiver)? 

• 	 If Parent Company Pis not "financially sound" and Sub A is "financially sound" and 

a reportable event occurs with respect to Plan A, does the waiver apply (assuming the 

reportable event contains a company financial soundness waiver)? 

• 	 If Parent Company P, Sub A, Sub Band Sub Dare not "financially sound" and Sub 

Cis "financially sound" and a reportable event occurs with respect to Plan C, does 

the waiver apply (assuming the reportable event contains a company financial 

soundness waiver)? 

Plan-based Financial Soundness Safe Harbor: Under the proposed regulations, a notice 

of various reportable events is waived by the PBGC if(1) the plan is 100% funded on a PBGC 

termination basis or (2) the plan is 120% funded on a PBGC premium basis. While I appreciate 

the PBGC providing a more commonly used method of determining a plan's funding status (since 

few plans will pay actuaries to run a funding calculation on a plan termination basis), requiring a 

funding level of 120% is unrealistic and will likely result in many additional unnecessary 

reportable event filings. As the PBGC is well aware, many pension plans are frozen. Ifthey were 

120% funded, the plans would be terminated and the benefits annuitized. Allowing a waiver if a 

plan is 80% or 90% funded on a PBGC premium basis provides adequate protection for the 

PBGC. 

Active Participant Reduction: As stated above, the PBGC should only require reporting of 

a reportable event when the event poses a risk to the PBGC. Has the PBGC ever taken action with 

respect to a reportable event that was based SOLELY on a reduction in the number of active 

participants that was not accompanied by another reportable event? It is unclear why a reduction 

in the number of plan participants alone puts the PBGC in jeopardy. Especially now that the 

majority of pension plans are frozen to new entrants so, by definition, the number of active 

participants will decrease. While the PBGC understandably should be concerned about the 

reduction in the number of active participants when the reduction is initiated by an act ofthe plan 

sponsor such as a sale of a division or a plant shut down, the following additional waivers should 

apply: 

5875 Landerbrook Drive • Cleveland, Ohio 44124-4017 • Telephone 440/449-9661 • Fax 440/449-9561 • 

mma1oney@naccoind.com 
Pension Benefit Guaranty Corporation 

May 31,2013 

Page2 

• 	 If all benefits under a plan are frozen, the reduction in the number of active 

participants should only require reporting if theJ eduction increases plan liabilities 

(such as triggering plant shut down benefits) or the reduction is caused by another 

transaction which is an unwaived reportable event (such as a change in a controlled 

group member). 

• 	 If a reduction in active participants is caused by a spin-off of a plan within the 

controlled group (which is not a reportable event), then the active participant 

reduction reportable event should be waived in all circumstances. There is zero risk 

to the PBGC in this situa~ion. All controlled group members remain liable for the 

benefits under all plans before and after the plan spin-off. (The PBGC acknowledges 

this in similar circumstances in the proposed regulations by eliminating the 

reportable event requirement when one controlled group member is merged into 

another controlled group member.) There are many reasons for such spin-offs 

including (i) using different investment strategies for different types of participants; 

(ii) separating union and non-union plans and (iii) better tracking of pension costs for 

certain subsidiaries or projects. 

• 	 Please provide an example ofhow to calculate the reduction in active participants 

where the plans have undergone a previous reportable event. For example, Parent 

Company sponsors Plan P that covers 8,000 employees of Sub A and 2,000 

employees of Sub B. In year 1, Parent Company sells Sub A to Company X and 

transfers the assets and liabilities of Plan P that cover the Sub A employees outside 

the controlled group to Plan X. Parent Company made a reportable event filing with 

respect to Plan P in year 1. How does the active participant reduction test apply to 

Plan P in year 2 and 3? 

• 	 If the PBGC does not reduce the plan funding level for the plan-based financial safeharbor below the 120% PBGC premium level, a different funding level (80%) should 

be adopted for this reportable event in all circumstances. 

Loan Defaults: The PBGC is proposing to expand the loan default reportable event to 

include "any amendment or waiver by a lender of any loan agreement covenant for the purpose of 

avoiding a default." The wording of the proposed expansion is entirely too broad, especially for 

public companies and could raise S.E.C. disclosure issues. If a plan sponsor filed this type of 

reportable event filing, is it agreeing that it is close to default? Who decides when a waiver or 

amendment is "for the purpose of avoiding a default?" There may be many reasons to seek a 

change to a credit agreement. This proposal would require the PBGC to determine a plan 

sponsor's intent behind a waiver or amendment. 

At the very least, the proposal should be modified only to require the reporting of an 

amendment or waiver to a "material financial covenant," not all covenants. Our credit agreements 

contain many non-financial covenants (such as compliance with ERISA and similar laws) and 

different agreements have different non-financial covenants. A plan sponsor may need to 

negotiate a change with one creditor but this does not force the sponsor to reveal that fact to all 

creditors. The filing ofthis type of a reportable event, which would then have to be disclosed to 

5875 Landerbrook Drive • Cleveland, Ohio 44124-4017 • Telephone 440/449-9661 • Fax 440/449-9561 • 

rnrnaloney@naccoind.com 
Pension Benefit Guaranty Corporation 

May 31,2013 

Page2 

all creditors in the controlled group as a non-waived PBGC "ERISA Event," could trigger defaults 

(or, at the very least discussions and renegotiations) that otherwise may not occur, especially if the 

particular covenant was not material in the first place. 

Waiver for De Minimis Segments: The reporting requirement for several reportable events 

is waived ifthe member involved is de minimums. One portion ofthe test looks to the "net 

tangible assets" of the entity(ies) involved. Net tangible assets are defined in PBGC Reg. Section 

4204.2 as: "tangible assets (assets other than licenses, patents, copyrights, trade names, 

trademarks, good will, experimental or organizational expenses, unamoratized debt discounts and 

expenses and all other assets which, under generally accepted accounting principles, are deemed 

intangible), less liabilities (other than pension liabilities). Encumbered assets shall be excluded 

from net tangible assets only to the extent of the amount of the encumbrance." Please clarify 

whether an investment in a subsidiary is included in tangible assets. The GAAP definition of 

"intangibles" under SF AS 141 and 142 is specific to acquired intangibles and does not include 

investments in subsidiaries. However, under Reg. S-X, an investment in a subsidiary is appropriately 

included in tangible assets as other non-current assets for S.E.C. reporting purposes. The issue arises in 

the context of a liquidation of a shell company whose only asset is the stock of a lower-tier subsidiary. 

Under the proposed regulations, there is no longer any funding waiver and whether or not the entity is "de 

minimis" will depend on whether the net tangible asset test includes or excludes the investment in the 

subsidiary. 

I appreciate the opportunity to comment on the Reportable Event Regulations. Please feel 

free to contact me at 440/449-9661 if you have any questions about my comments. 

Mary 

~~ D. Maloney 

5875 Landerbrook Drive • Cleveland, Ohio 44124-4017 • Telephone 440/449-9661 • Fax 440/449-9561 • 

nunaloney@naccoind.com 
 

 

 

 

 

 

 

 

 

 

June 3, 2013 

Regulatory Affairs Group 

Office of the General Counsel 

Pension Benefit Guaranty Corporation 

1200 K Street, NW 

Washington, DC 20005-4026 

Re: Regulation Identifier Number (RIN) 1212-AB06 

To Whom It May Concern: 

The American Academy of Actuaries1 Pension Committee is pleased to present the 

following comments to the Pension Benefit Guaranty Corporation (PBGC) regarding 

recent proposed regulations on Reportable Events under ERISA Section 4043. The 

committee believes PBGC’s revamped proposal eliminates many concerns within the 

pension benefit community about the 2009 proposed regulations. The previous proposal 

would have eliminated many existing waivers for certain events. The committee 

commented at the time on the need to avoid unnecessarily increasing the administrative 

burden on defined benefit plans. Regarding the current proposal, the committee applauds 

PBGC on its common sense, risk-based approach to reporting, and supports its goal of 

reducing reporting for events that pose little risk to the pension insurance system. 

PBGC has asked for public comment on the proposed rule. The committee has several 

suggestions, which we respectfully submit for consideration. While PBGC specifically 

asked for comments related to the appropriateness of the criteria for plan sponsor 

financial soundness, we are not commenting on those areas as they are outside of the 

scope of our actuarial expertise. 

Combinations of plan sponsor and plan financial soundness 

Although the committee is not commenting upon the criteria for the plan sponsor 

financial soundness safe harbor, we would like to see a proper balance between company 

soundness and plan soundness. A sponsor that only marginally falls short of both the 

company and plan financial soundness criteria might pose little risk to PBGC. Perhaps 

various combinations of a plan sponsor’s creditworthiness and a plan’s funded status 

could be made available to satisfy the financial soundness waiver. 

1 The American Academy of Actuaries is a 17,000-member professional association whose mission is to serve the 

public and the U.S. actuarial profession. The Academy assists public policymakers on all levels by providing 

leadership, objective expertise, and actuarial advice on risk and financial security issues. The Academy also sets 

qualification, practice, and professionalism standards for actuaries in the United States. 

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Thresholds for plan financial soundness 

Under the proposed regulations, in order for a plan to be considered financially sound, it 

must be 100% funded on a termination liability basis or 120% funded on a premium 

liability basis. PBGC views a plan below those funding levels with a reportable event as 

posing a risk. Although it is true that PBGC's risk generally increases as funding levels 

decrease, we believe the proposed thresholds are too high. Very few sponsors would fund 

to these levels because if the plan sponsor later opted to undergo a standard termination – 

with no cost to PBGC – any surplus could only be retrieved after paying an onerous 

excise tax. The proposal would subject to reporting many plans that have higher than 

average funding levels and as such pose low risk to PBGC. Thus, in the spirit of 

balancing regulatory benefits with burdens on the public per Executive Order 13563, we 

urge PBGC to consider reducing the proposed thresholds. 

Waivers that require information as of the last day of the prior year 

The following waivers in the proposed regulations are based on information that may not 

be available for reportable events that occur during the early part of a plan year. 

•	 Plan sponsor financial soundness – In order to qualify for this waiver, the plan 

sponsor (or the sponsor’s highest level controlled group parent that is a US 

entity) must have positive net income for the two most recent fiscal years. 

•	 Plan financial soundness – A plan can qualify for this waiver if the plan had 

no unfunded plan termination liabilities as of the last day of the prior plan 

year. 

To allow the plan sponsor to determine whether the waivers apply, the waivers should be 

modified to allow determination of the information as of a prior date. For example, in 

assessing plan sponsor financial soundness, instead of testing net income for the two most 

recent fiscal years, net income might be tested for the two most recent fiscal years for 

which net income has been determined. Similarly, in assessing plan financial soundness, 

the plan sponsor might be permitted to determine the unfunded plan termination liabilities 

as of a date earlier than the end of the prior year, such as up to three months prior to the 

end of the prior year. 

Plan financial soundness based on premium liability for the current plan year 

The new waivers will permit many plan sponsors to avoid unnecessary reporting based 

on information already available to them at the start of the event year. But the plan’s 

status may be based on information that is well over a year old, particularly for events 

occurring late in a plan year. For instance, a plan experiencing a reportable event in 

November, 2013 will determine its eligibility for the waiver based on its 2012 variable 

rate premium filing – which is based on assets and liabilities as of January 1, 2012. 

We suggest that the plan financial soundness waiver be expanded to also cover plans that 

could meet the test based on current year premium information, if available, by the event 

date. This option can be made available regardless of whether the current year’s PBGC 

premium has been filed (similar to termination liability, which need not be based on any 

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filing), as long as the assets do not reflect any contributions past the date of the reportable 

event. 

Failure to make timely funding balance elections 

The proposed regulations maintain the existing waiver for missed minimum funding 

requirements that are corrected within 30 days of the payment due date, and expand the 

small plan waivers that had previously been provided in technical updates. We suggest 

that an additional waiver be provided for contributions that are considered to be late 

solely because of the plan sponsor’s failure to timely make a funding balance election. 

Under PPA, a plan sponsor needs to notify the enrolled actuary and plan administrator in 

writing of an election to apply the funding balance to minimum funding requirements. If 

the election is not made by the contribution due date, the IRS deems it to be a late 

contribution. As such, a late funding balance use election is subject to reporting under 

§4043.25 relating to missed contributions (and possibly under §4043.81 relating to 

missed contributions with outstanding amounts exceeding $1 million, as well). 

Failure to make a required cash contribution may indicate that the sponsor is suffering 

financial difficulty. But PBGC has nonetheless waived reporting if the contribution is 

made within 30 days; in such cases, the late payment was likely due to administrative 

oversight. PBGC has noted in the preamble to the proposed regulations that it is 

persuaded “that missed contributions that are made up within 30 days do not generally 

pose excessive risk to the pension insurance system.” The preamble also notes that IRS 

Form 5500 filings and PBGC Form 200 both provide other, independent sources of 

reporting for late contributions. 

Similarly, a failure to make a contribution solely due to a late funding balance election 

should pose no risk to the PBGC or plan participants. The money to cover the minimum 

required contribution is already in the plan – it just has not been subtracted from the 

funding balance. In substance, this is simply a bookkeeping entry that has not yet been 

made. On its own, it does not signal a plan sponsor’s financial distress nor a plan’s 

imminent termination. As such, reporting of such an event should provide no value to 

PBGC. 

Since there is no benefit to PBGC for requiring reporting in these cases, and the 

information will in any event be available through other means, we urge the PBGC to 

explicitly waive reporting for late funding balance elections, even for large plans and 

even if not corrected within 30 days. However, the waiver should only apply as long as 

the missed contribution is still correctable with a current funding balance election. 

Failure to make required contributions 

When a plan sponsor’s unpaid balance of contributions to a plan (including interest) 

exceeds $1,000,000, the statute requires notification to PBGC within ten days following 

the due date of the unpaid contribution. We are not aware of any provision for the PBGC 

to waive this notification requirement. However, while missing contributions may signal 

financial strain on a plan sponsor, there may be circumstances where the due date was 

1850 M Street NW Suite 300 Washington, DC 20036 Telephone 202 223 8196 Facsimile 202 872 1948 www.actuary.org 

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missed due to simple administrative error, or situations beyond the plan sponsor’s control 

(such as an error by the bank). To reduce onerous filings when there is no real risk to 

PBGC, we suggest that PBGC allow a simplified Form 200 filing under limited 

circumstances – such as when the missed contribution has been made by the due date of 

the Form 200 filing. This simplified Form 200 filing could also be limited to plan 

sponsors who have not missed any other contributions within a certain period of time. Of 

course, PBGC retains the right to ask for additional information if warranted. 

Multiple active participant reductions 

Current regulations sometimes require multiple reports to PBGC when active participant 

reductions occur in close succession. The 2009 proposed regulations provided a waiver if 

an active participant reduction had been reported in the previous year. In the preamble to 

that proposal, PBGC acknowledged that additional reporting was unnecessary because 

monitoring continues for an extended period after a report is filed. The 2013 proposed 

regulations eliminate that waiver because the new rules supposedly make it unnecessary. 

However, we believe the waiver for multiple reports should be reinstated because: 

•	 Q&A 12 of the 2006 Blue Book posits a situation where the active participant 

count is reduced from 100 in one year to 50 the next, and remains at 50. The 

Q&A confirms that two separate reportable events have occurred – the first 

when the active count was reduced from 100 to 50 (more than a 20% 

reduction over one year), and the second one a year later (more than a 25% 

reduction over two years). We believe there should be a specific exemption in 

the newly proposed regulations that would preclude the need for multiple 

reports in this case. 

•	 The new proposal includes three types of events: a single-cause event, a shortperiod event, and an attrition event. It is possible that two or more different 

types of events could occur in a year and require multiple reports. Here too a 

waiver might be appropriate because PBGC monitoring continues for an 

extended period after a report is filed. We also note that under the regulations 

as currently drafted, a reduction that requires a report as a single-cause event 

or a short-period event could require a second report as an attrition event; this 

duplicative reporting does not seem to provide any useful information to 

PBGC. At a minimum, we recommend the regulations clarify that in 

determining whether a second report is required, any reductions already 

reported should be disregarded. 

As an alternative to reinstating the 2009 proposed waiver, PBGC could clarify how 

multiple events are to be handled. 

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The Pension Committee appreciates the opportunity to comment on these proposed 

regulations and would be happy to discuss any of these items with you at your 

convenience. Please contact David Goldfarb, the Academy’s pension policy analyst (202­

785-7868, goldfarb@actuary.org) if you have any questions or would like to discuss 

these items further. 

Sincerely, 

Michael F. Pollack, FSA, MAAA, EA, FCA 

Chairperson, Pension Committee 

American Academy of Actuaries 

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Comments on Proposed Rule Relating to 

Reportable Events and Certain Other Notification 

Requirements
 

June 3, 2013
 

Pension Benefit Guaranty Corporation
 

29 CFR Parts 4000, 4001, 4043, 4204, 4206 and 4231
 

[RIN 1212-AB06]
 

The American Society of Pension Professionals & Actuaries (“ASPPA”) and the ASPPA College 

of Pension Actuaries (“ACOPA”) appreciate this opportunity to comment on the proposed rule 

relating to Reportable Events and Certain Other Notification Requirements issued by the Pension 

Benefit Guaranty Corporation on April 3, 2013 [RIN 1212-AB06]. 

ASPPA is a national organization of more than 14,000 retirement plan professionals who provide 

consulting, administrative and investment advisory services for qualified retirement plans 

covering millions of American workers. ASPPA members are retirement professionals of all 

disciplines including consultants, administrators, actuaries, accountants, attorneys and 

investment professionals. ASPPA is particularly focused on the issues faced by small- to 

medium-sized employers. ASPPA’s membership is diverse but united by a common dedication 

to the employer-based retirement plan system. All credentialed actuarial members of ASPPA are 

members of ACOPA, which has primary responsibility for the content of comment letters that 

involve actuarial issues. 

ASPPA COPA commends PBGC for the proposed rule’s focus on companies and plans that pose 

substantial risk to PBGC, and applauds the inclusion of the small plan waivers as a means of 

concentrating on the more challenging underfunded plans. However, small businesses were not 

provided with an exemption from the requirement to report distributions to substantial owners in 

excess of $10,000 in the past year. ASPPA COPA recommends that the exclusion for reporting 

payments to substantial owners be expanded to include any payments made to comply with the 

minimum required distribution rules of IRC 401(a)(9). Not only are these distributions required 

for the necessary and normal operation of a plan, but failure to make such payments would also 

be a reportable event. 

ASPPA COPA is also concerned about the credit report requirement for the financially sound 

sponsor safe harbor. The discussion of how the requirement could be met for small employers 

that are not currently rated says "For a sponsor not currently the subject of credit reporting, 

PBGC believes it would entail minimal effort and expense to have a CCRC that is commonly 

used in the business community begin issuing such reports on the sponsor." If PBGC has 

gathered information on the effort and expense that would be required, that information should 
 

 

 

 

be disclosed. We are concerned that the effort and cost will not be minimal. Although sponsors 

that meet the small plan exception will not be concerned about the financially sound sponsor 

exception in this rule, once an approach is ensconced in a final rule it may find its way into 

others, so the requirement should be fully fleshed out, or an exception provided. 

These comments were prepared by ASPPA’s Defined Benefit Subcommittee of the Government 

Affairs Committee and the ASPPA College of Pension Actuaries. Please contact Judy A. Miller, 

MSPA, ACOPA Executive Director, at (703) 516-9300 if you have any comments or questions 

on the matters discussed above. 

Thank you for your time and consideration. 

Sincerely, 

/s/ /s/ 

Brian H. Graff, Esq., APM Judy A. Miller, MSPA 

Executive Director/CEO ACOPA Executive Director 

/s/ /s/ 

Craig P. Hoffman, Esq., APM John R. Markley, FSPA, Co-Chair 

General Counsel Gov’t Affairs Committee 

/s/ /s/ 

Ilene H. Ferenczy, Esq., APM, Co-Chair Robert M. Kaplan, CPC, QPA, Co-Chair 

Gov’t Affairs Committee Gov’t Affairs Committee 

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June 3, 2013 

Ms. Catherine B. Klion 

Assistant General Counsel 

Regulatory Affairs Group 

Office of the General Counsel 

Pension Benefit Guaranty Corporation 

1200 K Street, NW 

Washington, DC 20005 

Re: Reportable Events and Certain Other Notification Requirements (RIN 1212-AB06) 

Dear Ms. Klion: 

The Committee on Investment of Employee Benefit Assets (CIEBA) appreciates this opportunity 

to provide comments to the Pension Benefit Guaranty Corporation (PBGC) regarding the 

recently released notice of proposed rulemaking and request for comments concerning reportable 

events and certain other notification requirements. 

CIEBA represents more than 100 of the country's largest pension funds. Its members manage 

more than $1.5 trillion of defined benefit and defined contribution plan assets on behalf of 17 

million plan participants and beneficiaries. CIEBA members are the senior corporate financial 

officers who individually manage and administer Employee Retirement Income Security 

Act (ERISA) - governed corporate retirement plan assets. 

Overall Comments on Proposed Changes 

As voluntary sponsors of large defined benefit plans, CIEBA members have a strong 

commitment to the long-term health and viability of the defined benefit pension system and of 

PBGC. PBGC believes that this proposal “is designed to reduce the burden dramatically on 

financially sound plans and sponsors (which present a low degree of risk).” Embedded in the 

PBGC’s proposal is an emphasis on the financial soundness of plan sponsors as criteria to 

impose additional reporting burdens and costs on plan sponsors. We strongly believe that the 

current regulatory regime, which focuses on the funded status of a plan as criteria for additional 

reporting requirements, is better suited to protecting plans and their beneficiaries. Rather than 

providing additional security to plan participants, the use of the financial soundness of a plan 

sponsor as criteria to add additional regulatory burdens on them will actually discourage 

employers from maintaining ongoing defined benefit plans and will further promote the trend of 

companies freezing or terminating their defined benefit plans. 
 

 

 

 

 

 

 

 

 

 

 

 

Dun and Bradstreet 

When it was debating the Pension Protecting Act of 2006, Congress explicitly considered and 

rejected the use of credit ratings as a basis for the new, at-risk funding requirements. Rather than 

focusing on measures of a plan sponsor’s financial soundness such as credit ratings, Congress 

chose to base the new at-risk funding rules on a plan’s funded status. Accordingly, we believe 

that other alternative measures of a plan sponsor’s financial soundness, such as Dun & 

Bradstreet,1 should be similarly rejected in favor of focusing on a plan’s funded status. 

Funded Status 

CIEBA also believes that the PBGC should focus on a plan’s current funded status instead a 

plan’s termination funded status. PBGC proposes a safe harbor for plans that are 100 percent 

funded on a termination basis. Plans, however, typically do not calculate funding on a 

termination basis. We strongly oppose measurements based on the PBGC’s definition of 

termination liability. For numerous reasons, we question whether the PBGC’s definition is an 

accurate measurement of termination liabilities. Moreover, even if it were accurate, it is not an 

appropriate measurement of liability for any purpose for an ongoing plan. This is clearly 

evidenced by the fact that Congress has never based a funding-related test applicable to ongoing 

plans on the PBGC’s definition of termination liability. To do so here would be inconsistent with 

Congressional intent, as manifested consistently over many years. 

PBGC also proposes a safe harbor for plans that are 120 percent funded on a premium basis 

while eliminating all existing waivers, such as the waiver for plans that are at least 80 percent 

funded. CIEBA believes that the proposed funded threshold is far too high and is set at a level 

that virtually no plans would meet today. Moreover, this unrealistic standard would have 

immediate and adverse effects on companies that have maintained strong plans in the face of 

historically low interest rates. Employee benefit plan investors are routinely required to sign 

contracts (e.g. swaps and future agreements) with certain representations, including that the plan 

is a tax-qualified plan, that it has not received a notice of termination from PBGC, and that no 

reportable event has occurred where reporting has not been waived by PBGC. Eliminating the 

automatic waiver for plans that are 80 percent funded could cause an unintended and 

unwarranted adverse impact on strong plans that sign these types of contracts when engaging in 

financial transactions. 

1 Dun & Bradstreet scores are a measure of a company’s ability to pay its bills on time. The score reflects a short-term point of 

view. Many companies have found that their D&B scores are often wrong and are hard to correct. D&B simply reports 

information from a variety of sources. It does no due diligence or independent analysis of its own. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alternative Proposal – Exemption for Publicly Traded Companies 

Since 2000, PBGC has recorded a number of extraordinarily large claims. The largest of these 

claims were from plans in two distressed industries – airline and steel. PBGC was well aware of 

the weak funding rules that permitted these plans to become massively underfunded. 

In fact, the current system of using plan funding levels as a proxy for risk to the insurance 

program is working well. Approximately two-thirds of all claims are from plans that are less 

than 50 percent funded – and only 1.5 percent of the claims come from plans that are at least 75 

percent funded. Companies already report annually on the funded status of their plans, and 

PBGC monitors changes in those funding levels. 

Currently only 580 plans - 2 percent of total PBGC-insured single-employer plans – account for 

about 68 percent of all insured participants. These plans are sponsored by publicly held 

companies that regularly report to the Securities and Exchange Commission (SEC). In their SEC 

filings, these companies disclose the significant negative impact of current market conditions on 

their pension plan asset values, the possibility of increased pension expenses, and the need for 

additional contributions. 

Rather than a complicated system of safe harbors, CIEBA proposes that publicly traded 

companies be exempt from the reportable events requirements. The Administration has issued 

executive orders that direct agencies to assess the costs and benefits of available regulatory 

alternatives and to select regulatory approaches that avoid duplicative reporting. Because 

publicly traded companies already report significant events on their SEC filings and because 

these filings are already publicly available, there is no reason for plan sponsors to provide 

duplicative filings to PBGC. As they do currently under their early warning program, when 

situations warrant further review, PBGC can contact companies for additional information. 

Conclusion 

CIEBA commends the PBGC’s attempt to target reporting requirements on the sponsors and 

transactions that present the most risk to the insurance system. However, we believe that these 

proposed rules will not make plan sponsors “less likely to eliminate their defined benefit plans 

and thereby have a beneficial effect on retirement security generally.” These new reporting 

requirements are duplicative of the reporting that plan sponsors make to the SEC and the 

proposed safe harbors do not appropriately balance the benefits to the insurance program against 

the costs to plan sponsors and the PBGC. New, burdensome reporting requirements on plan 

sponsors will only serve to enhance the trend of plan terminations, resulting in fewer plans to pay 

premiums to PBGC and leaving only the riskiest plans in the system. 

Thank you for your consideration of our views. 

Sincerely, 

The Committee on Investment of Employee Benefit Assets 
 

 

 

 

 

 

 

 

 

 

 

 

June 3, 2013 

Pension Benefit Guaranty Corporation 

1200 K St NW 

Washington, DC 20005-4026 

RE: RIN 1212-AB06: Reportable Events and Certain Other Notification Requirements 

To Whom It May Concern: 

On behalf of the U.S. Chamber of Commerce, we submit this letter to the Pension Benefit 

Guaranty Corporation (PBGC) in response to a call for comments on the re-issued proposed rule to 

conform the reportable event regulations under section 4043 of ERISA and a number of other 

regulations due to statutory changes made by the Pension Protection Act of 2006 (PPA).1 

The U.S. Chamber of Commerce is the world's largest business federation, representing 

more than three million businesses and organizations of every size, sector, and region. Besides 

representing a cross-section of the American business community in terms of number of employees, 

the Chamber represents a wide management spectrum by type of business and location. Each major 

classification of American business -- manufacturing, retailing, services, construction, wholesaling, 

and finance – is represented. Also, the Chamber has substantial membership in all 50 states. 

Positions on national issues are developed by a cross-section of Chamber members serving on 

committees, subcommittees, and task forces. More than 1,000 business people participate in this 

process. 

We applaud the PBGC for recognizing the burdens that the original proposal imposed. 

While we have certain concerns that are detailed below, the newly proposed rule is a clear 

improvement and demonstrates that the PBGC seriously considered the comments that were 

submitted and re-examined the issues raised in the comments. 

Introduction 

In 2009, the PBGC issued a proposed rule (2009 Proposal) that would have increased 

reporting requirements by eliminating most reporting waivers.2 The Chamber, along with many 

1 78 FR 20039, April 3, 2013. 

2 74 FR 61248, November 23, 2009. 

1
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

others in the retirement community, objected to these changes as being unduly burdensome on plan 

sponsors without providing a corresponding benefit to the PBGC.3 

In January of 2011, the President issued Executive Order 13563 on Improving Regulation 

and Regulatory Review which required agencies to “consider how best to promote retrospective 

analys[es] of rules that may be outmoded, ineffective, insufficient, or excessively burdensome, and 

to modify, streamline, expand, or repeal them in accordance with what has been learned.” 

Subsequently, the PBGC issued a request for comments on how the agency could comply with the 

executive order.4 The Chamber responded by highlighting a number of issues that we believed fell 

within the scope of the executive order, including the 2009 Proposal on reportable events.5 

In August of 2011, the PBGC issued its Plan for Regulatory Review stating that it would repropose the 2009 Proposal with an emphasis toward reducing the unnecessary burdens on 

employers and plans.6 We are pleased to see that the PBGC has followed through on this statement 

by issuing re-proposed rules in substantially revised form on April 3, 2013. In addition, we support 

the determination of the PBGC to hold a public hearing on June 18 to give interested parties further 

opportunity to weigh in on these issues. 

Comments 

The Chamber Applauds the PBGC for Revising its Proposal and Allowing for Further Input. 

A major concern raised by the Chamber to the 2009 Proposal was that the PBGC was suggesting 

unilateral changes without sufficient explanation or opportunity for discussion or feedback. The 

changes in the proposal were so significant that we felt it was important that there be a meaningful 

opportunity for interested parties to be part of the rule-making process. By withdrawing the 

previous proposal, offering another proposal for comment, and initiating a public hearing, the 

PBGC has made a substantial effort to ensure that interested parties have a meaningful opportunity 

to participate in the decisions to make changes to the current rules. 

The Chamber Remains Concerned about the Use of Credit Scores or Credit Ratings. The 

proposed rule creates a new safe harbor that would apply if, when a reportable event occurred for a 

plan, the applicable financial soundness criteria were met by the plan sponsor. PBGC proposes to 

use, as one of the five criteria of financial soundness for a company, credit scores reported by 

commercial credit reporting companies (e.g., Dun & Bradstreet). To satisfy the criterion for the 

3 On January 22, 2010, the Chamber submitted comments to the PBGC on the 2009 Proposal. The Chamber’s

comments focused on the need for balance between enhanced oversight by the PBGC and the potential burdens on 

employers. The proposal eliminated most of the automatic waivers and extensions that currently exist. Therefore, the 

Chamber urged the PBGC to reconsider the proposal and allow the retention of waivers and extensions. In addition, the 

Chamber urged the PBGC to enter into negotiated rulemaking which would allow all interested parties an opportunity to 

contribute to the proposed changes. 

4 76 FR 18134, April 1, 2011. 

5 On April 20, 2011, the Chamber submitted a letter to the PBGC in response to a request for comments on PBGC 

regulations pursuant to Executive Order 13563. Our letter highlighted concerns about the intended changes and stressed 

the administrative resources that plan sponsors would have to expend. 

6 2011 PBGC Plan for Regulatory Review at http://www.pbgc.gov/documents/plan-for-regulatory-review.pdf. 

2
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

financial soundness safe harbor, the credit score of a plan sponsor would have to reflect a credit 

score indicating a low likelihood that the company would default on its obligations.7 

The Chamber has consistently opposed the use of credit ratings in the retirement plan context. The 

use of credit ratings was initially raised during negotiations over the Pension Protection Act of 2006 

(PPA). In that context, credit ratings were suggested to be part of the funding requirements. The 

Chamber, along with others in the business community, earnestly opposed this provision and it was 

not included in the PPA. 

Subsequently, the PBGC has argued in favor of basing the risk-based premium on the credit 

worthiness of the plan sponsor.8 As such, the PBGC has recommended using credit scores/ratings 

to determine credit worthiness. In this context, the Chamber has also opposed the use of credit 

ratings. We have argued that a creditworthiness test would inevitably result in the PBGC becoming 

an entity that makes formal pronouncements about the financial status of American businesses. This 

role is inappropriate for a government agency. Leaving aside the question of whether the PBGC 

can establish accurate mechanisms for measuring and adjusting an employer's credit risk across 

industries and across the country, even modest year-to-year changes in those government credit 

ratings could have implications well beyond PBGC premiums, potentially affecting stock prices or 

the company's access to other credit sources. 

Understanding that the proposal here is somewhat different from previous recommendations, we, 

nonetheless, remain concerned about allowing credit scores to be used in any part of the funding or 

premium determination process. Even with the use proposed here, we believe that there can be the 

unintended consequence of the government sanctioning private crediting agencies. Consequently, 

we urge caution in moving down this path. Therefore, we suggest that the agency consider other 

alternatives for determining financial soundness. For example, the PBGC might consider basing the 

safe harbor on information found in plan audits. All plans covered by the PBGC are subject to these 

audits so there would be no additional burden on plan sponsors to determine this information.9 

The Use of Credit Scores – or Similar Information – Should be Strictly Voluntary. While we 

appreciate the inclusion of a new safe harbor that could possibly alleviate administrative burdens for 

certain plan sponsors, we must stress that the safe harbor should remain voluntary and that none of 

the information detailed in the safe harbor should be required to be provided by any plan sponsor. 

As such, credit scores – or any similar information – would not have to be provided to the PBGC 

(other than to prove compliance with the safe harbor). Moreover, we continue to oppose the use of 

credit scores or credit rating information in any other retirement plan context and insist that the use 

of them here does not set a precedent for their use elsewhere. 

The Safe Harbor Based on Plan Funding Should Maintain the Current Standard of 80% 

Funding. The proposed rule includes an alternative financial soundness safe harbor based on plan 

funding. This proposed safe harbor could be satisfied by one of two alternative tests: if the plan is 

7 78 FR 20061, Proposed Rule section 4043.9(b)(1). 

8 This proposal has been included in various Presidential budget proposals including, most recently, the President’s

Fiscal Year 2014 Budget, http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/labor.pdf. 9 Even though the audit relates to the plan, we believe it would still be helpful in conjunction with the other 

requirements for plan sponsors to determine the financial soundness of the company. 

3
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

fully funded on a termination basis on the last day of the plan year preceding the event year or the 

plan is 120 percent funded on a premium basis for the plan year preceding the event year.10 

The Chamber fully supports a safe harbor that is based on plan funding. As we have consistently 

maintained, the only time the PBGC is threatened with additional liability is when a plan is 

underfunded and thus, the funding of the plan should be the PBGC's primary focus. Nonetheless, 

we believe that the measures the PBGC has suggested for plan funding are too restrictive. 

The measure of termination liability is an unrealistic standard for plan sponsors. For one, plan 

sponsors do not regularly make this calculation. Thus, they would have to perform this calculation 

solely for the purpose of determining whether they satisfy the safe harbor. More importantly, plan 

sponsors do not generally fund for termination liability because they would be at risk of 

overfunding the plan, and being subject to an excise tax, if interest rates were to increase. 

Consequently, using termination liability as a standard for the safe harbor would not provide 

realistic relief for plan sponsors. 

While the use of funding based on a premium basis is more realistic, we do not agree with the 

percentage. The current rule provides several waivers where the plan is funded at 80 percent of the 

premium basis.11 As this is the current rule, we do not see any reason to move away from this 

standard – particularly, to an amount that exceeds 100 percent of funding. As such, we recommend 

that the safe harbor include an option that allows it to be satisfied if the plan is 80 percent funded on 

a premium basis. 

The Chamber is Concerned about the Removal of Certain Information from the Regulation to 

the Instruction Form. Currently, the contents of the reportable event notice are included in the 

regulation.12 However, the proposed rule removes this information and states that it can be found in 

the instructions to the reportable events form.13 We are concerned that removing this information 

from the regulation will limit the ability of interested parties to weigh in on any changes that are 

made to the information necessary to be submitted. 

There is a good reason executive agencies are not permitted to do through form revision what the 

agency is expected to do through APA rulemaking. Under the APA, the agency can complete the 

full analysis needed to ensure that it moves forward with what it views as mission critical work only 

after ensuring it understands the impact to the regulated community. Under the APA, the agency 

would have to provide (i) a detailed and specific explanation and justification for the changes, (ii) 

an analysis on the economic impact as well as the impact on small businesses, and (iii) an 

opportunity for meaningful feedback from the regulated community. Not only do these steps protect 

the interests of the regulated community but they ensure the agency produces the best possible 

regulation with the least amount of burden. As such, we are concerned that removing this 

10 78 FR 20061, Proposed Rule section 4043.3(c).
 11 See ERISA section 4043.23(c)(3)(ii); 4043.27(c)(2)(iii); 4043.29(c)(4)(ii); 4043.30(c)(4)(ii); 4043.31(c)(5)(iv); 

4043.34(c)(3)(iv).
 12 ERISA section 4043.3(b).
 13 78 FR 20061, Proposed Rule section 4043.3(b).
 

4
 
 

 

 

 

 

 

 

 

 

information to the instructions will impede the ability of interested parties to effectively weigh in on 

any future changes that are made to the contents of the reportable event notice.14 

The PBGC Should Maintain a Paper Filing Option. The PBGC currently encourages electronic 

filing and would like to make it mandatory.15 However, The PBGC does not have a web-based 

filing application for reportable events (as it does for section 4010 or premium filings) but proposes 

to allow e-mail filings. As you are aware, the Chamber fully supports electronic delivery for 

providing participant disclosures. However, we also support the use of paper delivery for plan 

sponsors that prefer it. Of particular concern is the burden on small plan sponsors who do not 

regularly use on-line communications. Therefore, we are concerned the PBGC is considering 

mandating electronic filing for reportable events without a paper filing option. 

Conclusion 

Again, we applaud the PBGC for withdrawing the 2009 Proposal and making meaningful 

changes based on input from interested parties. In order to promote a successful retirement system, 

the concerns of all interested parties must be taken into consideration and all efforts must be made 

to ensure that any negative impacts are minimized. The newly proposed rules make a significant 

step in this direction. 

We appreciate your consideration of these comments and are encouraged to continue 

working with the PBGC on this project toward a balanced result. 

Sincerely, 

Randel K. Johnson 

Senior Vice President 

Labor, Immigration & Employee Benefits 

U.S. Chamber of Commerce 

Aliya Wong 

Executive Director 

Retirement Policy 

U.S. Chamber of Commerce 

14 While the Paperwork Reduction Act provides the opportunity for certain overview and feedback, it does not include 

the same level of substantial review and opportunity for input as the APA.
 15 78 FR 20061, Proposed Rule section 4043.5.
 

5
 
 

 

 

 

 

 

 

 

 

 

The 

ERISA 

Industry 

Committee 

June 3, 2013 

Submitted electronically to regs.comments@pbgc.gov 

Regulatory Affairs Group 

Office of the General Counsel 

Pension Benefit Guaranty Corporation 

1200 K Street, N.W. 

Washington, DC 20005-4026 

RE:	 RIN 1212-AB06 (Reportable Events and Certain Other Notification 

Requirements) 

Ladies and Gentlemen: 

The ERISA Industry Committee (“ERIC”) is pleased to respond to the request of 

the Pension Benefit Guaranty Corporation (“PBGC”) for feedback on the proposed 

regulations regarding “Reportable Events and Certain Other Notification Requirements”

(the “proposed regulations”).1 

ERIC’S INTEREST IN RETIREMENT PLANS 

ERIC is a nonprofit association committed to the advancement of the employee 

retirement benefit plans of America’s largest employers. ERIC’s members provide 

comprehensive retirement benefits to tens of millions of active and retired workers and 

their families. ERIC has a strong interest in proposals that would affect its members’

ability to provide secure pension benefits in a cost-effective manner. 

SUMMARY OF COMMENTS 

ERIC appreciates the efforts of the PBGC in revising the proposed regulations on 

reportable events that were issued in 2009 (the “2009 proposed regulations”) and 

responding to the concerns of plan sponsors and pension practitioners.2 

ERIC understands that the PBGC believes that the current regulations should be 

revised.3 However, ERIC believes that the current regulations are appropriate and 

sufficient to protect the interests of the PBGC, and urges the PBGC not to replace these 

rules with the proposed regulations (or a modified version of the proposed regulations). 

ERIC therefore submits the following comments: 

1 Pension Benefit Guaranty Corporation, Reportable Events and Certain Other Notification Requirements, 

78 Fed. Reg. 20039 (Apr. 3, 2013).
 2 Id., 74 Fed. Reg. 61427 (Nov. 23, 2009).
 3 78 Fed. Reg. 20039.
 

1400 L Street, N.W. 

Suite 350 

Washington, DC 20005 

T (202) 789-1400 

F (202) 789-1120 

www.eric.org 
The ERISA Industry Committee June 3, 2013
 

RIN 1212-AB06 Page 2 of 17
 

	 The PBGC already has the appropriate tools to identify at risk plans. 

 The Pension Protection Act of 2006 is protecting the interests of the PBGC. 

 For the plans that pose the most risk to the PBGC (i.e., those that are not 

adequately funded), the PBGC already receives substantial amounts of 

information. 

	 The safe harbors for plans in the proposed regulations are not useful. 

 Few companies regularly calculate their plans’ unfunded benefit liabilities on a 

termination basis. 

 The overwhelming majority of plans will not qualify for the safe harbor for plans 

that are 120 percent funded on a premium basis. 

	 The safe harbor for companies in the proposed regulations does not properly identify at 

risk plans and would cause significant hardships for plan sponsors. 

 The proposed safe harbor is not an appropriate measure of a plan’s financial health 

or the risk that a plan poses to the PBGC. 

 The timing required to comply with the proposed regulation is administratively 

unworkable and would impose a significant burden on plan sponsors and their 

service providers. 

 The proposal would require companies to change the way they conduct their core 

businesses. 

 Even if the financial health of a plan sponsor were an appropriate measure of the 

financial health of a plan, it is inappropriate to rely on Dun & Bradstreet reports 

(which are dated and not sufficiently reliable) or a plan sponsor’s use of secured 

debt (which is commonly used by financially healthy companies for items such as 

receivables and inventory) as measures of the plan sponsor’s financial health. 

	 The proposed regulations could require companies to renegotiate their credit and lending 

arrangements and for plans to have their investment agreements terminated. 

	 The proposed regulations impose additional costs and burdens on companies that sponsor 

defined benefit retirement plans, which may cause even more plan sponsors to freeze or 

terminate their plans. 

	 It is not appropriate for the PBGC to regulate through forms and instructions. 

Since the Pension Protection Act of 2006 (the “PPA”), plan sponsors have increased the rate 

at which they have been contributing to their plans in order to improve their plans’ ERISA funding 

levels as required by law; some plan sponsors have also been contributing more than the required 

minimum amount. Instead of helping to further the goals of the PPA, the proposed regulations would 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The ERISA Industry Committee June 3, 2013 

RIN 1212-AB06 Page 3 of 17 

instead require plan sponsors to divert a portion of those contributions to pay service providers to 

help comply with burdensome regulatory requirements that do not materially enhance the financial 

position of the PBGC. 

Furthermore, the financial soundness of a company is not an appropriate standard for pension 

regulatory requirements. The financial soundness approach taken in the proposed regulations 

continues a larger trend. For example, the Obama Administration requested authority for the PBGC 

to set its own premiums up to $25 billion based on credit risk.

4 The PBGC also recommended in the 

ERISA Section 4010 Report to Congress that “Congress create reporting criteria based on the 

sponsor’s financial soundness using risk measurement tools already widely-employed in business, 

such as credit scores, rather than relying solely on the plan’s funding percentage.”

5 PBGC also 

implemented a 4062(e) enforcement pilot program based on whether it thinks companies are 

financially sound. The PBGC states that it “is implementing a pilot program under which going 

forward, PBGC will generally take no action to enforce section 4062(e) liability against creditworthy 

companies...”

6 

As explained below, this is not a suitable method to use. Plan sponsors have historically been 

required to maintain their plans’ funded status at certain levels, contribute at least the minimum 

required amounts to their plans (and, through deduction limits and excise taxes on reversions, been 

discouraged from contrtibuting too much to their plans), and invest plan assets prudently -- and they 

have structured their businesses around satisfying these obligations. It is not appropriate to impose 

additional requirements on these same sponsors or to change the standards by which they are judged. 

DETAILED COMMENTS 

For many years, ERIC has been atuned to and had concerns about the PBGC’s approach to 

reportable events and recent use of a company’s financial soundness to evaluate the potential risk to 

its defined benefit plan. While ERIC understands that the PBGC wishes to change its current 

regulations, we are very concerned that the approach suggested in the proposed regulations will 

adversely impact plan sponsors without providing any significant additional benefit to the PBGC. 

I.	 The PBGC already has the appropriate tools to identify at risk plans (i.e., those that are not 

adequately funded). 

The purpose of the reportable events rules is to allow the PBGC, when it learns that a plan is 

at risk, to negotiate funding improvements, intervene as a creditor, minimize funding shortfalls via 

involuntary plan termination, and take other protective action.7 

4 Office of Management and Budget, Analytical Perspectives, Budget of the United States Government, Fiscal Year 2014, 

p. 227 (Apr. 2012), available at http://www.whitehouse.gov/omb/budget/Analytical_Perspectives. 5 Pension Benefit Guaranty Corporation, 4010 Summary Report, p.5 (Aug. 21, 2012), available at 

http://www.pbgc.gov/documents/PBGC-4010-report-harkin.pdf (emphasis added).
 6 Pension Benefit Guaranty Corporation, Frequently Asked Questions 4062(e) Enforcement Pilot Program, available at 

http://www.pbgc.gov/about/faq/pg/frequently-asked-questions-4062.html (emphasis added).
 7 78 Fed. Reg. at 20039.
 
 

 

 

 

 

 

 

 

 

 

 

 

 

The ERISA Industry Committee June 3, 2013 

RIN 1212-AB06 Page 4 of 17 

A.	 The Pension Protection Act of 2006 is protecting the interests of the PBGC in addition to 

the benefits earned by the participants. 

The Pension Protection Act of 2006 (“PPA”) was designed to strengthen the funding of 

defined benefit plans and reduce the PBGC’s deficit.8 The CRS Report to Congress explains: 

“The Pension Protection Act is the most comprehensive reform of the nation’s pension 

laws since the enactment of the Employee Retirement Income Security Act of 1974 

(ERISA, P.L. 93-406). It establishes new funding requirements for defined benefit 

pensions...Prompted by the default in recent years of several large defined benefit 

pension plans and the increasing deficit of Pension Benefit Guaranty Corporation 

(PBGC), the Bush Administration in January 2005 advanced a proposal for pension 

funding reform, which was designed to increase the minimum funding requirements 

for pension plans and strengthen the pension insurance system.”

9 

As noted in the last sentence above, the PPA was designed to increase the funding of plans in 

order to strenghthen PBGC and to decrease the frequency of termination and “take over” actions by 

the PBGC. 

Additionally, the PPA increased the reporting of underfunded plans. Before the PPA, 

companies were required to file the Form 4010 if the plan’s aggregate unfunded vested benefits 

exceeded $50 million. Beginning in 2008, the PPA requires this filing for any PBGC-insured plan 

that has a funding percentage of less than 80%. 

Reports from the Department of Labor demonstrate that the PPA is working. Contributions to 

defined benefit plans increased dramatically from $89.8 billion for the 2006 plan year10 to $131.1 

billion for the 2010 plan year.11 During this time, the number of participants in defined benefit plans 

declined from 42.1 million in 2006 to 41.4 million in 2010.12 Thus, more money was contributed to 

defined benefit plans to provide benefits to fewer workers. 

As the Department of Labor’s data shows, the PPA is protecting the PBGC’s interests by 

increasing the funding and reporting of private-sector defined benefit plans. 

8 Pub. L. 109–280 (Aug. 17, 2006).
 9 CRS Report for Congress, Summary of the Pension Protection Act of 2006 (May 1, 2007), available at 

http://www.aging.senate.gov/crs/pension8.pdf. 10 U.S. Department of Labor, Private Pension Plan Bulletin Abstract of 2006 Form 5500 Annual Reports, Table A1 (Mar.
 

2012), available at http://www.dol.gov/ebsa/PDF/2006pensionplanbulletin.PDF. 11 U.S. Department of Labor, Private Pension Plan Bulletin Abstract of 2010 Form 5500 Annual Reports, Table A1 (Nov.
 

2012), available at http://www.dol.gov/ebsa/PDF/2006pensionplanbulletin.PDF. 12 U.S. Department of Labor, Private Pension Plan Bulletin Abstract of 2006 Form 5500 Annual Reports, Table A1 (Mar.
 

2012); U.S. Department of Labor, Private Pension Plan Bulletin Abstract of 2010 Form 5500 Annual Reports, Table A1
 

(Nov. 2012).
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The ERISA Industry Committee June 3, 2013 

RIN 1212-AB06 Page 5 of 17 

B.	 For the plans that pose the most risk to the PBGC, the PBGC already receives 

substantial amounts of information.
 

The PBGC already receives a significant amount of information to help it determine if a plan 

is at risk. These include:13 

	 Notice of Intent to Terminate – Notifies PBGC about proposed termination and 

provides information about the termination process at least 60 days before the 

proposed termination date. 

	 Form 600 - Distress Termination: Notice of Intent to Terminate - Notifies PBGC 

about proposed termination and provides plan and sponsor data at least 60 days before 

the proposed termination date. 

	 Notice of Request to Bankruptcy Court to Approve Termination - Notifies PBGC at 

time Bankruptcy Court is notified about company’s request to Bankruptcy Court to 

approve plan termination based upon reorganization test. 

	 Form 200 - Notice of Failure to Make Required Contributions - Requires submission 

of information relating to plan and controlled group to PBGC no later than 10 days 

after the plan has aggregate missed contributions of more than $1 million. 

	 Reporting of Substantial Cessation of Operation and of Withdrawal of Substantial 

Employer - Advises PBGC of certain cessations of operation and of withdrawals of 

substantial employers and requests determination of liability. 

	 Annual Financial and Actuarial Information Reporting - Requires submission of 

actuarial and financial information for certain controlled groups with substantial 

underfunding. 

	 Form 10 - Post-Event Notice of Reportable Events - Requires submission of 

information relating to event, plan, and controlled group to PBGC within 30 days after 

a failure to make a required minimum funding payment, active participant reduction, 

change in contributing sponsor or controlled group, application for funding waiver, 

liquidation, bankruptcy, and various other events. 

	 Form 10-Advance - Advance Notice of Reportable Events – Requires submission by 

certain privately-held companies of information relating to event, plan, and controlled 

group to PBGC at least 30 days before a change in contributing sponsor or controlled 

group, liquidation, loan default, transfer of benefit liabilities, and various other events. 

13 U.S. Department of Labor, Employee Benefits Security Administration, Reporting and Disclosure Guide for Employee 

Benefit Plans (Oct. 2008), available on PBGC’s website at http://www.pbgc.gov/prac/reporting-and-disclosure/reportingand-disclosure-overview.html. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The ERISA Industry Committee June 3, 2013 

RIN 1212-AB06 Page 6 of 17 

The PBGC also has access to information that is available to the public. The PBGC explained 

in the preamble to the proposed regulations that “a vast quantity of business and financial information 

has become available through the internet and other means.”

14 

Additionally, the PBGC also has an “Early Warning Program”

15 that focuses on companies 

that have financial difficulties or a significantly underfunded plan. The PBGC has explained: 

“PBGC has developed specialized tools, technology, and financial expertise so that it 

can meet companies on their own terms. PBGC staff use financial information services 

and news databases and technology. PBGC also relies on information sharing among 

the Department of Labor, the Internal Revenue Service and the Securities and 

Exchange Commission.”

16 

The vast amount of information already available to the PBGC should enable it to identify 

plans for which it will need to negotiate funding improvements, intervene as a creditor, minimize 

funding shortfalls via involuntary plan termination, and take other protective action. The additional 

reportable event filings that the proposed regulations would require will not materially enhance the 

PBGC’s ability to identify at risk plans. 

C.	 The current regulations effectively protect the PBGC and reflect a negotiated
 

rulemaking process.
 

Negotiated rulemaking is a “means by which representatives of the interests that would be 

substantially affected by a rule, including the agency responsible for issuing the rule, negotiate in 

good faith to reach consensus on a proposed rule.”

17 Negotiated rulemaking has been twice endorsed 

by Congress, first in the Negotiated Rulemaking Act of 1990 and subsequently in 1996, when 

Congress permanently reauthorized the Act.18 Negotiated rulemaking is considered more effective 

than adversarial rulemaking because it: (1) increases the acceptability and improves the substance of 

rules, making it less likely that the rules will be challenged in court; and (2) shortens the amount of 

time needed to issue final rules.19 

Negotiated rulemaking has met, if not exceeded these expectations. The results of a major 

study on the effectiveness of negotiated rulemaking conducted by Laura Langbein and Cornelius 

Kerwin, professors at American University, showed that, in 13 different categories, participants in the 

negotiated rulemaking process preferred it by wide margins over traditional adversarial rulemaking.20 

14 78 Fed. Reg. at 20040.
 15 Pension Benefit Guaranty Corporation, Early Warning Program Fact Sheet, available at 

http://www.pbgc.gov/res/factsheets/page/early-warning.html. 16 Id.
 17 Harter, Assessing the Assessors: The Actual Performance of Negotiated Rulemaking, 9 N.Y.U. Envtl. L. J. 35. (2000).
 

For more details on how Negotiated Rulemaking is intended to function, see 5 U.S.C. § 561.
 18 Pub. L. No. 101-648; Pub. L. 104-320.
 19 Pub. L. 101-648 § 2.
 20 See, Laura Langbein & Cornelius Kerwin, Regulatory Negotiation versus Conventional Rule Making: Claims,
 

Counterclaims, and Empirical Evidence, 10 J. Pub. Admin. Res. and Theory 599, 603-604 (July 2000).
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The ERISA Industry Committee June 3, 2013 

RIN 1212-AB06 Page 7 of 17 

Since the Negotiated Rulemaking Act was enacted “agencies across the government have tried and 

liked it.”

21 

The PBGC convened a negotiated rulemaking committee in 1995 and 1996 to discuss 

proposed changes to the reportable events regulations.22 The negotiated rulemaking committee 

proposed substantial changes to the regulations, including new reportable events, while also 

providing extensions of time and waivers for certain filings.23 The consensus-based approach worked 

admirably to create the current regulations; the “PBGC received only one written comment on the 

proposed rule” and the rule received the Hammer Award from former Vice President Al Gore’s 

National Performance Review.24 

The PBGC should recognize the value provided by the negotiated rulemaking process and the 

resulting current regulations. The PBGC should not propose to overhaul the current regulations 

absent compelling evidence that they are not working. 

II. The safe harbors for plans in the proposed regulations are not useful. 

The proposed regulations include safe harbors for plans that are either fully funded on a 

termination basis (“fully funded safe harbor”) or that are 120 percent funded on a premium basis 

(“premium safe harbor”).25 

A.	 Most companies do not regularly calculate their plans’ unfunded benefit liabilities on a 

plan termination basis. 

Under the proposed regulations, a plan will satisfy the fully funded safe harbor if, as of the 

last day of the prior plan year, the plan had no unfunded benefit liabilities using termination basis 

assumptions.26 

Most companies do not regularly calculate their plans’ unfunded benefit liabilities on a plan 

termination basis. As a result, to determine whether this safe harbor is available, companies would 

have to have their actuaries (or hire actuaries to) perform these additional calculations. Because of the 

time needed to make the calculations, companies would need to have this calculated every year –

even though they may not need it during the following year. These calculations take time and cost 

money -- money that could better be spent funding plans or providing additional benefits. This waste 

of company assets further contributes to the decision of many employers to reduce or eliminate their 

commitment to defined benefit pension plans. 

The fully funded safe harbor, even if retained, is unworkable in its current form. 

21 142 Cong. Rec. S6155, S6158 (June 12, 1996).
 22 See 60 Fed. Reg. 41033 (Aug. 11, 1995).
 23 61 Fed. Reg. 63988 (Dec. 2, 1996).
 24 Id. at 63988; Pension Benefit Guaranty 1996 Annual Report available at 

http://www.pbgc.gov/docs/1996_annual_report.pdf. 25 78 Fed. Reg. at 20061.
 26 Id. 
 

 

 

 

 

 

 

 

The ERISA Industry Committee June 3, 2013 

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First, plans that are not fully funded on a termination basis as of the last day of the prior plan 

year may be fully funded at the time the reportable event filing is made due to contributions made 

after the calculation is made and/or investment earnings. 

Also, it takes many months to calculate a plan’s funded status (whether on a termination basis 

or for funding purposes): participant census data needs to be updated; non-publicly traded asset 

classes might need to be valued, and the value of certain asset classes can be subject to a lag in 

reporting. Thus, even companies that are in a position to calculate their plans’ funded status on a 

termination basis will likely not know whether their plans are fully funded “as of the last day of the 

prior plan year” until some time during the middle of the current plan year. This effectively means 

that this safe harbor, even if calculated by an employer, is not useable during a large portion of a 

given reporting year. 

If the PBGC is inclined to retain the fully funded safe harbor, it should base the availability of 

that safe harbor on the plans’ funded status determined either as of the last day of the prior plan year 

or the first day of the prior plan year. In this way, employers interested in using the fully funded safe 

harbor who decide to routinely calculate their plans’ funded status on a termination basis will be able 

to know (using the funded status on first day of the prior plan year) whether the safe harbor will be 

available to them during a calendar year. Employers that choose not to regularly calculate their plans’

funded status on a termination basis and who decide, upon the occurrence of a potential reportable 

event, to calculate their plans funded status on a termination basis, could alternatively use the last day 

of a plan year using more recent information, if available. 

Finally, the termination basis safe harbor is not truly useful for the PBGC. Most employer 

plans do not terminate. For plans that are at risk of termination, the PBGC has appropriate tools 

available to it under current law to monitor and manage this risk. Indeed, the current reporting 

waivers for financially sound plans—e.g., no variable rate premium being due, less than $1 million in 

unfunded vested benefits, and fair market value of plan assets of at least 80% of vested benefits (for 

public companies)—are adequate to bring to the PBGC’s attention circumstances that might affect 

plans that present a risk to the PBGC. 

The PBGC should recognize that the termination basis safe harbor, in its present form, is not 

useful for either companies or the PBGC. 

B. The overwhelming majority of plans will not qualify for the premium safe harbor. 

The premium safe harbor is only available to defined benefit plans where the value of the 

plan’s assets as determined for premium purposes is not less than 120% of the plan’s premium 

funding target for the prior plan year.27 

A study of the top one hundred U.S. pension plans (the “largest plans”) indicates that only 

approximately 2% of these plans had a funded status of more than 120 percent in 2012.28 

Furthermore, only an additional 2% of the largest plans had a funded status of 105% - 120% in 2012. 

27 Id. 
 

 

 

 

 

 

 

 

The ERISA Industry Committee June 3, 2013 

RIN 1212-AB06 Page 9 of 17 

Thus, only 2% of the largest plans would have qualified for the premium safe harbor. Even if 

PBGC lowered the threshhold to 90%, only around 15% of the largest plans would have qualified in 

2012. 

The PBGC should maintain the existing threshhold at 80% of the plan’s premium funding 

target for the prior plan year in order for it to remain meaningful. 

III.The safe harbor for companies in the proposed regulations does not properly identify at risk 

plans and would cause significant hardships for plan sponsors. 

The proposed regulations’ safe harbor for companies (the “company safe harbor”) would 

apply only if, on the determination date, a company met the following criteria: 

	 The score for the company by a commercial credit reporting company indicates a low 

likelihood that the entity will default on its obligations. 

	 The company has no secured debt, other than leases or debt incurred to acquire or improve 

property and secured only by that property. 

	 For the most recent two fiscal years, the company has positive net income under generally 

accepted accounting principles (“GAAP”) or International Financial Reporting Standards 

(“IFRS”). 

	 For the two-year period ending on the determination date, the company has not defaulted 

on loans with an outstanding balance of $10 million or more. 

	 For the two-year period ending on the determination date, the company has not failed to 

make required contributions. 

A.	 The safe harbor for companies is ill-suited for large employers. 

For the reasons described above, it is not appropriate for the PBGC to adopt a safe harbor 

related to the plan sponsor’s financial health. However, if the PBGC is inclined to adopt such a safe 

harbor, it cannot use the one included in the proposed regulations. 

1. Commerical credit reporting companies are not sufficiently reliable. 

The proposed regulations provide that, in order to qualify for the company safe harbor, the 

business must receive a score by a commercial credit reporting company that indicates a “low 

likelihood” that the company will default on its obligations. The preamble to the proposed regulations 

provides Dun & Bradstreet as an example of a commercial credit reporting company.29 It also states 

that the score necessary to qualify for the safe harbor will change over time and that the PBGC will 

28 Milliman, 2013 Corporate Pension Funding Status, available at http://www.milliman.com/expertise/employeebenefits/products-tools/pension-funding-study/. 29 78 Fed. Reg. at 20044.
 
 

 

 

 

 

 

 

 

 

 

The ERISA Industry Committee June 3, 2013 

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notify the public as to what score it has selected.30 The preamble also states that the Dodd-Frank Wall 

Street Reform and Consumer Protection Act prevents them from relying on credit ratings in 

regulations.31 

Dun & Bradstreet explains that its credit score includes payment trends and public filings to 

evaluate companies. Their website states that “The credit score uses statistical probabilities to classify 

risk based on the full spectrum of D&B’s business information, including payment trends, company 

financials, industry position, company size and age and public filings.”

32 

The PBGC’s proposal to use credit reporting companies, like Dun & Bradstreet, is 

problematic for a number of reasons. 

First, the information received by credit reporting companies is likely to be dated -- in many 

cases as of the end of the prior fiscal year. The credit reporting company’s score is based on the same 

public financial disclosures, which are issued some time after the events reported in them have 

occurred. The credit reporting company must then analyze the information provided in the public 

financials. They do not have timely information from management and do not look at the forecast for 

the company. If the transaction occurs before the year-end results, the information used by the credit 

reporting company will be even further out of date. 

In addition, credit reporting companies may rely on inaccurate information. Credit reporting 

companies use payment trends, which may not accurately reflect the company’s relationship with its 

suppliers. For example, a company may have contractually agreed to pay a supplier within 45 days. A 

report from a supplier that the company paid within 40 days may give the impression that the 

payment was late (e.g., if the industry average is 30 days), while in fact, the company paid 5 days 

early. 

Finally, large companies do not generally use commercial credit reporting companies. Instead, 

large companies use credit agencies. They have established relationships with credit agencies and 

provide them with forecasts and access to management. This enables the credit agencies to perform a 

more thorough analysis. Because large companies typically do not obtain credit reports, they 

generally do not monitor them for accuracy as part of their business practices. As a result, if this 

standard were applied, companies would be required to devote resources to ensuring that the credit 

reports were accurate and working through the lengthy process to correct any inaccuracies. Because 

the credit report is evaluated as of the determination date (which is unknown in advance), companies 

would need to constantly monitor their reports and there would not be sufficient time to correct any 

inaccuracies if they had a reportable event. 

2. Financially healthy companies have secured debt. 

The proposed regulations provide that, in order to qualify for the company safe harbor, the 

business must not have any secured debt other than leases or debt incurred to acquire or improve 

property. A safe harbor that examines whether a company has secured debt is not appropriate. 

30 78 Fed. Reg. at 20044.
 31 78 Fed. Reg. at 20043.
 32 Dun & Bradstreet, Using D&B’s Recommended Credit Limits, available at 

https://www.dnb.com/credit_limit/help/creditline.htm#risk. 
 

 

 

 

 

 

The ERISA Industry Committee June 3, 2013 

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Financially healthy companies often take on significant levels of secured debt in order to obtain the 

most favorable financing rates that they can. For example, healthy companies often use their 

inventories or receivables to secure debt. Securing debt in this way is not a sign that a company is in 

financial distress, but rather a sound business practice used to secure favorable rates, particularly in 

light of the current interest rate market and federal reserve policy. 

In addition, it is not appropriate simply to add “receivables” and “inventory” to the list of 

exclusions in the safe harbor. Financially sound companies might secure other assets for legitimate 

business purposes. If the PBGC is going to use secured debt as a marker of a company’s financial 

soundness, the only appropriate way to do so would be based on the percentage of a company’s assets 

that are used as collateral for debt. For example, a company that has “substantially all of its assets”

pledged as collateral for debt might not be financially sound. 

3. Using net income punishes healthy companies in cyclical indusries. 

The proposed regulations unfairly impact financially healthy companies in cyclical industries 

and those with rare or extraordinary events. For example, some companies are more responsive to the 

economy and as a result, have more volatile financials. These companies may be well-managed 

financially, but fail to have positive net income in some years due to this volatility. Additionally, a 

company may normally have positive net income, but experience a loss due to an infrequent, unusual 

and significant event. For example, a company may have a loss due to a natural disaster that does not 

normally occur in its part of the country or an unexpected seizure of property by a foreign 

government. 

For the foregoing reasons, the PBGC should recognize that the proposed safe harbor for 

companies—which relies on commercial credit reporting agencies, the absence of secured debt, and 

net income—is ill-suited for large companies. It will force companies to expend resources and adjust 

their business practices relating to debt, is too unpredictable and is not a useful proxy for the financial 

soundness of the company as it relates to the risk to the PBGC. 

B.	 The safe harbor for companies is administratively unworkable and would impose a 

significant burden on plan sponsors and their service providers. 

Like the fully funded safe harbor, described above, the usefulness of the safe harbor for 

companies depends on companies devoting substantial resources to tracking and measuring criteria 

that they do not currently monitor in connection with their pension plans. Moreover, without the 

investment of such resources, it would be extremely difficult for a company to be able to predict with 

any reasonable certainty whether they would be eligible for the company safe harbor until they need 

to use it. Because the commercial credit reporting companies are relying on payment trends and 

industry positions, the scores provided by commercial credit reporting companies can be volatile. 

This is particularly problematic for companies that have cyclical businesses. Additionally, companies 

will not know in advance what threshhold score the PBGC will select and also might be forced to 

turn down favorable financing arrangements in order to avoid taking on secured debt. 

In order to use the company safe harbor, the person at the company responsible for notifying 

the PBGC about a reportable event would need to know at any given time: (1) whether there was a 

reportable event; (2) the company’s credit score from a commercial credit reporting company; 
 

 

 

 

 

 

 

 

 

The ERISA Industry Committee June 3, 2013 

RIN 1212-AB06 Page 12 of 17 

(3) what threshhold credit score the PBGC had most recently selected; (4) what secured debt the 

company has and how that debt is secured; (5) the company’s net income for the past two years; 

(6) whether in the past two years the company has defaulted on any loans and the outstanding balance 

of those loans; and (7) whether the company has failed to make any required contributions to the plan 

in the past two years. 

The person at the company responsible for notifying the PBGC would be required to get all of 

this information in sufficient time in advance of making a determination of whether the company was 

eligible for the company safe harbor – and if not, to prepare the notification to the PBGC. As noted 

above, there would likely be insufficient time to challenge any inaccuracies related to a credit score. 

Additionally, they may need to review volumes of agreements (which companies execute on a 

continual basis) to determine how their debt is secured. The responsible person would also need to 

work with the employees who handle the company’s loans to determine whether there have been any 

defaults in the past two years and the pension people to determine if there have been any missed 

required contributions. 

The purpose of a safe harbor is to provide a company with an expedited and clear method to 

comply with a regulation. In this case, the analysis involved with determining whether the safe harbor 

is available to the employer will require significant additional resources. In the alternative, companies 

will have to embark on the expensive and time-consuming process of preparing a reportable event 

filing. The PBGC’s proposed approach to a safe harbor for reportable events does not appear to 

provide a streamlined and efficient alternative to filing a reportable event (which companies may 

execute in an effort to ensure 100% compliance with the rules). The approach taken by the PBGC in 

the proposed regulations is burdensome on the company’s resources and would require plan sponsors 

to spend significant resources complying with the requirements rather than funding and prudently 

managing their plans. 

Thus, ERIC urges the PBGC to recognize that the timing it has proposed is administratively 

unworkable and would impose a significant burden on plan sponsors and their service providers. 

C. The safe harbor for companies, as currently structured, is inconsistent with Executive
 

Order 13563 and would interfere with the way companies conduct their businesses. 

The approach taken in the proposed regulations with respect to companies is inconsistent with 

the Executive Order 13563 which requires regulations to promote predictability, reduce uncertainty, 

and use the least burdensome approach available to accomplish its objectives.33 The Executive Order 

states that: 

“[E]ach agency must, among other things: (1) propose or adopt a regulation only upon 

a reasoned determination that its benefits justify its costs (recognizing that some 

benefits and costs are difficult to quantify); [and] (2) tailor its regulations to impose 

the least burden on society, consistent with obtaining regulatory objectives, taking into 

33 The White House, Executive Order 13563 -- Improving Regulation and Regulatory Review, §1(a) (Jan. 18, 2011), 

available at http://www.whitehouse.gov/the-press-office/2011/01/18/improving-regulation-and-regulatory-reviewexecutive-order. 
 

 

 

 

 

 

 

 

 

 

The ERISA Industry Committee June 3, 2013
 

RIN 1212-AB06 Page 13 of 17
 

account, among other things, and to the extent practicable, the costs of cumulative 

regulations...”34 

The proposed regulations would interject pension administration issues into basic and 

unrelated core business decisions, including loan agreements, capital investments, accounting 

decisions, and debt securitization. Companies that want to avail themselves of the ability to use the 

company safe harbor would be forced to make various business decisions with the reportable events 

safe harbor in mind. 

For example, some companies use secured debt for receivables that are not paid within 90 

days and for inventory. These business decisions are unrelated to the company’s financial health. 

However, if a company wanted to ensure that they were eligible for the company safe harbor, they 

would not be able to use this approach and would be forced to incur additional financing costs in 

order to be able to fall within the safe harbr. Additionally, there may be business decisions that arise 

in the future which could be impacted (unintentionally) by the proposed regulations. 

The proposed regulations would effectively impose new business standards on companies. 

The PBGC states in the preamble that it is not trying to “reinvent the wheel” and “can and should rely 

on procedures, documents, and performance standards that are already established and accepted” to 

the extent possible.35 While the PBGC claims that it “would not itself evaluate the creditworthiness of 

plans sponsors”, it will do just that. If the PBGC does not think that a company has properly used the 

company safe harbor, it will evaulate: (1) whether a company has reached the threshold that the 

PBGC sets for the credit score, (2) the type of secured debt a company has, (3) whether the company 

had positive net income and used GAAP or IFRS, (4) whether the company defaulted on any loans 

with an outstanding balance of $10 million or more, and (5) whether the company failed to make 

required contributions. The requirements to satisfy the company safe harbor would effectively invent 

new business standards for companies. The methods for complying with the company safe harbor are 

not normally used by companies and would impose significant burdens on them in order to use the 

company safe harbor. 

A company’s compliance with pension regulations should not directly impact unrelated 

decisions a company makes with its ongoing business concerns. Although we support the mission of 

the PBGC to ensure compliance with its regulations, under a true “cost-benefit” analysis, this 

proposed safe harbor will not meet the standards set in Executive Order 13563. These proposed 

regulations will necessitate a domino of decision-making normally related to pure business endeavors 

in order to satisfy compliance with a regulatory safe harbor for pension plan administration. Under 

the PBGC proposal, these business decisions – wholly unrelated to the administration of the pension 

plan – become intertwined with the ongoing maintenance and compliance requirements of the 

pension plan. 

34 Id. at § 1(b).
 35 78 Fed. Reg. at 20040.
 
 

 

 

 

 

 

 

 

The ERISA Industry Committee June 3, 2013 

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IV. The proposed regulations could cause companies to have to renegotiate their arrangements 

and for plans to have their agreements terminated. 

A.	 Companies may have to renegotiate their credit and lending agreements due to the 

proposed regulations. 

In January 2010, ERIC explained to the PBGC that many credit and lending agreements 

between employers and financial lending institutions provide that the occurrence of a reportable event 

that is not automatically waived is an event of default with respect to the outstanding loans, or 

precludes the employer from receiving additional financing under the existing credit agreement.36 

Since then, many companies have renegotiated their agreements to provide that the 

occurrence of a reportable event that is not automatically waived is an event of default with respect to 

the outstanding loans only if the event could result in financial liability in excess of a certain dollar 

threshold or could cause “a material adverse effect” on the borrower. For example, credit and lending 

agreements often state: 

“SECTION X. Events of Default. If any of the following events (“Events of Default”) 

shall occur and be continuing:..... The Company or any of its ERISA Affiliates shall 

incur a Material Adverse Effect, or in the case of clause (i) below, shall be reasonably 

likely to incur a Material Adverse Effect, as a result of one or more of the following: 

(i) the occurrence of any ERISA Event [defined to include a Reportable Event]....”

However, given the uncertainty that can arise in the case of a reportable event, lenders may 

use this opportunity to re-enter into negotiations under the guise of claiming that the reportable event 

resulted (or at least could result) in a material adverse effect on theborrower. This is particularly true 

for companies that have well-funded plans but who are going through temporary financial 

difficulties. In their weakened state, they will be less able to negotiate with lenders or otherwise find 

alternative sources of credit. 

Additionally, if a company believes it qualifies for one of the safe harbors, but is inadvertently 

incorrect, the PBGC could impose a lien, which would be problematic under the lending agreement. 

For example, the employee who handles secured debt may inadvertently overlook an item which 

would disqualify the business for the company safe harbor. 

The PBGC should continue to use the current regulations, which companies have considered 

when entering into their credit and lending agreements. 

B.	 Plans may have certain of their investment agreements terminated as a result of the 

proposed regulations. 

Some complex investment contracts—used by pension plan fiduciaries to manage investment 

risk—provide that the contract may be terminated in the event of a reportable event that has not been 

36 ERISA Industry Committee, Comment Letter to PBGC (Jan. 22, 2010), available at 

http://www.eric.org/forms/uploadFiles/1E6C90000000F.filename.ERIC_CommentLetter_PBGC_ReportableEvents_Prop 

Regs012210-final.pdf. 
 

The ERISA Industry Committee June 3, 2013 

RIN 1212-AB06 Page 15 of 17 

waived. Notably, this provision typically does not provide for any materiality threshold or qualifier. 

For example, some investment agreements state: 

“In the event that Party B is an ERISA Plan (as defined in Part 4 of this Schedule), 

whether or not identified as an ERISA Plan on Appendix I hereto (as periodically 

amended), the following Additional Termination Events shall apply:...Reportable

Events. An event occurs in respect of Party B that is a “reportable event” as defined 

under ERISA Section 4043 (“Reportable Event”) and the regulations thereunder, and 

is not an event for which the reporting requirements of ERISA Section 4043(a) have 

been waived by the PBGC.”

The impact on a plan could be substantial if an investment were terminated pursuant to this 

provision. For example, the party to the investment agreement may utilize this provision to terminate 

the agreement at a time that is lucrative to the party and detrimental to the plan. 

The PBGC should continue to use the current regulations in order to avoid the disruption of 

plans’ investment agreements. 

V. The proposed changes to the rules for controlled groups will result in additional burdens 

without corresponding gains. 

Under the current rules, a reportable event occurs for a plan when there is a transaction that 

37 results, or will result, in one or more persons ceasing to be members of the plan’s controlled group.

The current regulations provide for several useful automatic waivers, including waivers if: 

	 De Minimis Waiver - The person or persons that will cease to be members of the plan’s 

controlled group represent a de minimis 10-percent segment of the plan’s old controlled 

group. 

	 Foreign Entity Waiver - Each person that will cease to be a member of the plan’s 

controlled group is a foreign entity other than a foreign parent. 

	 Funding Waiver –

 There is no variable rate premium is required to be paid for the plan for the year; 

 The plan has less than $1 million in unfunded vested benefits; or 

 As of the testing date for the event year, the plan would have no unfunded vested 

benefits if unfunded vested benefits. 

	 Public Company Waiver - The plan sponsor is a public company and the fair market value 

of the plan’s assets is at least 80 percent of the plan’s vested benefits amount. 

37 29 CFR § 4043.29(a). 
 

 

 

 

 

 

 

 

 

 

 

The ERISA Industry Committee June 3, 2013
 

RIN 1212-AB06 Page 16 of 17
 

The proposed regulations would eliminate the Funding Waiver and the Public Company 

Waiver. Instead, companies would have to satisfy the company safe harbor, the fully funded safe 

harbor, or the premium safe harbor. As discussed above, these safe harbors are not useful for plans 

and their sponsors. Thus, the elimination of the Funding Waiver and the Public Company Waiver 

would negatively impact companies that experienced corporate transactions and will not improve the 

information already available to the PBGC that it uses to monitor and manage its risks. 

As we explained to the PBGC in our January 2010 comment letter, large public companies 

may enter into dozens of transactions that result in numerous acquisitions, spinoffs, mergers or other 

corporate restructurings every year.38 When the plan of a large public company is funded at the 80 

percent level or higher, the likelihood of one of these events causing irreparable damage to the plan is 

minimal, even if the entity involved represents more than a 10 percent segment of the controlled 

group. By eliminating the existing waivers, the PBGC would be adding significant administrative 

burdens without a corresponding increase in the security of the pension plan system. 

Elimination of these automatic waivers would mean that plan administrators of even wellfunded plans would have to monitor every transaction in which every controlled group member 

engages throughout the year and analyze each such transaction to determine whether: 

	 It is a “transaction that results, or will result, in one or more persons ceasing to be 

members of the plan’s controlled group” within the meaning of § 4043.29(a); 

	 It constitutes a transaction that results “solely in a reorganization involving a mere change 

in identity, form or place of organization” within the meaning of § 4043(a); and 

	 The entity that will cease to be a member of the controlled group represents a “de minimis 

10-percent segment of the plan’s old controlled group for the most recent fiscal year(s) 

ending on or before the date the reportable event occurs” within the meaning of 

§ 4043.29(b). 

Under the proposed regulations, the reporting requirement is triggered by the entering into of 

a legally binding agreement, whether or not written, to engage in a transaction described in the 

regulation. Thus, the report will in many cases have to be filed with the PBGC well before the event 

occurs, and must be reported even if the transaction is never consummated. 

VI. The proposed regulations impose yet another risk for companies, which may cause even 

more plan sponsors to freeze or terminate their plans. 

The proposed regulations create significant uncertainty for companies. As discussed above, 

companies will frequently be unable to determine whether they qualify for the company safe harbor 

or the fully funded safe harbor and the overwhelming majority of plans do not qualify for the 

premium basis safe harbor. 

38 ERISA Industry Committee, Comment Letter to PBGC (Jan. 22, 2010), available at 

http://www.eric.org/forms/uploadFiles/1E6C90000000F.filename.ERIC_CommentLetter_PBGC_ReportableEvents_Prop 

Regs012210-final.pdf. 
 

 

 

 

 

____________________ 

 

 

The ERISA Industry Committee June 3, 2013
 

RIN 1212-AB06 Page 17 of 17
 

As a result, company officers will need to evaluate whether they want to take the risk of 

having to file future reportable events, the costs that are involved to do so, and the risks to their 

lending and investment agreements. Given the other uncertainties that already exist for defined 

benefit plans, more company officers may decide to freeze or no longer have the company sponsor a 

defined benefit plan. 

ERIC urges the PBGC not to finalize the proposed regulations which are likely to lead to even 

more companies freezing their defined benefit plans or ceasing to sponsor plans. Instead ERIC 

believes that the current regulations are more effective at protecting the needs of the PBGC and 

should therefore be maintained in their current state. 

VII. The PBGC should not regulate through forms and instructions. 

The preamble to the proposed regulations states that the PBGC plans to replace the current 

regulatory process by regulating through forms. It states “PBGC also proposes...to make use of 

prescribed reportable events forms mandatory and to eliminate from the regulation the lists of 

information items that must be reported.”

39 

This process proposed by the PBGC would allow it to change the information that it requests 

without engaging in the regulatory process. ERIC urges the PBGC to recognize the value provided by 

the regulated community in the rulemaking process and not seek to eliminate public input when it 

seeks to change the information that it collects. 

ERIC appreciates the opportunity to submit these comments on the proposed regulations. If 

you have any questions concerning our comments, or if we can be of further assistance, please 

contact us at (202) 789-1400. 

Sincerely, 

Kathryn Ricard 

Senior Vice President, Retirement Policy 

39 78 Fed. Reg. at 20051. 
 

 

 

 

 

 

 

 

 

Submitted by e-mail to reg.comments@pbgc.gov 

June 3, 2013 

Regulatory Affairs Group 

Office of the General Counsel 

Pension Benefit Guaranty Corporation 

1200 K Street 

Washington, D.C. 20005-4026 

Re:	 Reportable Event and Certain Other Notification 

Requirements Proposed Rule and Request to Present
 

Oral Comments at Public Hearing 

RIN 1212-AB06
 

Docket ID: PBGC-2013-0001
 

Ladies and Gentlemen: 

These comments on the proposed rule on Reportable Events and Certain Other 

Notification Requirements (“Proposed Rule”)1 issued by the Pension Benefit Guaranty 

Corporation (“PBGC”) are submitted by the American Federation of Labor and Congress of 

Industrial Organizations (“AFL-CIO”) and its 57 affiliated unions. The AFL-CIO, together with 

its community affiliate Working America, represents more than 12.2 million workers across the 

country in all sectors of our economy, including those working in manufacturing, construction, 

transportation, health care, education, hospitality, entertainment and federal, state and local 

governments. Our affiliated unions negotiate pension benefits for millions of workers, and these 

benefits are provided through single employer and multiemployer plans. The overwhelming 

majority of these workers are covered by defined benefit plans. 

1 The Proposed Rule was published in the Federal Register on April 3, 2013 at 78 Fed. Reg. 20039 and it is 

available at http://www.pbgc.gov/Documents/2013-07664.pdf. 
 

 

 

 

 

 

 

 

 

 

 

In addition to submitting these comments, the AFL-CIO requests the opportunity to 

provide oral comments at the public hearing on the Proposed Rules scheduled to be held on June 

18, 2013. The witness for the AFL-CIO will be Damon A. Silvers, Policy Director and Special 

Counsel, and an outline of the topics to be discussed is included as Exhibit A to these comments. 

The Proposed Rule essentially overhauls the existing rule that has been effect since the 

end of 1996. In addition to several tailored exemptions for certain reportable events, the 

Proposed Rule relies on two broad financial soundness waivers for most events, one tied to the 

plan sponsor and the other to the plan affected by the particular event. As we explain below, the 

PBGC’s approach of relying on plan sponsor financial soundness to limit disclosure is 

inappropriate and should not be part of the final regulations on reportable events. In addition, 

our comments include suggested changes to other parts of the proposed rule. 

The Proposed Rule is being issued at a time when the retirement security of working 

families is increasingly at risk. Workers are more concerned than ever about having enough 

money to maintain their standard of living in retirement. Our nation’s retirement income 

deficit—the difference between having enough income in retirement to keep the standard of 

living attained while working and the projected income working families will have available in 

retirement—is a staggering $6.6 trillion,2 with more than half (53%) of American households at 

risk of not being able to maintain their standard of living in retirement.3 

In our view, defined benefit plans are the best means of providing meaningful retirement 

income to workers in their retirement. Over the last three decades, however, the private defined 

benefit pension system has shrunk considerably. The number of plans covering workers in the 

private sector has dropped dramatically, and only 17 percent of workers participate in defined 

benefit plans today.4 Further, employers increasingly are freezing pensions so that no newly 

hired workers are covered by them and, in some cases, some or all of the remaining workers 

covered by them accrue no new or limited benefits: In 2012, one-quarter (25%) of workers 

participating in defined benefit plans were covered by frozen plans.5 Most recently, some plan 

sponsors have taken the ultimate step in “de-risking” their obligations by offering lump sum 

payments to selected groups of retirees in pay status or purchasing annuities to provide those 

benefits outside of the plan. 

Against this backdrop of a fraying private-sector defined benefit system, the PBGC 

must carefully consider the impact of any regulatory changes it seeks to make. Changes that 

have the effect of encouraging plan sponsors to limit or end their commitment to their defined 

benefit plans or discourage other employers from considering adoption of defined benefit plans, 

without a meaningful gain in retirement security for covered workers, should be avoided. 

2 Retirement USA, The Retirement Income Deficit, http://www.retirement-usa.org/retirement-income-deficit-0
 

(downloaded 6/2/13).
 3 Center for Retirement Research at Boston College, National Retirement Risk Index: An Update, t. 1 (Oct. 2012).
 4 Bureau of Labor Statistics, Retirement Benefits: March 2012, t. 2 (2012), 

http://www.bls.gov/ncs/ebs/benefits/2012/ownership/private/table02a.pdf (downloaded 6/2/13).
 5 Bureau of Labor Statistics, Retirement Benefits: March 2012, t. 4 (2012), 

http://www.bls.gov/ncs/ebs/benefits/2012/ownership/private/table28a.pdf (downloaded 6/2/13).
 

2
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plan Sponsor Financial Soundness—Proposed Section 4043.9(b) 

The most significant aspect of the Proposed Rule is the introduction of a broad reporting 

safe harbor based on the financial soundness of the plan sponsor. As proposed by PBGC, a plan 

sponsor would have to satisfy five criteria in order to be considered “financially sound.” The 

first criterion is receipt of a score made by a commercial credit reporting company indicating a 

low likelihood that the entity will be unable to meet its financial commitments. The additional 

criteria are not considered if a plan sponsor does not meet this threshold requirement. Three of 

the additional criteria are tied to the financial performance of the entity, its indebtedness, and 

loan payment history and one looks to timely contributions to defined benefit plans. See 78 Fed. 

Reg. at 20043-20045. 

The AFL-CIO opposes any plan sponsor financial soundness waiver (or safe harbor) for 

reportable event submissions to the PBGC. Such an approach threatens to limit the amount of 

information available to the PBGC in a manner similar to the dynamics that produced the 2008 

financial crisis. We believe disclosure requirements aimed at assisting the PBGC’s assessment 

of risk should only be limited when the pension fund itself is adequately funded. 

The Proposed Rule and its financial soundness test are not the first time this 

Administration has sought to inject the concept into consideration with respect to the operations 

of PBGC. The last three budget proposals made by the Administration (Fiscal Years 2012, 2013 

and 2014) each included a provision authorizing PBGC itself to set its premiums and to develop 

a variable rate premium structure based, in part, on the financial condition of the plan sponsor. 

The Administration included a similar proposal in its deficit reduction proposal announced in 

September 2011.6 This Administration’s PBGC proposal also echoes portions of the 

comprehensive pension reform proposal made in 2005 by the Bush Administration.7 

None of the Administration’s proposed PBGC changes introducing plan sponsor financial 

soundness tests, however, have been enacted or seriously considered by Congress. And, the 

opportunity for doing so was clearly presented: Congress passed and the President signed into 

law changes to PGBC’s premium rates and structure as part of the Moving Ahead for Progress in 

the 21st Century Act (“MAP-21”)8 in 2012. 

Transfer of Benefit Liabilities—Proposed Section 4043.32 

In Section 4043.32(b)(2) of the Proposed Rule, the PBGC proposes to exclude the 

payment of lump sums or the purchase of an annuity from the scope of the transfer of benefit 

liabilities reportable event. The PBGC explains its rationale for this exclusion in the preamble, 

noting that the benefit restrictions in Section 206(g) of ERISA and Section 436 of the Internal 

6 The President’s Plan for Economic Growth and Deficit Reduction: Legislative Language and Analysis, pp. 43-45 

(Sept. 2011). http://www.thedma.org/segment/segmentfiles/retail/PresidentPlanforEconomicGrowthandDeficitReduction.pdf

PBGC, Impact of Pension Reform Proposals on Claims against the Pension Insurance Program, Losses to 

Participants, and Contributions, App. 1, p. 17 (Oct. 26, 2005) 

http://www.pbgc.gov/docs/impact_of_reform_proposals_1005.pdf

8 P.L. 112-141. 

3

7
 

 

 

 

Revenue Code will limit lump sum payments and annuity purchases by “significantly 

underfunded plans” and “tend to prevent cashouts and annuitizations that would most seriously 

reduce a transferor plan’s funded percentage,” and the payments or purchases satisfy the plan’s 

benefit obligations so “there is no concern about a transferee plan’s financial health.” 78 Fed. 

Reg. at 20050. 

The proposed exclusion does not, however, adequately take into account the interests of 

the workers who remain covered by the plan following the lump sum payments or annuity 

purchases. While we agree that the benefit restriction rules in ERISA and the Code provide 

some protection, they are not sufficient. A plan’s funding level immediately following the 

payment of lump sums or the purchase of an annuity may be above the critical statutory 

thresholds but significantly less than what it was before the “de-risking” transaction. Depending 

upon future economic conditions, investment returns and contributions, the funding level could 

fall, triggering one or more the statutory benefit restrictions and limiting the future benefits 

payable to remaining participants. 

We suggest that the final rule treat the payment of lump sums or the purchase of an 

irrevocable commitment to provide an annuity as a transfer of benefit liabilities. By doing so, 

PBGC will be better informed about these transactions and able to determine whether any 

regulatory response by the PBGC and the other agencies (the Departments of Labor and the 

Treasury) to address these de-risking transactions is appropriate. In addition, the agency will 

have more complete information about these transactions available to policymakers considering 

whether legislation regarding these transactions is warranted. Today, there are few, if any, clear 

rules governing these de-risking transactions. The AFL-CIO believes PBGC can and should play 

an important role in gathering information that might lead to better protection for workers and 

participants impacted by de-risking transactions. 

Forms and Instructions—Proposed Section 4043.5 

In Section 4043.5 of the Proposed Rule, the PBGC makes mandatory the use of the forms 

and instructions it promulgates for the reporting of reportable events. In addition, the forms and 

accompanying information must be filed electronically. 

While the AFL-CIO supports these modifications of the current reportable event 

regulations, we are concerned about the PBGC’s decision to eliminate the listing of the data and 

information to be submitted from the body of the regulations. Instead, PBGC intends to include 

the required data and information only in the instructions to the revised mandatory reporting 

forms. 

As explained in the preamble to the Proposed Rule, PBGC expects it may want to change 

the information that must be submitted with its proposed new reporting requirements and doing 

so may be done “more quickly than regulations can in response to new developments or 

experience.” 78 Fed. Reg. at 20051. 

While PBGC correctly notes that any revised forms or instructions are subject to public 

comment, the Paperwork Reduction Act (“PRA”) process is a far cry from the public notice and 

4
 

 

comment afforded proposed regulations. The PRA notices appear in the Federal Register, 

though they are not often highlighted or publicized and interested parties must either request 

copies of the documents submitted to the Office of Management and Budget for review or locate 

the documents on the agency’s or OMB’s website. Too often, PRA notices are easy to miss and 

they simply do not afford stakeholders an adequate opportunity to review and comment on any 

changes. 

We suggest that the current approach of including the initial information that must be 

submitted with the required reporting form continue to be included in the regulation. Doing so 

will afford some limited transparency to the reportable event process, and we do not believe it 

should be eliminated. 

We appreciate the opportunity to comment on the Proposed Rule, and we urge the PBGC 

to include our suggestions in the final rule. If you have any questions about these comments or 

need any additional information, please do not hesitate to contact me. 

Sincerely, 

Shaun C. O’Brien 

Assistant Policy Director for Health and Retirement 

5
Topic Outline for Oral Comment 

Public Hearing on Reportable Event and 

Certain Other Notification Requirements 

June 18, 2013 

American Federation of Labor-Congress of Industrial Organizations 

Damon A. Silvers 

Policy Director and Special Counsel 

I. Introduction and Concerns (2 minutes) 

II. The Plan Sponsor Financial Soundness Waiver to Limit Reporting Is Inappropriate 

and Should Not Be Included in the Final Rule (5 minutes) 

III. De-risking Transactions such as The Payment of Lump Sums or The Purchase of an 

Annuity Should Be Included as Reportable Events (2 minutes) 

IV. Conclusion (1 minute) 

6
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Via Regulations.gov 

June 3, 2013 

Ms. Catherine B. Klion 

Assistant General Counsel, Regulatory Affairs Group 

Office of the General Counsel 

Pension Benefit Guaranty Corporation 

1200 K Street N.W. 

Washington, DC 20005-4026 

Re:	 The Pension Benefit Guarantee Corporation, “Proposed Rule for Reportable 

Events and Certain Other Notification Requirements,” RIN 1212-AB06 

Dear Ms. Klion: 

The Financial Services Roundtable1 (the “Roundtable”) appreciates the opportunity to 

express our support for the U.S. Chamber of Commerce’s (the “Chamber”) comment letter to the 

Pension Benefit Guarantee Corporation (the “PBGC”) regarding the Proposed Rule for 

Reportable Events and Certain Other Notification Requirements (the “Proposal”).

2 Section 

4002(b)(3) of the Employee Retirement Income Security Act of 1974 (“ERISA”), the legal 

authority for reportable events regulation, requires plan sponsors to report to the PBGC a range 

of corporate and plan events impacting pension plans when they occur. Moreover, Section 4043 

of ERISA gives the PBGC authority to define these reportable events and to waive reporting 

requirements where appropriate. 

Today, the Chamber submitted a comment letter addressing a number of potential issues 

raised by the Proposal including, but not limited to: 

	 The use of credit scores or credit ratings in connection with new safe harbor 

financial soundness criteria and in the retirement plan context, generally; 

1 The Financial Services Roundtable represents 100 integrated financial services companies 

providing banking, insurance, and investment products and services to the American consumer. Member companies 

participate through the Chief Executive Officer and other senior executives nominated by the CEO. Roundtable 

member companies provide fuel for America’s economic engine, accounting directly for $98.4 trillion in managed 

assets, $1.1 trillion in revenue, and 2.4 million jobs. 

2 Proposed Rule for Reportable Events and Certain Other Notification Requirements, 78 Federal 

Register 20039 (April 3, 2013). 

1 
 

 

 

 

 

 

 

 

Richard M. Whiting 

 

 

 The use of a termination liability measure and a 120 percent funding requirement 

as alternative financial soundness tests for safe harbor; and 

 The maintenance of a paper filing option for reportable events reporting. 

The Roundtable fully supports the positions and recommendations outlined in the 

Chamber’s comment letter. We believe that it is important for the industry to speak with a 

singular voice concerning these important issues. 

If it would be helpful to discuss the Roundtable’s views on these issues, please contact 

me at Rich@fsround.org or Brian Tate at Brian@fsround.org. 

Sincerely yours, 

Executive Director and General Counsel 

The Financial Services Roundtable 

202-589-2413 

2 
 

June 3, 2013 

Regulatory Affairs Group 

Office of the General Counsel 

Pension Benefit Guaranty Corporation 

1200 K Street, NW 

Washington, DC 20005-4026 

Re: RIN 1212-AB06 

Dear Sir or Madam: 

On behalf of the American Benefits Council (the “Council”), I am writing to express 

great concern regarding an element of the proposed regulations regarding “Reportable 

Events and Certain Other Notification Requirements.” 

The Council is a public policy organization representing principally Fortune 500 

companies and other organizations that assist employers of all sizes in providing 

benefits to employees. Collectively, the Council’s members either sponsor directly or 

provide services to retirement and health plans that cover more than 100 million 

Americans. 

There are a number of issues raised by the proposed regulations, but we respectfully 

focus our attention here on one issue that we see as having by far the broadest effect: 

the use of the financial soundness of the plan sponsor as a factor in PBGC’s exercise of 

its enforcement and interpretive authority. 

The negative impact of the growing use of plan sponsor financial soundness as a 

factor, such as in this proposed regulation, is easily seen in the PBGC’s enforcement 

policy under ERISA section 4062(e) and in the Administration’s recent premium 

proposals. However, while the financial soundness test could decrease the reporting 

burden on some “stronger” companies, the proposal has the effect of increasing the 

burden on “less strong” companies (by imposing more burdensome requirements than 

would be imposed if the reporting requirements applied equally to all companies). For 

example, the proposal dramatically increases the amount of information required to be 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

submitted with an initial reportable events notice and tightens reporting waivers based 

on plan funding status. It also eliminates the extensions tied to actual notice of an event 

and of the controlled group relationship where the event involves a “foreign-linked 

entity” or foreign parent. In addition, the Council is concerned that once the precedent 

of evaluating company health is established in the reportable events area, the 

government could use a similar test for other purposes, such as the calculation of 

premium payments. We see this trend as constituting a serious threat to the strength of 

the defined benefit plan system and to the PBGC. 

The financial soundness test is pro-cyclical in nature. There are two main reasons 

for the long decline of the private defined benefit plan system. First, the increasing 

volatility of plan funding and accounting obligations makes business planning and 

capital planning exceedingly difficult, especially for public firms. Second, the funding 

and accounting rules have a “pro-cyclical” effect, so that when economic challenges are 

the greatest, the burdens are the highest. Companies concerned about making 

inevitable future down cycles far worse may need to consider exiting the system. Use of 

a financial soundness test would exacerbate the second problem. 

The financial soundness test is a threat to PBGC. One very clear fact is often 

overlooked in analyses of threats to the PBGC. No healthy company has ever turned 

over liabilities to the PBGC. Only unhealthy companies pose a risk to the PBGC. So 

logically, PBGC’s primary interest should be to help financially challenged companies 

recover so they do not have to turn over their obligations to the PBGC. While we 

appreciate that use of financial soundness as a trigger for additional burdens may 

appear logical on the surface, if applied in practice, it makes it more difficult for plan 

sponsors to recover and thus (1) increases the likelihood of liabilities being turned over 

to the PBGC and (2) is not in the best interests of plans or participants. 

Financially strong companies oppose the use of financial soundness tests. Many 

financially strong companies have expressed grave concerns to the Council about 

PBGC’s use of financial soundness as a trigger for increased burdens. 

First, such companies know that they could face business challenges in the future. 

Currently strong companies do not want burdens imposed in the future when they are 

least able to afford such burdens. Further, a company may have a very strong plan and 

experience short term business challenges. 

Second, strong companies that want to stay in the system know that the pro-cyclical 

effects of the financial soundness tests will cause many more plan sponsors to exit the 

system. That would mean that far fewer companies would be responsible for paying 

for PBGC liabilities, thus dramatically increasing the burden for those companies. 

2
 
 

 

 

 

 

 

 

 

 

 

 

 

The reasons that both strong and less strong companies have expressed opposition 

to the PBGC assessing the financial soundness of private companies are discussed 

further below. 

Financial soundness tests led to de-risking and will lead to more de-risking. For 

the reasons described above, the imposition of financial soundness tests is a 

contributing factor to the trend toward plan shrinkage by offering lump sums or 

providing annuity contracts—generally referred to as “de-risking.” In fact, it was the 

Administration’s PBGC premium proposal—based on a financial soundness test—that 

provided the catalyst for de-risking. The driving force behind the de-risking trend is 

funding and accounting volatility, but it was the premium proposal that provided the 

spark. Additional rules that include financial soundness increase risk for sponsors 

maintaining pension plans, and the economic environment will push companies to 

further de-risking. 

A financial soundness test is similar to charging people higher health insurance 

premiums after they get sick. There is an initial appeal to the argument that a financial 

soundness test is needed to focus burdens on the companies creating risk to the PBGC, 

but that argument falls apart upon scrutiny. As discussed above, by focusing burdens 

on those least able to afford the burdens, a financial soundness test has the adverse 

effects of hindering companies’ recovery, and severely hurting the plan system and 

PBGC. The best analogy would be to a system that increases premiums for individuals 

who get sick. Financial soundness tests make it much harder for a company to recover 

and therefore increase the likelihood of the obligations being turned over to the PBGC. 

It is inappropriate for PBGC to assess the financial soundness of businesses. It is 

inappropriate for PBGC, on behalf of the Federal government, to judge the financial 

soundness of companies. There has been some suggestion that the proposed test is 

simply based on existing commercial measurements but the PBGC is proposing much 

different criteria. 

 The PBGC will decide what credit score is sufficient. 

 The PBGC will have to make up its own credit score for the employers with no 

credit score. 

 The “no-secured debt” rule is created by PBGC. 

 The “two years of positive net income” test is created by PBGC. And it does not 

make sense. For example, very profitable companies can have one-time events 

that result in a misleading loss year. And the application of this rule to nonprofits is simply inconsistent with the nature of non-profit organizations. 

 The “no loan default rule” is created by PBGC and does not take into account 

meaningless technical defaults that are waived by the lender and are not 

indicative of any business issue. 

3
 
 

 

 

 

 

 

 

 

While the Council is in favor of reducing unnecessary reporting, a flawed test that 

could serve as a precedent for other areas (such as premiums) is worse than extra 

reporting. 

While we do not comment today on whether indeed the use of credit scores is 

consistent with the requirements of Dodd-Frank, we do note that there are a variety of 

commercial measurements that are used for a wide variety of specific purposes, none of 

which are necessarily consistent with or appropriate for the use proposed by the PBGC. 

But this is certainly an issue meriting a very careful legal review. 

The tests for plan “soundness” do not make sense. In this interest rate 

environment, the plan soundness tests are not realistic. Any plan that is at the proposed 

funded levels today would be close to 200% funded on a funding basis when interest 

rates return to historically average levels. In effect, thus, there would be no plan 

soundness test today under the proposed regulations. 

CONCLUSION 

In order to avoid accelerating the decline of the defined benefit plan system, PBGC 

needs to signal its commitment to supporting the system by abandoning its use of a 

financial soundness test. In addition, the use of a financial soundness test would, by 

reason of this acceleration, severely hurt the PBGC by eroding PBGC’s premium base. 

The proposed reportable events regulations need to be withdrawn. While some 

companies would see reduced reporting, currently the proposal is based on a flawed 

premise that will hurt the plan system and the PBGC for the reasons outlined above. 

We respectfully request the opportunity to testify at the PBGC’s June 18 hearing on this 

issue. 

Thank you for your consideration of our views. 

Sincerely, 

Lynn D. Dudley 

Senior Vice President, Retirement 

and International Benefits Policy 

4
 
 

 

 

 

PUBLIC SUBMISSION 

As of: May 01, 2013 

Received: April 03, 2013 

Status: Posted 

Posted: May 01, 2013 

Tracking No. 1jx-84kk-lgxa 

Comments Due: June 03, 2013 

Submission Type: Web 

Docket: PBGC-2013-0001 

Reportable Events and Certain Other Notification Requirements 

Comment On: PBGC-2013-0001-0001 

Reportable Events and Certain Other Notification Requirements 

Document: PBGC-2013-0001-0002 

Comment on FR Doc # 2013-07664 

Submitter Information 

Name: BRIAN P. WARNOCK 

Address: 

AMERICAN PENSION CORPORATION
 

1375 PLAINFIELD AVE.
 

WATCHUNG, NJ, 07069
 

Email: APC401K@AOL.COM 

Phone: 908-757-5151 EX 104 

Fax: 908-757-9644 

Organization: AMERICAN PENSION CORPORATION 

Government Agency Type: Federal 

Government Agency: PBGC 

General Comment 

Get rid of the rule that makes you notify the PBGC every time a required quarterly contribution 

is not made. Many employers contribute annually for cash flow or convenience, and missing a 

quarterly contribution does not mean they will not make the required annual contribution. 
Page 1 of 1 

PUBLIC SUBMISSION
 

As of: May 20, 2013 

Received: May 15, 2013 

Status: Posted 

Posted: May 20, 2013 

Tracking No. 1jx-85cp-2nla 

Comments Due: June 03, 2013 

Submission Type: Web 

Docket: PBGC-2013-0001 

Reportable Events and Certain Other Notification Requirements 

Comment On: PBGC-2013-0001-0001 

Reportable Events and Certain Other Notification Requirements 

Document: PBGC-2013-0001-0003 

Comment on FR Doc # 2013-07664 

Submitter Information 

Name: Mark Sokolow 

Address: 

338 Wedgerock Drive 

Webster, TX, 77598 

Email: mark@mtsokolow-attorney.com 

Submitter's Representative: Mark Sokolow 

Organization: Law Office of Mark Sokolow 

General Comment 

COMMENTS ON PROPOSED RULES, REGULATIONS OR AGENCY ACTIONS: 

I would suggest that you promote electronic filing of reports. 

MARK SOKOLOW 

ATTORNEY AT LAW 

338 Wedgerock

Webster, Texas 77598 

http://mtsokolow-attorney.com 

mark@mtsokolow-attorney.com 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One Stamford Plaza 

263 Tresser Boulevard 

Stamford, CT 06901-3226 

T +203 326 5400 

towerswatson.com 

May 24, 2013 

Regulatory Affairs Group 

Office of the General Counsel 

Pension Benefit Guaranty Corporation 

1200 K Street NW 

Washington, DC 20005-4026 

RIN 1212-AB06 

RE: Proposed Regulations on Reportable Events 

Dear Sirs and Mesdames: 

This letter is the response of Towers Watson to the request for public comments on the proposed 

modifications to regulations under ERISA Part 4043 regarding reportable events and certain other 

notification requirements. 

Towers Watson is a leading global professional services company that helps organizations improve 

performance through effective people, risk and financial management. Towers Watson offers solutions 

in the areas of employee benefits, talent management, rewards, and risk and capital management. 

Towers Watson employs approximately 14,000 associates on a worldwide basis. Our more than 600 

Enrolled Actuaries under ERISA provide actuarial and consulting services to more than 1,700 defined 

benefit plans in the U.S. We appreciate this opportunity to comment. The undersigned have prepared 

our firm’s response with input from others in the firm. 

Towers Watson strongly agrees with the PBGC’s decision to revise the proposal issued in 2009 with the 

intention of focusing reporting on those situations that present substantial risk to the PBGC. We 

appreciate PBGC’s thoughtful consideration of the balance between the need for information and the 

cost to plan sponsors (and PBGC) of reporting it, and will discuss below certain changes to the proposal 

that we believe would help further achieve this balance. We also support PBGC’s efforts to standardize 

and streamline the reporting process, through forms, e-filing and commonality of waivers across multiple 

events. 

Financially Sound Sponsor or Controlled Group Member 

The most substantial step the proposal takes in attempting to target reporting requirements at those 

situations that PBGC believes present risk is to provide waivers for certain post-event reporting in 

situations where the plan sponsor or highest US controlled group parent are viewed as “financially 

sound”. Financial soundness is determined according to criteria specified in the proposal and PBGC 

has requested comments on many aspects of this determination. 

We strongly support the idea of providing broad waivers in situations where there is no significant risk to 

PBGC. While we believe that the financial soundness criteria in the proposal represent a reasonable 

attempt to accomplish this over a spectrum of plan sponsors, we are concerned that the waiver will be 

unavailable in many situations that do not pose risk to PBGC. This result will unnecessarily use 

resources of plan sponsors and PBGC alike and thus should be avoided. 

Towers Watson Pennsylvania 

Page 1 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 24, 2013 

While we do not profess to be experts in using financial metrics to evaluate company financial 

soundness, our experience working with companies does allow us to provide some examples that 

illustrate the concern we have expressed. While each of the individual criteria seems reasonable, the 

requirement that all five be met would seem to withhold waivers in many situations that present little risk 

to PBGC. As one example, consider the requirement to have positive earnings under GAAP or IFRS for 

the past two years. In our experience, it is not at all uncommon for stable, profitable companies to show 

accounting losses from time to time for any number of reasons, such as restructurings, normal business 

cycles and extraordinary events. 

As another example, consider the requirement that the entity have no secured debt, disregarding leases 

or debt incurred to acquire or improve property and secured only by that property. Companies that have 

unsecured debt available to them will still often provide security as a means of obtaining a lower interest 

rate. Furthermore, a company may take on the secured debt of an entity it acquires and either carry it 

or unwind it over time. That secured debt would not be indicative of the acquiring company’s financial 

soundness. 

We believe that adding additional criteria based on items such as free cash flow, earnings from 

continuing operations, net worth and commonly used financial ratios, and requiring companies to meet 

only a certain number of them (for example, 75%), would better target situations that present real risk 

and thus achieve a better balance between the need for information and the cost of reporting. If PBGC 

believes that certain criteria are critical, PBGC could require those criteria plus a percentage (e.g., 50%) 

of the remaining criteria be satisfied. 

With respect to the requirement regarding missed contributions, we recommend that an exception be 

granted for missed contributions caused solely by the failure to make a timely funding balance election. 

In such situations there is no requirement that cash be contributed to the plan, as the money is already 

in the plan. As with missed contributions corrected within 30 days, this “contribution” is missed solely 

due to administrative oversight. Such situations in no way indicate risk to PBGC. 

We note that in certain situations, it may not be possible to determine if the financial soundness criteria 

is met when an event occurs. For example, net income for the prior fiscal year may not be known by 

the reporting date for an event that occurs early in the fiscal year. There may be other such timing 

issues, such as whether an entity is required to file a US tax return for a fiscal year. In such situations 

we would suggest that the second and third prior years be used. 

Plan Financial Soundness 

We understand PBGC’s experience in taking over plans that were more than 80% funded on a variable 

premium basis has caused it to propose stricter plan funding based thresholds for reporting waivers. 

However, we believe that PBGC has increased the threshold far too much and set it at a level that 1) 

virtually no plans would currently meet, and 2) provides for NO risk to PBGC as opposed to risk that is 

not substantial enough to require reporting. 

We believe that 90% of plan termination liabilities is a more appropriate level at which to provide 

reporting waivers. We maintain that withholding waivers from plans that are close to 100% funded on 

a termination basis would essentially assume that all of these plans are at risk of termination any time a 

reportable event occurs, and does not strike the right balance between PBGC’s need for information 

and the burden on plan sponsors. The reports would also tax the resources of PBGC and prevent it 

from adequately focusing on the small subset of these situations where a termination that would impose 

substantial liability on PBGC seems possible. Lastly, we note that a plan termination measurement does 

not exist for most plans so that this criterion has little practical application. 

Page 2 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 24, 2013 

We also believe that the variable premium rules already contain a risk-based element and that the 

waivers should reflect that element. Specifically, if a plan is funded well enough so that it is not required 

to pay variable rate premiums, it should be granted a waiver from reporting. If a plan is viewed as not 

presenting enough risk to PBGC to pay risk-based premiums then it seems clear that the level of risk 

presented by the plan is small and thus waivers from post-event reporting are appropriate. This is 

essentially the same as reducing the proposed 120% threshold to 100%, which is the maximum level at 

which we believe it should be set 

Combined Financial Soundness 

As noted previously, we believe that the proposal will require reporting in many situations that do not 

pose a substantial risk to the PBGC. One reason for this is the separation of the financial soundness 

waivers for the sponsor and the plan. We understand that keeping these waivers separate can be 

viewed as reducing the complexity of the waiver provisions, especially when compared to the current 

rules. However, there will be many circumstances where both the sponsor and the plan come close to, 

but do not meet, the financial soundness criteria. Such situations would likely not present substantial 

risk to PBGC, and we recommend that some kind of combination waiver be available. For example, 

assuming our suggestions above are adopted and the sponsor requirement is 75% of revised criteria 

and the plan requirement is 90%/100% funded on a termination/ongoing basis, the regulation might 

provide that situations in which the company meets 65% of the requirements AND the plan is 80%/90% 

funded would qualify for a waiver. 

Another alternative for combined waivers would be to compare measures of the plan to that of the plan 

sponsor or controlled group. For example, if plan underfunding is only a very small percentage of free 

cash flow or operating income or net worth, then there would seem to be little risk to PBGC. 

Conclusion 

We thank you for the opportunity to comment on the proposed regulations. We applaud the goals of the 

proposals – to make the process more efficient and to require reporting only in those situations that 

genuinely present risk to PBGC. We believe that the proposal can be improved to better accomplish 

these goals and have made suggestions to that effect. We would welcome the opportunity to discuss 

these comments at your convenience. 

Michael F. Pollack, FSA, EA 

Senior Consultant, North America Retirement Actuarial Leadership 

mike.pollack@towerswatson.com 

(203) 326-5469 

Maria M. Sarli, FSA, EA 

U.S. Retirement Resource Actuary 

maria.sarli@towerswatson.com 

(404) 365-1708 

Page 3 
June 3, 2013 

Submitted via email to reg.comments@pbgc.gov 

Regulatory Affairs Group 

Office of the General Counsel 

Pension Benefit Guaranty Corporation 

1200 K Street NW 

Washington, DC 20005-4026 

Dear Sir or Madam, 

Subject: RIN 1212-AB06—Comments on Proposed Regulation under ERISA Section 4043 Reportable 

Events and Certain Other Notification Requirements 

Aon Hewitt welcomes the opportunity to submit comments on the proposed rule regarding Reportable 

Events and Certain Other Notification Requirements. The proposed regulation was published in the Federal 

Register on April 3, 2013. 

Who We Are 

Aon Hewitt empowers organizations and individuals to secure a better future through innovative talent, 

retirement, and health solutions. We advise on, design, and execute a wide range of solutions that enable 

clients to cultivate talent to drive organizational and personal performance and growth, navigate retirement 

risk while providing new levels of financial security, and redefine health solutions for greater choice, 

affordability, and wellness. Aon Hewitt is the global leader in human resource solutions, with over 30,000 

professionals in 90 countries serving more than 20,000 clients worldwide. For more information on Aon 

Hewitt, please visit www.aonhewitt.com. 

We appreciate the PBGC’s reflection of the numerous comments on the previous proposed regulations 

issued on November 23, 2009. The current proposed regulation includes a number of significant changes 

from those regulations. However, the proposed regulation would require more ongoing monitoring for plan 

sponsors, additional reporting, and more information to report than existing reportable event regulations. 

The following are our comments on the current proposed rule. 

Financially Sound Plan Sponsor or Controlled Group Member 

Under the proposed regulation, reporting for five of the eleven post-event reportable events is waived if five 

criteria are met by either the plan sponsor or controlled group member. A number of modifications should 

be made to the various criteria relating to this waiver as described below. 

Clarify and Expand Determination Date 

While it appears that the intent of the waiver for a financially sound plan sponsor is to allow a sponsor to 

know at the time of the event if a waiver applies, the definition of “determination date” and the determination 

of the event date for each of the five events to which this waiver applies combine to result in a test which 

must be reviewed as of the actual event date for each possible event. 

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Financial soundness is met "as of any date (the determination date) if on the determination date" the criteria 

are met. [ERISA Section 4043.9(b)] However, each of the events defines the waiver to be measured “when 

the event occurs.” For all but the active participant reduction attrition reportable event, the event may occur 

on any day in a year. For example, the “short-period” active participant reduction event may occur at any 

date during a plan year which would be considered the “event date.” Also, financial soundness is 

determined "when the event occurs." [ERISA Section 4043.23(d)(2)(ii)] Thus, a plan sponsor would need to 

determine each of the five plan sponsor financial soundness criteria as of that date. 

This would entail gathering information each time an event occurs. For instance, a commercial credit 

reporting company (CCRC) score would need to be gathered and reviewed as of that date. The amount of 

secured debt would need to be confirmed even if there was no secured debt other than for acquiring 

property at the beginning of the year. The net income for the two most recent years would need to be 

determined and the “most recent” of those years may change as new information becomes available. Also, 

the “loan event” would need to be reviewed as of the last two years since, for example, it is possible for a 

loan event which had occurred to fall out of the two-year window. Finally, the two-year period for 

determining if a contribution was late may change. 

We recommend redefining the financial soundness determination date to be either the event date or the 

date as of the end of the prior fiscal year as chosen by the plan sponsor. This would allow many plan 

sponsors to gather and review criteria at one point in the year to know whether reporting would be required 

for the five potential reportable events. If reporting were required, allowing a date as of the “event date” 

would allow a plan sponsor the opportunity to make changes that would eliminate reporting and help to 

make the company stronger from a PBGC perspective, such as eliminating secured debt that did not meet 

the criteria for a waiver. 

Commercial Credit Reporting Company Score 

One of the five criteria for a waiver based on plan sponsor financial soundness is a CCRC score that 

“indicates a low likelihood that the entity will default on its obligations.” We have several concerns with this 

score. 

According to the preamble, the score necessary to meet this criterion would be subject to changes by the 

PBGC over time. The proposed regulation does not provide any specific, objective criteria that would be 

used to change this threshold. Thus, it appears that the PBGC would have the ability to require more 

companies to report information by simply making this test more difficult to pass. We recommend there 

must be specific criteria laid out under which the PBGC would change the CCRC score threshold. 

In addition, the CCRC score threshold would be published by the PBGC on the PBGC website. Since there 

is no timing indicated for when such updates would occur, plan sponsors would need to constantly monitor 

the website for changes in this threshold. The PBGC should provide specific timing for changes in the 

passing CCRC score. 

The PBGC suggests that scores from companies other than Dun & Bradstreet could also be used. The 

PBGC should publish scores from other companies (such as CreditRiskMonitor) that indicate a company 

would meet the PBGC “low likelihood” of default criteria. 

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Finally, it is important to note that these scores may not be current for various reasons. It is our 

understanding that these scores may not necessarily be updated frequently, and therefore may not be the 

best representation of a company’s financial soundness at one specific point in time. Each time a plan 

sponsor has an event to review, they may need to determine if the CCRC score has changed (under the 

proposed determination date requirements). And, if a company’s score has changed for the worse, the 

sponsor would likely want to review the data used to determine the score. On the other hand, a company 

may have a score they believe meets the criteria at the point in time they review it and determine that a 

waiver of reporting applies, yet later find out that the score was out of date. 

Moreover, a score many not accurately reflect a business transaction that could provide a more positive 

snapshot of a company. For example, the current plan sponsor (as of the event date) may have been part 

of a business transaction which provides greater financial security. Yet, the CCRC score may not yet reflect 

such a transaction. Since there are no extensions available for most reportable events, a plan sponsor may 

need to determine the CCRC score using old information and be subject to reporting. 

Overall, the accuracy and timeliness of a CCRC score may cause some companies to over-report, creating 

an unnecessary burden. In addition, some companies may under-report due to no fault of their own. The 

proposed regulation provides no safe harbor from reporting penalties in relation to reliance on any CCRC 

score. We recommend the PBGC add a waiver of reporting penalty due to reliance of the sponsor on 

information available at the time the CCRC score was available. 

As discussed further under Positive Net Income Criterion below, we recommend that, as an alternative to a 

threshold on a CCRC score, the PBGC specify threshold levels of certain financial ratios below which the 

CCRC score requirement would be deemed to have been met. 

Positive Net Income Criterion 

The requirement to have two years of positive net income is too narrow in focus. Net income in and of itself 

is not necessarily an accurate measure of the financial health of a company. A company may have 

extraordinary income or expense items which are non-cash adjustments and do not give a good indication 

of whether the company is weak or at risk. For instance, a company may write down goodwill in a given 

year, resulting in a large one-time accounting charge to the income statement, yet such an item would have 

no impact on cash. Also, a company that uses mark-to-market accounting for its pension and other 

postretirement benefit plans would see all actuarial losses (and gains) recognized immediately in the 

income statement each year, yet these would be non-cash adjustments. More broadly, there are certain 

accounting items that are recognized on a company’s balance sheet in Accumulated Other Comprehensive 

Income (AOCI) that are periodically “recycled” out of AOCI and into the income statement. Such recycling 

could cause a company’s net income to be zero or negative in a given year, yet it would not actually change 

the company’s net balance sheet position at all. 

In addition, net income under U.S. Generally Accepted Accounting Principles (GAAP) is calculated 

differently than under International Financial Reporting Standards (IFRS). For example, companies 

accounting for their pension and other postretirement benefit plans under Accounting Standards 

Codification (ASC) Topic 715-30 are required to recognize actuarial gains and losses in the income 

statement, either immediately (in the case of a company using mark-to-market accounting) or amortized 

over time (in the case of a company using the corridor approach). In contrast, companies accounting for 

their plans under International Accounting Standard 19 (IAS 19) are required to recognize actuarial gains 

and losses through Other Comprehensive Income (OCI), which does not directly impact the income 

statement. There are a number of other areas in which the accounting under U.S. GAAP differs from that 

under IFRS. This results in a lack of comparability, such that there could be two companies in an identical 

financial situation, with one meeting the reporting waiver criteria and the other not meeting them. 

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Credit markets have developed loan covenants as a means of protecting creditors. These covenants define 

triggers that serve as an “early warning” mechanism to flag potential defaults, permitting creditors to take 

action to protect their interests. Covenants based on ratios such as Debt-to-EBITDA (Earnings Before 

Interest, Taxes, Depreciation, and Amortization) and Debt-to-Total Capital are commonly tracked by 

companies that issue debt or borrow from banks. Such covenants provide an alternative risk measure that 

may be more appropriate for the PBGC’s purposes than the net income requirement. 

If the positive net income criterion is retained, we recommend that the PBGC give consideration to 

adjustments for unusual items or non-cash charges that can create negative net income but that may not 

give a good indication of a company’s financial strength. Alternatively, we recommend that the PBGC 

permit the use of widely-used loan covenant ratios such as Debt-to-EBITDA and Debt-to-Total Capital in 

lieu of the positive net income requirement. We also recommend that, as an alternative to a CCRC 

threshold, the PBGC could specify threshold levels of such financial ratios below which the CCRC 

requirement would be deemed to have been met. 

No Failure to Make the Minimum Required Contribution Criterion 

Under the proposed financial soundness test, for a two-year period, a company must not have failed to 

make any contribution when due unless reporting is waived. The regulation should be clarified to reflect that 

late contribution reporting as required under ERISA Section 303(k) (for amounts over $1 million) does not 

apply. Thus, as long as a contribution of any amount is not more than 30 days late, the criterion would be 

satisfied. 

Also, while a late contribution may be an indication of financial weakness in certain situations, there are 

other situations where a contribution is considered “late” which cause no added risk to the PBGC and 

should be included as exceptions to this requirement. First, a mandatory reduction of a funding standard 

carryover balance or prefunding balance (i.e., a “deemed reduction” of funding balances) can retroactively 

create a late quarterly contribution. While a plan sponsor can report this to the PBGC within 30 days of the 

deemed reduction and avoid late reporting penalties, it is possible the sponsor may not become aware of 

the reporting need within 30 days. While the Failure to Make Required Minimum Funding Payment may 

apply as a reportable event in this situation, this should not force an otherwise strong company into 

reporting for other events over the subsequent two years. In addition, a reportable event for a missed 

contribution would apply when an election to apply funding balances is not made by the due date of the 

contribution. This situation can be triggered simply by a plan sponsor forgetting to sign the election. 

We recommend that the PBGC provide exceptions to the financial soundness requirement to not have a 

reportable event for missed contributions for two years to reflect these two unique situations where an 

actual cash contribution was not involved and the event was simply a matter of the retroactive application of 

the deemed reduction or of the late signature on an election to apply a funding balance. Neither of these 

two issues impacts the funding of the plan in actuality. 

Information for Five Criteria is Burdensome to Gather and Monitor 

There are many plan sponsors that are large or have complex financial structures which would make 

gathering information to check each of the five financial criteria burdensome and time consuming. In order 

to determine if a potential reporting waiver is available, the current CCRC score would need to be obtained 

and then verified. Up-to-date information on the type of secured debt would need to be gathered and 

reviewed. Two years of financial history would need to be obtained and a review of the availability of more 

current information would need to ensue. Also, the actuary would need to be questioned to determine if any 

contributions were late. All of this would need to occur no more than 30 days after the plan administrator 

learns of a reportable event to which these criteria apply. In addition, this information would need to be 

reviewed for both the plan sponsor and the controlled group member if one entity does not meet the criteria. 

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Given the information necessary for all five criteria, the amount of time to gather this extensive information 

and determine its validity would be extremely short. 

Overall, the requirement to meet all five criteria is too restrictive. Many financially sound plan sponsors 

could meet some but not all of the requirements and still be very strong companies. We suggest that the 

PBGC allow for meeting three to four of the five criteria in order for a financial soundness waiver to apply. 

This would provide for less of a burden on strong companies to gather and update information (since they 

would be able to quickly gather the easiest information) yet still identify companies that are potentially 

problematic. It would also provide some flexibility for companies that have negative net income due to 

unique circumstances which in no way make the company less strong. Also, it would be more equitable 

across companies to account for the fact that the determination of net income is not equivalent under 

various accounting standards (assuming that no other changes are made to the proposed regulation). This 

alternative approach would not seem to increase the PBGC’s risk significantly. If a company is financially 

weak and poses a concern to the PBGC, it would likely fail more than just one of these plan sponsor 

financial soundness criteria. 

Plan Financial Soundness 

The proposed criteria to be a financially sound plan require that a plan be fully funded on a plan termination 

basis as measured using actual plan termination assumptions under ERISA Section 4044 or at least 120% 

funded for vested benefits on a premium basis. These criteria are overly restrictive and do not consider the 

long-term nature of a pension plan. Since assets are measured as the market value of assets for either 

proposed test, this waiver does not take into consideration market volatility. Also, these criteria seem to 

require much more significant funding than the legally required minimum basis under the Pension 

Protection Act of 2006 (PPA) with or without regard to the changes made by the Moving Ahead for Progress 

in the 21st Century Act (MAP-21). It is unrealistic to require a plan to be funded on a plan termination basis 

using Section 4044 assumptions since in an actual plan termination, liabilities may be much lower if lump 

sums are provided to participants. Finally, requiring a plan termination funding level in order to avoid 

reporting will simply provide more incentive for plan sponsors to terminate a plan when such a funding level 

is met. 

Also, for two of the events, Extraordinary Dividend or Stock Redemption and Change in Contributing 

Sponsor or Controlled Group, every plan within the controlled group must meet the criteria in order for a 

waiver to apply. If just one plan is well-funded but not so well-funded that the plan financial soundness 

criteria are met, reporting for these events would apply even when the plan is at a low risk of underfunding. 

We recommend the PBGC consider a slightly lower threshold of plan financial soundness such as 95% to 

100% funded on a premium basis or 80% to 90% funded under ERISA Section 4044. This is a reasonable 

approach to use for purposes of providing a waiver for the five reportable events. If a company were 100% 

funded on a premium basis, it implies that the plan need not pay any variable premium based on its funding 

and is essentially not a risk to the PBGC since premiums aren’t charged beyond the flat rate. Alternatively, 

the PBGC could consider a plan financially sound if the minimum required contribution (without regard to 

MAP-21) for a year was $0, disregarding the use of any funding balances. 

Active Participant Reduction Reportable Event 

We believe the PBGC should modify the Active Participant Reduction reportable event for a number of 

reasons. 

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The PBGC has proposed modifying this event to require reporting within 30 days for a “single-cause event” 

which includes reorganization, the discontinuance of an operation, a natural disaster, a mass layoff, or an 

early retirement incentive program. If a natural disaster of this magnitude were to occur, the plan sponsor 

should not have to focus on gathering various company financial and plan financial information in such a 

short period. Thus, we recommend that the PBGC remove the requirement for reporting if a reduction in 

active participants is the result of a natural disaster. Alternatively, if maintained in the final regulation, we 

believe that a company that experiences a 20% reduction in participants due to a natural disaster should be 

allowed more than 30 days to report to the PBGC and an extension of reporting should automatically be 

provided to 180 days after the natural disaster. 

The proposed “short-period” event will require plan sponsors to monitor changes in participant counts every 

thirty days. Combining this 30-day period with the fact that the financial soundness criteria must be 

measured “as of the event date,” the effort to monitor this event to report timely would be a significant 

burden. Every sponsor would need to perform a 30-day rolling check of participants and then confirm 

financial soundness as of that date if a reduction occurred. Plan sponsors do not always maintain 

information regarding which employees are plan participants since, typically, age and service requirements 

for plan participation apply. Plan administrators may determine which employees are participants but do not 

report that data on a monthly basis. We believe that the proposed “single-cause event” targets the more 

“high risk” participant reductions and that monitoring plan participant counts on a rolling 30-day basis is 

unnecessary. Such reductions, if significant, will be identified in the attrition event. Thus, the short period 

event should be eliminated since it is burdensome and unnecessary. 

Plans that are frozen – for new entrants or for benefit accruals – should be exempt from all but the singlecause active participant reduction reportable event. Plans that no longer have new entrants will eventually 

run afoul of the reportable event regulations simply due to attrition. The PBGC should not require ongoing 

reporting for normal reductions in participant counts for such plans. In addition, a waiver of reporting should 

apply to plans that have less than 100 active participants. If a plan has very few active participants (but 

more than 100 participants including in-pay status or terminated vested participants) a minor change in the 

number of active participants will trigger reporting. Yet, the reduction in active participants is likely not an 

event which would cause concern for the PBGC. In the majority of cases, the plan is frozen or the plan is a 

legacy plan where the company has stopped providing defined benefit pensions and has switched to 401(k) 

benefits. 

Complicated Waivers on a Controlled Group Basis 

There are five reportable events that involve reporting at the controlled group level rather than the plan 

level. These events include Change in Contributing Sponsor or Controlled Group, Liquidation, Loan Default, 

Extraordinary Dividend or Stock Redemption, and Insolvency. For each of these events, the event is 

triggered by something that is not specific to the plan and thus, the potential waivers need to be reviewed 

for every plan within the controlled group. The proposed waiver criteria create additional complications in 

determining if a waiver applies, and should be clarified for these events. This issue is best illustrated by an 

example. 

Suppose Controlled Group X has two members, A and B. Member A sponsors three defined benefit plans 

and Member B does not sponsor any plans. Also, the parent organization (X) itself sponsors two defined 

benefit plans. Controlled Group X sells Member B to another controlled group. This appears to be a 

reportable event even though Member B does not sponsor a plan since, from the perspective of each plan 

within the controlled group, one or more persons ceased to be members of the controlled group. Thus, the 

waiver criteria must be reviewed from the perspective of every plan. 

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Assume that Member A meets the “financially sound sponsor” waiver criteria. Thus, reporting would be 

waived for the three plans sponsored by Member A. However, assume that the controlled group cannot 

meet the financially sound criteria. The two plans maintained by the Parent X would then need to meet 

waiver criteria. If one plan had less than 100 participants, a waiver would apply. However, if the remaining 

plan could not meet the “financially sound plan” test, reporting would be required for the entire controlled 

group. 

In a complicated controlled group situation, it would be difficult for a plan administrator to determine if 

reporting applied and would require significant coordination across plan sponsors and controlled group 

members to gather information and test the various reporting waivers. 

We suggest the PBGC use this opportunity to provide more simplified approaches to reporting waivers for 

controlled groups. 

Closing 

We appreciate the opportunity to submit these comments regarding the proposed regulation. If you have 

any questions regarding these comments, please contact the undersigned at the telephone number or 

electronic mail address provided below. 

Sincerely, 

Aon Hewitt 

Monica L. Gajdel 

FSA, EA, MAAA 

Partner 

(847) 442-3248 

monica.gajdel@aonhewitt.com 

Eric Keener 

FSA, EA, MAAA 

Partner and Chief Actuary 

(203) 852-1100 

eric.keener@aonhewitt.com 

Alan N. Parikh 

FSA, EA, CFA 

Associate Partner 

(847) 442-0235 

alan.parikh@aonhewitt.com 

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