I' 

PBGC """ Pension Benefit Guaranty Corporation 

Protecting America's Pensions 1200 K Street, N.W., Washington, D.C. 20005-4026 

August 29, 2014 

Re: Appeal 2013-11111; Case~ (the 

or the "Plan") 

Dear-: 

T~oard decision responds to the appeal you filed regarding 

PBGC's ---- 2012 determination that the cash-balance portion of your 

benefit under the -Plan will be paid in the form of a 170-Month Certain-Term 

Annuity. As we explain below, the Board granted your appeal by finding that PBGC 

will pay you the portion of your cash-balance benefit that was not paid to you 

before the Plan terminated in the form of a Joint & 100% Survivor Annuity with 

your spouse as the contingent annuitant, reduced in accordance with the legal 

limitations on PBGC benefits. 

Background 

PBGC is the U.S. government agency that provides pension insurance in 

accordance with Title IV of the Employee Retirement Income Security Act of 1974, 

as amended ("ERISA"). If a plan sponsor is unable to continue supporting its 

qualified, defined-benefit pension plan, PBGC becomes trustee of the plan and pays 

benefits as defined in the plan, subject to the limitations and requirements set by 

Congress under ERISA and PBGC's rules and regulations. Records available to the 

Appeals Board show that PBGC became statutory trustee of the -Plan on 

October 18, 2011. The trusteeship agreement set April 27, 2011 as the Plan's 

termination date. 

The documents that PBGC received from the Plan's former administrator (the 

show that: 

(1) You were born on 

(2) You retired from-on 2007; 

(3) You elected to start receiving your retirement benefits under thePlan starting on 2007; 
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( 4) You earned two separate benefits under the-Plan, namely 

(a) 

(b) 

a grandfathered benefit, which you chose to receive in the form 

of a Joint & 100% Survivor Annuity ("J&l00%SA"); and 

a cash-balance benefit, whic~ chose to receive under the 

lump-sum option offered by- with your spouse's written 

consent. 

(5) As a result of the fact that -did not fund the Plan's trust 

sufficiently at any time between 2007 and the Plan's 

termination date, you received only partial monthly payouts of your 

lump-sum benefit in accordance with section 401(a)(4) of the Internal 

Revenue Code ("IRC") because you were a High~mpensation 

Employee ("HCE") at the time your employment with-terminated. 

PBGC's Benefit Determination and Your Appeal 

After PBGC reduced the monthly payments that you were receiving to their 

estimated guaranteed level, you suggested to PBGC that your remaining lump sum 

should be paid to you in the same J&100%SA form of benefit that you elected for 

your grandfathered benefit. When PBGC personnel stated that PBGC could not do 

so, you requested that PBGC send you a formal benefit determination regarding the 

form of benefit in which PBGC would pay your cash-balance benefit. 

PBGC's 2012 determination letter told you that PBGC would 

pay your cash-balance benefit in the form of a 170-month term certain annuity. 

PBGC's subsequent 2012 clarification letter told you that PBGC is 

"unable to change our determination because of the form of benefit you elected." 

Your 2013 appeal letter disagreed with PBGC's determination 

that you elected to receive your cash-balance benefit as a term-certain annuity. 

Your appeal stated in pertinent part as follows: 

If the lump sum option was intended to be a term certain monthly 

annuity as stated in your -determination letter, this fact 

should have been clearly disclosed at the time of election, including 

interest rates, length of the term and beneficiary choices if both 

spouses were deceased. Instead, the communication focused on 

interim payments until a lump sum could be legally paid, and the lump 

sum optio-n was never characterized as a term certain monthly 

annuity .... 

I understand that the PBGC has legal restrictions on lump sum 

distributions and annuity payments and that my monthly benefit 

payment has been reduced accordingly. However, I do not believe it is 

equitable to now be paid less than the PBGC reduced monthly 100% 

joint and survivor annuity option since the election process was 

misleading .... 
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Scope of this Appeals Board Decision 

PBGC's 2012 determination and this Appeals Board decision 

are concerned only with the form in which your cash-balance benefit will be paid by 

PBGC. PBGC is currently paying you an estimated guaranteed monthly benefit, 

which includes both (1) an estimated grandfathered monthly benefit amount under 

the Plan's traditional benefit formula; and (2) an estimated monthly benefit amount 

under the cash-balance formula. After PBGC completes its audit of the-Plan, 

PBGC will issue you another formal determination letter regarding the final amount 

of your PBGC-payable benefits under the-Plan. 

The Pre-Termination Restrictions on Lump-Sum Benefits Payable to 

Former Highly Compensated Employees 

Section 401(a)(4) of the !RC provides generally that a plan is a qualified plan 

only if the contributions and the benefits provided under the plan do not 

discriminate in favor of highly compensated employees ("HCEs"). On 

September 19, 1991, final regulations under section 401(a)(4) were published in 

the Federal Register. 1 Treas. Reg. § 1.401(a)(4)-52 describes certain rules 

regarding "Plan Amendments and Plan Termination" to ensure that a plan does not 

improperly discriminate in favor of such employees. 

Within that section of the treasury regulations, subsection 1.401(a)(4)-S(b) 

describes certain "Pre-termination restrictions" that are required in qualified plans 

as follows: 

1 

2 

( b) Pre-termination restrictions-

(1) Required provisions in defined benefit plans. A defined benefit 

plan has the effect of discriminating significantly in favor of 

HCEs or former HCEs unless it incorporates provisions 

restricting benefits and distributions as described in paragraph 

(b)(2) and (3) of this section at the time the plan is established 

or, if later, as of the first plan year to which §§ 1.40l(a)(4)-1 

through 1.401(a)(4)-13 apply to the plan under§ 1.401(a)(4)-

13(a) or (b). This paragraph (b) does not apply if the 

Commissioner determines that such provisions are not 

necessary to prevent the prohibited discrimination that may 

occur in the event of an early termination of the plan. The 

restrictions in this paragraph (b) apply to a plan within the 

meaning of § l.410(b)-7(b) (i.e., a section 414(1) plan). Any 

plan containing a provision described in this paragraph (b) 

satisfies section 41l(d)(2) and does not fail to satisfy section 

41l(a) or (d)(3) merely because of the provision. 

See T.D. 8360, 57 F.R. 35536 (August 10, 1992). 

26 C.F.R. § 1.401(a)(4)-5. 
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(2) Restriction of benefits upon plan termination. A plan must 

provide that, in the event of plan termination, the benefit of 

any HCE (and any former HCE) is limited to a benefit that is 

nondiscriminatory under section 401(a)( 4 ). 

(3) Restrictions on distributions-

(i) General rule. A plan must provide that, in any year, the 

payment of benefits to or on behalf of a restricted employee 

shall not exceed an amount equal to the payments that would 

be made to or on behalf of the restricted employee in that year 

under-

(A) A straight life annuity that is the actuarial equivalent of 

the accrued benefit and other benefits to which the 

restricted employee is entitled under the plan (other 

than a social security supplement); and 

(B) A social security supplement, if any, that the restricted 

employee is entitled to receive. 

Discussion 

1. PBGC's treatment of your lumR-sum election as an election of a Term Certain . 

Annuity 

In 2011, PBGC began developing a revised working procedure that it has 

used to calculate and determine the benefits payable by PBGC to HCEs who elected 

to receive their retirement benefits in the form of lump sum before their plan's 

termination date. At the heart of this procedure is PBGC's treatment of such lumpsum elections as if they were elections of a Term Certain Annuity ("TCA"). 

PBGC decided to treat such lump-sum elections as if they were elections of a 

TCA after observing that: 

(1) if the HCE's plan had not terminated, the HCE would have generally 

continued receiving the same monthly amount until he received full 

payment of the lump sum in those cases where the HCE's plan sponsor 

continued not funding the plan sufficiently; and 

(2) as a result of the PBGC's trusteeship of the HCE's plan, the plan 

sponsor would never have the opportunity to fund the plan sufficiently. 

PBGC's decision to treat the lump-sum elections of HCEs as if they were 

elections of TCAs allows PBGC to continue, paying an HCE's benefit in the same 

manner it was being paid before the plan's termination. In turn, this treatment 

allows HCEs who have been receiving monthly benefits and have adjusted their 

lifestyles to a steady stream of income to continue to receive the same monthly 

benefit, subject to ERISA's limitations on the benefits PBGC is allowed to pay. 
I • 

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2. The Appeals Board has concluded that PBGC will pay your benefit in the· form 

of a Joint and 100% Survivor Annuity because it is unclear whether your 

spouse consented to an election of a lump sum not paid in a single payment 

As a result of the enactment of REA, 3 ERISA generally requires that the 

benefit of a married participant be payable in the form of a qualified joint and 

survivor annuity ("QJSA"), which provides an annuity for the life of the participant 

with a survivor annuity of not less than 50% (and not greater than 100%) of the 

amount of the participant's benefit. Under ERISA, a participant may waive the 

QJSA and elect an optional form of benefit providing no survivor benefit or a 

survivor benefit for someone other than the participant's spouse, but only with the 

written consent of the spouse. 

As explained by the Justice Kennedy in the Supreme Court's decision in 

Boggs v. Boggs, 4 

The statutory object of the qualified joint and survivor annuity 

provisions, along with the rest of § 1055, is to ensure a stream of 

income to surviving spouses. Section 1055 mandates a survivor's 

annuity not only where a participant dies after the annuity starting 

date but also guarantees one if the participant dies before then. See 

§§ 1055(a)(2), (e). These provisions, enacted as part of [REA], 

enlarged ERISA's protection of surviving spouses in significant 

respects. Before REA, ERISA only required that pension plans, if they 

provided for the payment of benefits in the form of an annuity, offer a 

qualified joint and survivor annuity as an option entirely within a 

participant's discretion. 29 U.S.C. §§ 1055(a), (e) (1982 ed.). REA 

modified ERISA to permit participants to designate a beneficiary for 

the survivor's annuity, other than the nonparticipant spouse, only 

when the spouse agrees. § 1055(c)(2). Congress' concern for 

surviving spouses is also evident from the expansive coverage of 

§ 1055, as amended by REA. Section 1055's requirements, as a 

general matter, apply to all "individual account plans" and "defined 

benefit plans." § 1055(b)(l). 

Treasury regulations describe the requirements of a spouse's consent to a 

participant's election of a form of benefit other than the plan's automatic QJSA 

(which in this case is a Joint and 50% Survivor Annuity). In particular, Q&A 31 in 

Treas. Reg. § 1.401(a)-20 provide as follows: 

3 

4 

Q-31: What rules govern a participant's waiver of a QPSA or 

QJSA under section 417(a)(2) [26 uses§ 417(a)(2)]? 

A-31: (a) Specific beneficiary. Both the participant's waivers of 

Pub. L. 98-397, 98 Stat. 1426. The requirements of REA in this regard are generally 

effective for annuity starting dates on and after January 1, 1985. 

520 U.S. 833 (1997) 
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a QPSA and QJSA and the spouse's consents thereto must state the 

specific nonspouse beneficiary (including any class of beneficiaries or 

any contingent beneficiaries) who will receive the benefit. Thus, for 

example, if spouse B consents to participant A's election to waive a 

QPSA, and to have any benefits payable upon A's death before the 

annuity starting date paid to A's children, A may not subsequently 

change beneficiaries without the consent of B (except if the change is 

back to a QPSA). If the designated beneficiary is a trust, A's spouse 

need only consent to the designation of the trust and need not consent 

to the designation of trust beneficiaries or any changes of trust 

beneficiaries. 

(b) Optional form of benefit -- (1) QJSA. Both the 

participant's waiver of a QJSA (and any required spouse's 

consent thereto) must specify the particular optional form of 

benefit. The participant who has waived a QJSA with the spouse's 

consent in favor of another form of benefit may not subsequently 

change the optional form of benefit without obtaining the spouse's 

consent (except back to a QJSA). Of course, the participant may 

change the form of benefit if the plan so provides after the spouse's 

death or a divorce (other than as provided in a QDRO). A participant's 

waiver of a QJSA (and any required spouse's consent thereto) made 

prior to the first plan year beginning after December 31, 1986, is not 

required to specify the optional form of benefit. 

(2) QPSA. A participant's waiver of a QPSA and the spouse's 

consent thereto are not required to specify the optional form of any 

preretirement benefit. Thus, a participant who waives the QPSA with 

spousal consent may subsequently change the form of the 

preretirement benefit, but not the nonspouse beneficiary, without 

obtaining the spouse's consent. 

(3) Change in form. After the participant's death, a beneficiary 

may change the optional form of survivor benefit as permitted by the 

plan. 

(c) General consent. In lieu of satisfying paragraphs (a) and (b) 

of this Q&A 31, a plan may permit a spouse to execute a general 

consent that satisfies the requirements of this paragraph (c). A general 

consent permits the participant to waive a QPSA or QJSA, and change 

the designated beneficiary or the optional form of benefit payment 

without any requirement of further consent by such spouse. No 

general consent is valid unless the general consent acknowledges that 

the spouse has the right to limit consent to a specific beneficiary and a 

specific optional form of benefit, where applicabl"e, and that the spouse 

voluntarily elects to relinquish both- of such rights. Notwithstanding the 

previous sentence, a spouse may execute a general consent that is 

limited to certain beneficiaries or forms of benefit payment. In such 

case, paragraphs (a) and (b) of this Q&A 31 shall apply to the extent 

that the limited general consent is not applicable and this paragraph 

(c) shall apply to the extent that the limited general consent is 

applicable. A general consent, including a limited general consent, is 

not effective unless it is made during the applicable election period. A 

general consent executed prior to October 22, 1986 does not have to 

r~ • '•· 
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satisfy the specificity requirements of this Q&A 31. 

[Underlined boldfacing added for emphasis.] 

Q&A 31 make it clear that a spouse's consent to a participant's election of a 

benefit other than a plan's automatic QJSA is specific to the form of benefit elected 

by the participant. Based on our review of your election form and your spouse's 

consent, it is unclear whether your spouse was aware that you might not receive 

your lump-sum benefit in a single payment. The Appeals Board has concluded that 

PBGC should treat your spouse's consent as consent only to payment of your 

benefit in a single sum and, therefore, not pay your remaining benefit as a TCA. 

Accordingly, PBGC will pay your PBGC-payable benefit in the form of a Joint & 

100% Survivor Annuity, with your spouse as the contingent annuitant, as you 

requested in your appeal letter. 

Decision 

Having applied the law and PBGC's regulations to the facts of this case, the 

Appeals Board granted your appeal by finding that PBGC will pay you the portion of 

your cash-balance benefit that was not paid to you before the Plan terminated in 

the form of a Joint & 100% Survivor Annuity with your spouse as the contingent 

annuitant, reduced in accordance with the legal limitations on PBGC benefits. 

If you have other questions regarding your PBGC benefit, you may call 

PBGC's Customer Contact Center and ask to speak to the authorized representative 

assigned to the-Plan (Case 

Sincerely, 

Michel Louis 

Appeals Board Member