[Federal Register Volume 76, Number 48 (Friday, March 11, 2011)]
[Proposed Rules]
[Pages 13304-13312]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-5696]


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PENSION BENEFIT GUARANTY CORPORATION

29 CFR Part 4022

RIN 1212-AB18


Benefits Payable in Terminated Single-Employer Plans; Limitations 
on Guaranteed Benefits

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Proposed rule.

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SUMMARY: This is a proposed rule to amend PBGC's regulation on Benefits 
Payable in Terminated Single-Employer Plans. That regulation sets forth 
rules on PBGC's guarantee of pension plan benefits, including rules on 
the phase-in of the guarantee. The amendments implement section 403 of 
the Pension Protection Act of 2006, which provides that the phase-in 
period for the guarantee of benefits that are contingent upon the 
occurrence of an ``unpredictable contingent event,'' such as a plant 
shutdown, starts no earlier than the date of the shutdown or other 
unpredictable contingent event.

DATES: Comments must be received on or before May 10, 2011.

ADDRESSES: Comments should be identified by Regulation Information 
Number (RIN 1212-AB18), and may be submitted by any of the following 
methods:
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov.
    <bullet> Follow the Web site instructions for submitting comments.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#453720226b262a2828202b313605352722266b222a33"><span class="__cf_email__" data-cfemail="a7d5c2c089c4c8cacac2c9d3d4e7d7c5c0c489c0c8d1">[email protected]</span></a>.
    <bullet> Fax: 202-326-4224.
    <bullet> Mail or Hand Delivery: Legislative and Regulatory 
Department, Pension Benefit Guaranty Corporation, 1200 K Street, NW., 
Washington, DC 20005-4026.

PBGC will make all comments available on its Web site, http://www.pbgc.gov. Copies of comments also may be obtained by writing PBGC's 
Communications and Public Affairs Department (CPAD) at Suite 240 at the 
above address or by visiting or calling CPAD during normal business 
hours (202-326-4040).

FOR FURTHER INFORMATION CONTACT: John H. Hanley, Director; Gail A. 
Sevin, Manager; or Bernard Klein, Attorney; Legislative & Regulatory 
Department, Pension Benefit Guaranty Corporation, 1200 K Street, NW., 
Washington, DC 20005, 202-326-4224. (TTY/TDD users may call the Federal 
relay service toll-free at 1-800-877-8339 and ask to be connected to 
202-326-4224.)

SUPPLEMENTARY INFORMATION: 

Background

    The Pension Benefit Guaranty Corporation (PBGC) administers the 
single-employer pension plan termination insurance program under Title 
IV of the Employee Retirement Income Security Act of 1974 (ERISA). The 
program covers certain private-sector, single-employer defined benefit 
plans, for which premiums are paid to PBGC each year.
    Covered plans that are underfunded may terminate either in a 
distress termination under section 4041(c) of ERISA or in an 
involuntary termination (one initiated by PBGC) under section 4042 of 
ERISA. When such a plan terminates, PBGC typically is appointed 
statutory trustee of the plan, and becomes responsible for paying 
benefits in accordance with the provisions of Title IV.
    Under sections 4022(b)(1) and 4022(b)(7) of ERISA and Sec. Sec.  
4022.24 through .26 of PBGC's regulation on Benefits Payable in 
Terminated Single-Employer Plans, 29 CFR part 4022, PBGC's guarantee of 
new pension benefits and benefit increases is ``phased in'' over a 
five-year period, which begins on the date the new benefit or benefit 
increase is adopted or effective (whichever is later).
    On August 17, 2006, the Pension Protection Act of 2006, Public Law 
109-280 (PPA 2006), was signed into law. Section 403 of PPA 2006 
amended section 4022 of ERISA by adding a new section 4022(b)(8), which 
changes the start of the phase-in period for plant shutdown and other 
``unpredictable contingent event benefits'' (UCEBs). Under new section 
4022(b)(8), the phase-in rules are applied as if a plan amendment 
creating a UCEB was adopted on the date the unpredictable contingent 
event (``UCE'') occurred rather than as of the actual adoption date of 
the amendment, which is almost always earlier. As a result of the new 
provision, the guarantee of benefits arising from plant shutdowns and 
other UCEs that occur within 5 years of plan termination (or the date 
the plan sponsor entered bankruptcy, if applicable under PPA 2006, as 
explained below) generally will be lower than under prior law. This new 
provision, which does not otherwise change the existing phase-in rules, 
applies to benefits that become payable as a result of a UCE that 
occurs after July 26, 2005.
    This proposed rule would amend part 4022 to implement the PPA 2006 
changes to the guarantee of UCEBs. With one exception, explained below 
under the heading ``Bankruptcy filing

[[Page 13305]]

date treated as deemed termination date,'' the other provisions of PPA 
2006 affecting PBGC's guarantee do not affect phase-in of the guarantee 
of UCEBs and thus are not addressed in this proposed rule.

Phase-in of PBGC Guarantee

    Under section 4022(b)(7) of ERISA, the guarantee of benefits under 
a new plan or of a new benefit or benefit increase under an amendment 
to an existing plan (all of which are referred to in PBGC's regulations 
as ``benefit increases'') is ``phased in'' based on the number of full 
years the benefit increase is in the plan. The time period that a 
benefit increase has been provided under a plan is measured from the 
later of the adoption date of the provision creating the benefit 
increase or the effective date of the benefit increase. Generally, 20 
percent of a benefit increase is guaranteed after one year, 40 percent 
after two years, etc., with full phase-in of the guarantee after five 
years. If the amount of the monthly benefit increase is below $100, the 
annual rate of phase-in is $20 rather than 20 percent.
    The phase-in limitation generally serves to protect the insurance 
program from losses caused by benefit increases that are adopted or 
made effective shortly before plan termination. This protection is 
needed because benefit increases can create large unfunded liabilities. 
An example is a plan amendment that significantly increases credit 
under the plan benefit formula for service performed prior to the 
amendment. Such increases generally are funded over time under the 
ERISA minimum funding rules. An immediate full guarantee would result 
in an inappropriate loss for PBGC if a plan terminated before an 
employer significantly funded a benefit increase. Phase-in of the 
guarantee allows time for some funding of new liabilities before they 
are fully guaranteed.
    Funding of liabilities created by a benefit increase generally 
starts at the same time as the PBGC guarantee first applies under the 
phase-in rule. Under ERISA and the Internal Revenue Code (``Code''), 
liability created by a benefit increase must be reflected in a plan's 
required contribution no later than the plan year following adoption of 
the benefit increase. For example, a benefit increase that is adopted 
and effective in the 2009 plan year must be reflected in the minimum 
funding contribution calculations for a plan year not later than the 
2010 plan year. Similarly, such a benefit increase would become 
partially guaranteed during the 2010 plan year.
    Over the years, legislative reforms, including those in PPA 2006, 
have generally shortened the permitted funding period from thirty years 
to seven years (or less in certain cases). This closer coordination 
between the permitted funding period and five-year guarantee phase-in 
period generally enhanced the effectiveness of phase-in in protecting 
the PBGC insurance program against losses due to unfunded benefit 
increases. However, as explained below, before the PPA 2006 changes to 
the phase-in of UCEBs, this coordination generally failed in the case 
of UCEBs.

Unpredictable Contingent Event Benefits

    UCEBs, described more specifically below, are benefits or benefit 
increases that become payable solely by reason of the occurrence of a 
UCE such as a plant shutdown.
    UCEBs typically provide a full pension, without any reduction for 
age, starting well before an unreduced pension would otherwise be 
payable. The events most commonly giving rise to UCEBs are events 
relating to full or partial plant shutdowns or other reductions in 
force. UCEBs, which are frequently provided in pension plans in various 
industries such as the steel and automobile industries, are payable 
with respect to full or partial plant shutdowns as well as shutdowns of 
different kinds of facilities, such as administrative offices, 
warehouses, retail operations, etc. UCEBs are also payable, in some 
cases, with respect to layoffs and other workforce reductions.\1\
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    \1\ The Technical Explanation of PPA 2006 prepared by the Joint 
Committee on Taxation Staff specifies that UCEBs include benefits 
payable with respect to ``facility shutdowns or reductions in 
workforce.'' Joint Committee on Taxation, Technical Explanation of 
H.R. 4, the ``Pension Protection Act of 2006,'' as passed by the 
House on July 26, 2006, and as considered by the Senate on August 3, 
2006 (JCX-38-06), August 3, 2006, at 90 (hereinafter Technical 
Explanation of PPA 2006).
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    A typical shutdown benefit provision in the steel industry--the so-
called ``70/80 Rule''--generally allows participants who lose their 
jobs due to the complete or partial closing of a facility or a 
reduction-in-force and whose age plus service equals 70 (if at least 
age 55) or 80 (at any age) to begin receiving their full accrued 
pension immediately, even though they have not reached normal 
retirement age. Similar UCEBs are common in the automobile industry 
with respect to shutdowns and layoffs. The purpose of these benefits is 
to assist participants financially in adjusting to a permanent job 
loss.

Time Lag Between Start of Guarantee Phase-in and Funding of UCEBs

    A UCEB provision typically has been in a plan many years before the 
occurrence of the event that eventually triggers the benefit, such as a 
plant shutdown. As a result, before PPA 2006, shutdown benefits, for 
example, were often fully guaranteed under the phase-in rules when a 
shutdown occurred. Because the benefit is contingent on the occurrence 
of an unpredictable event, plan sponsors typically did not make 
contributions to provide for advance funding of such benefits; funding 
of such benefits often did not begin until after the UCE had occurred. 
If, as often happened, plan termination occurred within a few years 
after a shutdown, the time lag between the start of the phase-in period 
and the start of funding resulted in an increased loss to the insurance 
program.

Treatment of UCEBs in OBRA 1987

    Congress first explicitly addressed UCEBs in funding reforms 
contained in the Pension Protection Act of 1987, enacted as part of 
Public Law 100-203, the Omnibus Budget Reconciliation Act of 1987 (OBRA 
1987). The OBRA 1987 rules for deficit reduction contributions required 
employers to recognize UCEBs on an accelerated basis (generally, within 
five to seven years), beginning after the triggering event occurred.\2\ 
However, the rules did not address the mismatch of the funding and 
guarantee phase-in periods discussed above. They also did not address 
the fact that UCEBs are likely to be triggered when the employer is 
experiencing financial difficulty, which threatens both funding and 
continuation of the plan. For these reasons, in the years since OBRA 
1987, PBGC has assumed more than $1 billion of unfunded benefit 
liabilities from shutdown and similar benefits.
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    \2\ Public Law 100-203, 10 Stat. 1330, 339-41 (codified as 
amended at 26 U.S.C. 412(l) (1987)); see S. Rep. No. 100-63 at 171-
72, 175-76 (1987).
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Treatment of UCEBs in PPA 2006

    Congress further addressed UCEBs in PPA 2006. PPA 2006 affected 
UCEBs in two important ways.
    First, PPA 2006 added new ERISA section 206(g) and parallel Code 
section 436(b) that restrict payment of UCEBs with respect to a UCE if 
the plan is less than 60 percent funded for the plan year in which the 
UCE occurs (or would be less than 60 percent funded taking the UCEB 
into account). Unless the restriction is removed during that plan year 
as a result of additional contributions to the plan or an actuarial 
certification meeting certain

[[Page 13306]]

requirements, the restriction becomes permanent and, under Treas. Reg. 
Sec.  1.436-1(a)(4)(iii),\3\ the plan is treated as if it does not 
provide for those UCEBs.\4\ Because PBGC guarantees only benefits that 
are provided under a plan, a UCEB that is treated as not provided under 
the plan because of this restriction is not guaranteeable by PBGC at 
all, and the phase-in rules that are the subject of this proposed 
regulation do not come into play for such a UCEB. Moreover, under 
Treas. Reg. Sec.  1.436-1(a)(3)(ii), benefit limitations under ERISA 
section 206(g) that were in effect immediately before plan termination 
continue to apply after termination.
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    \3\ Treasury Regulations under Code sections 430 and 436 also 
apply for purposes of the parallel rules in ERISA sections 303 and 
206(g).
    \4\ 74 FR 53004, 53062 (Oct. 15, 2009). Treas. Reg. Sec.  1.436-
1(a)(4)(iii) permits all or any portion of prohibited UCEBs to be 
restored by a plan amendment that meets the requirements of section 
436(c) of the Code and Treas. Reg. Sec.  1.436-1(c) and other 
applicable requirements. Such an amendment would create a ``benefit 
increase'' under Sec.  4022.2 and therefore PBGC's guarantee of 
UCEBs restored by such an amendment would be phased in from the 
later of the adoption date of the amendment or the effective date as 
of which the UCEB is restored, as provided under Sec.  4022.27(c) of 
the proposed regulation.
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    Second, PPA 2006 better aligns the starting dates of the funding 
and guarantee phase-in of UCEBs. Under PPA 2006, phase-in of the PBGC 
guarantee does not start until the UCE actually occurs. Specifically, 
ERISA section 4022(b)(8), added by section 403 of PPA 2006, provides: 
``If an unpredictable contingent event benefit (as defined in section 
206(g)(1)) is payable by reason of the occurrence of any event, this 
section shall be applied as if a plan amendment had been adopted on the 
date such event occurred.'' The provision applies to UCEs that occur 
after July 26, 2005. Thus, for purposes of the phase-in limitation, the 
date a UCE occurs is treated as the adoption date of the plan provision 
that provides for the related UCEB. This statutory change provides the 
PBGC insurance program a greater measure of protection than prior law 
from losses due to unfunded UCEBs--most notably, benefits that become 
payable by reason of a plant shutdown or similar event such as a 
permanent layoff.\5\
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    \5\ In addition, Treas. Reg. Sec.  1.430(d)-(1)(f)(6) requires 
that calculation of the funding target for a single-employer plan 
take into account, based on information as of the valuation date, 
the probability that UCEBs will become payable. Under that Treasury 
Regulation, the probability may be assumed to be zero if there is 
not more than a de minimis likelihood that the UCE will occur.
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    ERISA section 206(g)(1), as added by section 103(a) of PPA 2006, 
defines ``unpredictable contingent event benefit'' as:
    ``any benefit payable solely by reason of --
    (i) A plant shutdown (or similar event, as determined by the 
Secretary of the Treasury), or
    (ii) An event other than the attainment of any age, performance of 
any service, receipt or derivation of any compensation, or occurrence 
of death or disability.''
    PPA 2006 did not alter the rule that UCEBs are not guaranteed at 
all unless the triggering event occurred prior to the plan termination 
date (see PBGC v. Republic Tech. Int'l, LLC, 386 F.3d 659 (6th Cir. 
2004)).

Treasury Final Regulation UCEB Definition

    On October 15, 2009 (at 74 FR 53004), the Department of the 
Treasury (Treasury) published a final rule on Benefit Restrictions for 
Underfunded Pension Plans that defines UCEB for purposes of ERISA 
section 206(g)(1), and thus also for purposes of section 4022(b)(8). 
Treasury's final regulation clarifies the following points regarding 
UCEBs:
    <bullet> UCEBs include only benefits or benefit increases to the 
extent such benefits or benefit increases would not be payable but for 
the occurrence of a UCE.
    <bullet> The reference to ``plant shutdown'' in the statutory 
definition of UCEB includes a full or partial shutdown.

    Treasury's final regulation also states that a UCEB includes 
benefits triggered by events similar to plant shutdowns. Treas. Reg. 
Sec.  1.436-1(j)(9) defines a UCEB as follows:

    An unpredictable contingent event benefit means any benefit or 
increase in benefits to the extent the benefit or increase would not 
be payable but for the occurrence of an unpredictable contingent 
event. For this purpose, an unpredictable contingent event means a 
plant shutdown (whether full or partial) or similar event, or an 
event (including the absence of an event) other than the attainment 
of any age, performance of any service, receipt or derivation of any 
compensation, or the occurrence of death or disability. For example, 
if a plan provides for an unreduced early retirement benefit upon 
the occurrence of an event other than the attainment of any age, 
performance of any service, receipt or derivation of any 
compensation, or the occurrence of death or disability, then that 
unreduced early retirement benefit is an unpredictable contingent 
event benefit to the extent of any portion of the benefit that would 
not be payable but for the occurrence of the event, even if the 
remainder of the benefit is payable without regard to the occurrence 
of the event. Similarly, if a plan includes a benefit payable upon 
the presence (including the absence) of circumstances specified in 
the plan (other than the attainment of any age, performance of any 
service, receipt or derivation of any compensation, or the 
occurrence of death or disability), but not upon a severance from 
employment that does not include those circumstances, that benefit 
is an unpredictable contingent event benefit.

Overview of Proposed Regulatory Changes

    This proposed regulation incorporates the definition of UCEB under 
section 206(g)(1)(C) of ERISA and Treas. Reg. Sec.  1.436-1(j)(9). It 
also provides that the guarantee of a UCEB would be phased in from the 
latest of the date the benefit provision is adopted, the date the 
benefit is effective, or the date the UCE that makes the benefit 
payable occurs.
    Under the proposed regulation, PBGC would determine the date the 
UCE occurs based on the plan provisions and the relevant facts and 
circumstances, such as the nature and level of activity at a facility 
that is closing and the permanence of the event. The date of the event 
as conceived, planned, announced, or agreed to by the employer might be 
relevant but would not be controlling. Where a plan provides that a 
UCEB is payable only upon the occurrence of more than one UCE, the 
proposed regulation provides that the guarantee would be phased in from 
the latest date when all such UCEs have occurred. For example, if a 
UCEB is payable only if a participant is laid off and the layoff 
continues for a specified period of time, the phase-in period would 
begin at the end of the specified period of time. Similarly, if a UCEB 
is payable only if both the plant where an employee worked is 
permanently shut down and it is determined that the employer has no 
other suitable employment for the employee, the phase-in period would 
begin when it is determined that the employer had no other suitable 
employment for the employee (assuming that date was later than the 
shutdown date).
    The proposed regulation includes eight examples that show how the 
UCEB phase-in rules would apply in the following situations:
    <bullet> Shutdown that occurs later than the announced shutdown 
date.
    <bullet> Sequential permanent layoffs.
    <bullet> Skeleton shutdown crews.
    <bullet> Permanent layoff benefit for which the participant 
qualifies shortly before the sponsor enters bankruptcy.
    <bullet> Employer declaration during a layoff that return to work 
is unlikely.
    <bullet> Shutdown benefit with age requirement that can be met 
after the shutdown.
    <bullet> Retroactive UCEB.

[[Page 13307]]

    <bullet> Removal of IRC Section 436 restriction.\6\
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    \6\ The examples in proposed Sec.  4022.7 are not an exclusive 
list of UCEs or UCEBs and are not intended to narrow the statutory 
definition, as further delineated in Treasury Regulations.
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    Whether a UCEB phase-in determination applies on a participant-by-
participant basis, as opposed to facility-wide or some other basis, 
would depend largely upon plan provisions. For example, a benefit 
triggered by a reduction-in-force would be determined with respect to 
each participant, and thus layoffs that occur on different dates would 
generally be distinct UCEs. But a benefit payable only upon the 
complete shutdown of the employer's entire operations would apply plan-
wide, and thus the shutdown date generally would be the date of the UCE 
for all participants.

Discussion

UCEBs Covered

    As noted above, new ERISA section 4022(b)(8), added by section 403 
of PPA 2006, changes the rules for phasing in the guarantee of UCEBs in 
the case of UCEs that occur after July 26, 2005. Section 4022(b)(8) 
covers shutdown-type benefits, including benefits payable by reason of 
complete shutdowns of plants, and benefits payable when participants 
lose their jobs or retire as a result of partial closings or 
reductions-in-force at all kinds of facilities, in addition to other 
UCEBs. Accordingly, proposed Sec.  4022.27(a) expressly refers to 
benefits payable as a result of ``plant shutdowns or other 
unpredictable contingent events * * * , such as partial facility 
closings and permanent layoffs.'' \7\
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    \7\ As explained in Technical Explanation of PPA 2006, supra 
note 1, ``layoff benefits,'' as that term is used in Treasury 
Regulation Sec.  1.401-1(b)(1)(i), are severance benefits that may 
not be included in tax-qualified pension plans. In contrast, the 
benefits covered in this proposed regulation are retirement benefits 
payable in the event of certain workforce reductions. These 
retirement benefits--generally subsidized early retirement 
benefits--may be provided in tax-qualified plans insured by PBGC.
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    As stated above, a UCEB is defined by section 206(g)(1)(C) of ERISA 
to include benefits payable solely by reason of (1) a plant shutdown or 
similar event, or (2) an event other than an event such as attainment 
of a certain age or performance of service, that would trigger 
eligibility for a retirement benefit. The proposed regulation provides 
that PBGC would determine whether a benefit is a UCEB based on the 
facts and circumstances; the substance of the benefit, not what it is 
called, determines whether the benefit would be a UCEB covered by the 
new phase-in rule. Accordingly, under proposed Sec.  4022.27(b), the 
guarantee of any benefit that PBGC determines, based on plan provisions 
and facts and circumstances, is a shutdown benefit or is otherwise a 
UCEB would be phased in as a UCEB.
    The proposed definition of UCEB under Sec.  4022.2 provides that a 
benefit does not cease to be a UCEB for phase-in purposes merely 
because the UCE has already occurred or its occurrence has become 
reasonably predictable. This interpretation is supported by the plain 
language of ERISA section 4022(b)(8), which incorporates ERISA section 
206(g)(1)(C). Section 206(g)(1)(C) expressly defines a UCEB not in 
terms of degree of predictability, but rather whether a benefit is 
``payable solely by reason of a shutdown or similar event * * * or an 
event other than the attainment of any age, performance of any service, 
receipt or derivation of any compensation, or occurrence of death or 
disability.'' In other words, section 206(g)(1)(C) provides that a UCEB 
remains a UCEB after the UCE occurs. Because many events that are not 
reliably and reasonably predictable become predictable immediately 
before they occur, and the concept of predictability does not apply to 
events after they have occurred, PBGC interprets ERISA section 
4022(b)(8) to apply to benefits such as shutdown benefits regardless of 
whether the events triggering those benefits have already occurred or 
have become predictable.

Date Phase-in of PBGC Guarantee Begins

    ERISA sections 4022(b)(1) and 4022(b)(7) provide that PBGC's 
guarantee of a benefit increase is phased in from the date the benefit 
increase is ``in effect,'' i.e., from the later of the adoption date or 
effective date of the increase. ERISA section 4022(b)(8) (added by PPA 
2006) provides that, for phase-in purposes, shutdown benefits and other 
UCEBs are deemed to be ``adopted on the date * * * [the UCE] occurs.'' 
Thus ERISA section 4022(b)(8) protects PBGC in the typical situation 
where a shutdown or permanent layoff occurs long after a shutdown 
benefit provision was originally adopted.
    Section 4022(b)(8) could be read to produce an incongruous result 
in an unusual situation--where the UCE occurs first and a UCEB is 
adopted later, effective retroactive to the UCE. Because the date of 
the UCE would be treated under section 4022(b)(8) as the adoption date 
of the UCEB, in this situation the phase-in arguably would begin on the 
date of the UCE (the later of the adoption date or effective date of 
the UCEB), rather than on the actual adoption date of the plan 
amendment, as under pre-PPA 2006 law. The result would be a more 
generous--and more costly--guarantee of UCEBs than under pre-PPA 2006 
law. To avoid this incongruous result, proposed Sec.  4022.27(c) 
provides that a benefit increase due solely to a UCEB would be ``in 
effect'' as of the latest of the adoption date of the plan provision 
that provides for the UCEB, the effective date of the UCEB, or the date 
the UCE occurs.
    Finally, if a UCEB becomes payable because a restriction under IRC 
section 436 is removed after, for example, an adequate funding 
contribution is made, the effective date of the UCEB for phase-in 
purposes is determined without regard to the restriction.

Allocation of Assets

    When PBGC becomes trustee of a pension plan that terminates without 
sufficient assets to provide all benefits, it allocates plan assets to 
plan benefits in accordance with the statutory priority categories in 
section 4044 of ERISA. The category to which a particular benefit is 
assigned in the asset allocation can affect insurance program costs and 
the extent to which participants receive nonguaranteed benefits.
    Priority category 3 in the asset allocation is particularly 
important, because it often includes benefits that, depending on the 
level of the plan assets, may be paid by PBGC even though not 
guaranteed. Priority category 3 contains only those benefits that were 
in pay status at least three years before the termination date of the 
plan (or that would have been in pay status if the participant had 
retired before that three-year period). An individual's benefit amount 
in priority category 3 is based on the plan provisions in effect during 
the five-year period preceding plan termination under which the benefit 
amount would be the least. Thus priority category 3 does not include 
benefit increases that were adopted or became effective in the five 
years before plan termination or, in some cases as discussed below, the 
bankruptcy filing date.
    PBGC considered whether the UCEBs that are not guaranteed under the 
PPA 2006 changes should be excluded from priority category 3. Under 
that approach, plan assets would go farther to pay for other benefits, 
especially guaranteed benefits, and participants would be less likely 
to receive UCEBs that are not guaranteed. Alternatively, if UCEBs that 
are not guaranteed under the PPA 2006 changes were included in priority 
category 3--as they are under pre-PPA law and PBGC's current regulation 
on Allocation of Assets (part

[[Page 13308]]

4044)--plan assets would be less likely to reach other benefits, 
especially guaranteed benefits, and participants would be more likely 
to receive UCEBs that are not guaranteed.
    Because section 403 of PPA 2006 does not make any reference to 
section 4044,\8\ PBGC concluded that the latter interpretation is the 
better one, and thus the proposed regulation does not amend part 4044.
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    \8\ By contrast, three other provisions of PPA 2006 that changed 
PBGC's guarantee of benefits specifically provide changes to the 
asset allocation scheme under section 4044. See PPA 2006 sections 
404 (treatment of bankruptcy filing date as deemed termination 
date), 402(g)(2)(A) (special termination rules for commercial 
airlines), and 407 (relating to majority owners), enacting 
respectively sections 4044(e), 4022(h), and 4044(b)(3) of ERISA.
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Bankruptcy Filing Date Treated as Deemed Termination Date

    On July 1, 2008 (73 FR 37390), PBGC published a proposed rule, 
``Bankruptcy Filing Date Treated as Plan Termination Date for Certain 
Purposes; Guaranteed Benefits; Allocation of Plan Assets; Pension 
Protection Act of 2006,'' to implement section 404 of PPA 2006, which 
added a new section 4022(g) to ERISA. This section provides that when 
an underfunded plan terminates while its contributing sponsor is in 
bankruptcy, the amount of guaranteed benefits under section 4022 will 
be determined as of the date the sponsor entered bankruptcy (the 
``bankruptcy filing date'') rather than as of the termination date. The 
provision applies to plans terminating while the sponsor is in 
bankruptcy, if the bankruptcy filing date is on or after September 16, 
2006.\9\
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    \9\ See definition of ``PPA 2006 bankruptcy termination'' in 
Sec.  4001.2.
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    Section 4022(g) applies to all types of plan benefits, including 
UCEBs. Under this provision, if a permanent shutdown (or other UCE) 
occurs after the bankruptcy filing date, UCEBs arising from the UCE are 
not guaranteed because the benefits are not nonforfeitable as of the 
bankruptcy filing date. Similarly, if the shutdown (or other UCE) 
occurs before the bankruptcy filing date, the five-year phase-in period 
for any resulting UCEBs is measured from the date of the UCE to the 
bankruptcy filing date, rather than to the plan termination date. For 
example, if a permanent shutdown occurs three years before the 
bankruptcy filing date, the guarantee of any resulting UCEBs will be 
only 60 percent phased in, even if the shutdown was more than five 
years before the plan's termination date. This rule is illustrated by 
Examples 4 and 5 in the proposed regulation.
    PBGC considered whether UCEBs could be excepted from the section 
4022(g) bankruptcy provision on the ground that the general phase-in 
rule in section 4022(g) is superseded by the specific section 
4022(b)(8) phase-in rule for UCEBs. However, PBGC concluded that the 
language of the bankruptcy and UCEB statutory provisions does not allow 
for any such exception. The UCEB provision alters the starting date for 
phase-in of UCEBs, while the bankruptcy provision alters the date 
beyond which no further phase-in is allowed for any benefit increase, 
including a UCEB. PBGC sees no conflict in applying both provisions to 
UCEBs.

Estimated Guaranteed Benefits

    ERISA section 4041(c)(3)(D)(ii)(IV) requires administrators of 
plans terminating in a distress termination to limit payment of 
benefits to estimated guaranteed benefits and estimated non-guaranteed 
benefits funded under section 4044, beginning on the proposed 
termination date. Section 4022.62 of PBGC's regulation on Benefits 
Payable in Terminated Single-Employer Plans contains rules for 
computing estimated guaranteed benefits, including provisions for 
estimating guaranteed benefits when a new benefit or benefit increase 
was added to the plan within five years before plan termination. The 
proposed regulation would amend Sec.  4022.62 to provide that the date 
the UCE occurs is treated as the date the UCEB was adopted, i.e., the 
date the plan was amended to include the UCEB.

Applicability

    The regulatory changes made by this rule, like section 403 of PPA 
2006, would apply to UCEBs that become payable as a result of a UCE 
that occurs after July 26, 2005.

Compliance With Regulatory Guidelines

Executive Order 12866

    PBGC has determined that this proposed rule is a ``significant 
regulatory action'' under Executive Order 12866. The Office of 
Management and Budget has therefore reviewed the proposed rule under 
Executive Order 12866.
    Under Section 3(f)(1) of Executive Order 12866, a regulatory action 
is economically significant if ``it is likely to result in a rule that 
may * * * [h]ave an annual effect on the economy of $100 million or 
more or adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or Tribal governments or 
communities.'' The PBGC has determined that this proposed rule does not 
cross the $100 million threshold for economic significance and is not 
otherwise economically significant.
    The economic effect of the proposed rule is entirely attributable 
to the economic effect of section 403 of PPA 2006. Three factors tend 
to reduce the economic impact of section 403.
    First, before section 403 went into effect, PBGC often 
involuntarily terminated plans with shutdown liabilities before 
company-wide shutdowns, under the ``long-run loss'' provision in 
section 4042(a)(4) of ERISA. That provision allows PBGC to initiate 
termination proceedings if its long-run loss ``may reasonably be 
expected to increase unreasonably if the plan is not terminated.'' A 
sudden increase in PBGC's liabilities resulting from a shutdown could 
create just such an unreasonable increase in long-run loss. Section 403 
avoids the need for PBGC to make case-by-case decisions whether to 
initiate such ``pre-emptive'' terminations. Although it is difficult to 
make assumptions about PBGC's ability and intent to pursue such 
terminations if section 403 had not gone into effect, this factor tends 
to reduce its economic impact.
    Second, another PPA 2006 amendment provides that if a plan 
terminates while the sponsor is in bankruptcy, the amount of benefits 
guaranteed by PBGC is fixed at the date of the bankruptcy filing rather 
than at the plan termination date. Because of that provision, if a 
plant shutdown or other UCE occurred between the bankruptcy filing date 
and the termination date, the resulting UCEB would not be guaranteed at 
all, and thus section 403 would have no economic effect.
    Third--and perhaps most important--as also discussed above, other 
PPA 2006 provisions restrict payment of UCEBs if a plan is less than 60 
percent funded. If, because of those restrictions, a UCEB was not 
payable at all, section 403 again would have no economic effect.
    As stated above in Applicability, section 403 applies to any UCEB 
that becomes payable as a result of a UCE that occurs after July 26, 
2005. PBGC estimates that, to date, the total effect of section 403--in 
terms of lower benefits paid to participants and associated savings for 
PBGC--is less than $4 million. Although PBGC cannot predict with 
certainty which plans with UCEBs will terminate, the funding level of 
such plans, or what benefits will be affected by the guarantee limits, 
given the relatively low estimate of the effect of the statutory 
provision to date, PBGC has determined that the annual effect of

[[Page 13309]]

the proposed rule will be less than $100 million.

Regulatory Flexibility Act

    PBGC certifies under section 605(b) of the Regulatory Flexibility 
Act that this proposed rule would not have a significant economic 
impact on a substantial number of small entities. The amendments 
implement and in some cases clarify statutory changes made in PPA 2006; 
they do not impose new burdens on entities of any size. Virtually all 
of the statutory changes affect only PBGC and persons who receive 
benefits from PBGC. Accordingly, sections 603 and 604 of the Regulatory 
Flexibility Act do not apply.

List of Subjects in 29 CFR Part 4022

    Pension insurance, Pensions, Reporting and recordkeeping 
requirements.

    For the reasons given above, PBGC proposes to amend 29 CFR part 
4022 as follows:

PART 4022--BENEFITS PAYABLE IN TERMINATED SINGLE-EMPLOYER PLANS

    1. The authority citation for part 4022 continues to read as 
follows:

    Authority: 29 U.S.C. 1302, 1322, 1322b, 1341(c)(3)(D), and 1344.

    2. In Sec.  4022.2:
    a. Amend the definition of ``benefit increase'' by removing the 
final ``and'' in the second sentence and adding in its place, ``an 
unpredictable contingent event benefit, and''; and
    b Add in alphabetical order definitions for unpredictable 
contingent event (UCE) and unpredictable contingent event benefit 
(UCEB) to read as follows:


Sec.  4022.2  Definitions.

* * * * *
    Unpredictable contingent event (UCE) has the same meaning as 
unpredictable contingent event in section 206(g)(1)(C) of ERISA and 
Treas. Reg. Sec.  1.436-1(j)(9). It includes a plant shutdown (full or 
partial) or a similar event (such as a full or partial closing of 
another type of facility, or a layoff or other workforce reduction), or 
any event other than the attainment of any age, performance of any 
service, receipt or derivation of any compensation, or occurrence of 
death or disability.
    Unpredictable contingent event benefit (UCEB) has the same meaning 
as unpredictable contingent event benefit in section 206(g)(1)(C) of 
ERISA and Treas. Reg. Sec.  1.436-1(j)(9). Thus, a UCEB is any benefit 
or benefit increase to the extent that it would not be payable but for 
the occurrence of a UCE. A benefit or benefit increase that is 
conditioned upon the occurrence of a UCE does not cease to be a UCEB as 
a result of the contingent event having occurred or its occurrence 
having become reasonably predictable.
    3. Sec.  4022.24(e) is revised to read as follows:


Sec.  4022.24  Benefit Increases.

* * * * *
    (e) Except as provided in Sec.  4022.27(c), for the purposes of 
Sec. Sec.  4022.22 through 4022.28, a benefit increase is deemed to be 
in effect commencing on the later of its adoption date or its effective 
date.


Sec.  4022.27  [Redesignated as Sec.  4022.28]

    4. Section 4022.27 is redesignated as Sec.  4022.28.
    5. New Sec.  4022.27 is added to read as follows:


Sec.  4022.27  Phase-in of guarantee of unpredictable contingent event 
benefits.

    (a) Scope. This section applies to a benefit increase, as defined 
in Sec.  4022.2 of this part, that is an unpredictable contingent event 
benefit (UCEB) and that is payable with respect to an unpredictable 
contingent event (UCE) that occurs after July 26, 2005.
    (1) Examples of benefit increases within the scope of this section 
include unreduced early retirement benefits or other early retirement 
subsidies, or other benefits to the extent that such benefits would not 
be payable but for the occurrence of one or more UCEs.
    (2) Examples of UCEs within the scope of this section include full 
and partial closings of plants or other facilities, and permanent 
workforce reductions, such as permanent layoffs. Permanent layoffs 
include layoffs during which an idled employee continues to earn 
credited service (``creep-type'' layoff) for a period of time at the 
end of which the layoff is deemed to be permanent. Permanent layoffs 
also include layoffs that become permanent upon the occurrence of an 
additional event such as a declaration by the employer that the 
participant's return to work is unlikely or a failure by the employer 
to offer the employee suitable work in a specified area.
    (3) The examples in this section are not an exclusive list of UCEs 
or UCEBs and are not intended to narrow the statutory definitions, as 
further delineated in Treasury Regulations.
    (b) Facts and circumstances. If PBGC determines that a benefit is a 
shutdown benefit or other type of UCEB, the benefit will be treated as 
a UCEB for purposes of this subpart. PBGC will make such determinations 
based on the facts and circumstances, consistent with these 
regulations; how a benefit is characterized by the employer or other 
parties may be relevant but is not determinative.
    (c) Date phase-in begins. (1) The date the phase-in of PBGC's 
guarantee of a UCEB begins is determined in accordance with subpart B 
of this part. For purposes of this subpart, a UCEB is deemed to be in 
effect as of the latest of--
    (i) The adoption date of the plan provision that provides for the 
UCEB,
    (ii) The effective date of the UCEB, or
    (iii) The date the UCE occurs.
    (2) The date the phase-in of PBGC's guarantee of a UCEB begins is 
not affected by any delay that may occur in placing participants in pay 
status due to removal of a restriction under section 436(b)of the Code. 
See the example in paragraph (e)(8) of this section.
    (d) Date UCE occurs. For purposes of this section, PBGC will 
determine the date the UCE occurs based on the plan provisions and the 
relevant facts and circumstances, such as the nature and level of 
activity at a facility that is closing and the permanence of the event; 
the date of the event as conceived, planned, announced, or agreed to by 
the employer may be relevant but is not determinative.
    (1) The date a UCE occurs is determined on a participant-by-
participant basis, or on a different basis, such as a facility-wide or 
company-wide basis, depending upon plan provisions and the facts and 
circumstances. For example, a benefit triggered by a permanent layoff 
of a participant would be determined with respect to each participant, 
and thus layoffs that occur on different dates would generally be 
distinct UCEs. In contrast, a benefit payable only upon a complete 
plant shutdown would apply facility-wide, and generally the shutdown 
date would be the date of the UCE for all participants who work at that 
plant. Similarly, a benefit payable only upon the complete shutdown of 
the employer's entire operations would apply plan-wide, and thus the 
shutdown date of company operations generally would be the date of the 
UCE for all participants.
    (2) For purposes of paragraph (c)(3) of this section, if a benefit 
is contingent upon more than one UCE, PBGC will apply the rule under 
Treas. Reg. Sec.  1.436-1(b)(3)(ii) (i.e., the date the UCE occurs is 
the date of the latest UCE).
    (e) Examples. The following examples illustrate the operation of 
the rules in this section. Except as provided in Example 8, no benefit 
limitation under

[[Page 13310]]

Code section 436 applies in any of these examples.
    (1) Date of UCE. (i) Facts: On January 1, 2000, a Company adopts a 
plan that provides an unreduced early retirement benefit for 
participants with specified age and service whose continuous service is 
broken by a permanent plant closing or permanent layoff that occurs on 
or after January 1, 2001. On January 1, 2007, the Company informally 
and without announcement decides to close Facility A within a two-year 
period. On January 1, 2008, the Company's Board of Directors passes a 
resolution directing the Company's officers to close Facility A on or 
before September 1, 2008. On June 1, 2008, the Company issues a notice 
pursuant to the Worker Adjustment and Retraining Notification 
(``WARN'') Act, 29 U.S.C. section 2101, et seq., that Facility A will 
close, and all employees will be permanently laid off, on or about 
August 1, 2008. The Company and the Union representing the employees 
enter into collective bargaining concerning the closing of Facility A 
and on July 1, 2008, they jointly agree and announce that Facility A 
will close and employees who work there will be permanently laid off as 
of November 1, 2008. However, due to unanticipated business conditions, 
Facility A continues to operate until December 31, 2008, when 
operations cease and all employees are permanently laid off. The plan 
terminates as of December 1, 2009.
    (ii) Conclusion: PBGC would determine that the UCE is the facility 
closing and permanent layoff that occurred on December 31, 2008. 
Because the date that the UCE occurred (December 31, 2008) is later 
than both the date the plan provision that established the UCEB was 
adopted (January 1, 2000) and the date the UCEB became effective 
(January 1, 2001), December 31, 2008, would be the date the phase-in 
period under ERISA section 4022 begins. In light of the plan 
termination date of December 1, 2009, the guarantee of the UCEBs of 
participants laid off on December 31, 2008, would be 0 percent phased 
in.
    (2) Sequential layoffs. (i) Facts: The same facts as Example 1, 
with these exceptions: Not all employees are laid off on December 31, 
2008. The Company and Union agree to and subsequently implement a 
shutdown in which employees are permanently laid off in stages--one-
third of the employees are laid off on October 31, 2008, another third 
are laid off on November 30, 2008, and the remaining one-third are laid 
off on December 31, 2008.
    (ii) Conclusion: Because the plan provides that a UCEB is payable 
in the event of either a permanent layoff or a plant shutdown, PBGC 
would determine that phase-in begins on the date of the UCE applicable 
to each of the three groups of employees. Because the first two groups 
of employees were permanently laid off before the plant closed, October 
31, 2008, and November 30, 2008, are the dates that the phase-in period 
under ERISA section 4022 begins for those groups. Because the third 
group was permanently laid off on December 31, 2008, the same date the 
plant closed, the phase-in period would begin on that date for that 
group. Based on the plan termination date of December 1, 2009, 
participants laid off on October 31, 2008, and November 30, 2008, would 
have 20 percent of the UCEBs (or $20 per month, if greater) guaranteed 
under the phase-in rule. The guarantee of the UCEBs of participants 
laid off on December 31, 2008, would be 0 percent phased in.
    (3) Skeleton shutdown crews. (i) Facts: The same facts as Example 
1, with these exceptions: The plan provides for an unreduced early 
retirement benefit for age-service qualified participants only in the 
event of a break in continuous service due to a permanent and complete 
plant closing. A minimal skeleton crew remains to perform primarily 
security and basic maintenance functions until March 31, 2009, when 
skeleton crew members are permanently laid off and the facility is sold 
to an unrelated investment group that does not assume the plan or 
resume business operations at the facility. The plan has no specific 
provision or past practice governing benefits of skeleton shutdown 
crews. The plan terminates as of January 1, 2009.
    (ii) Conclusion: Because the continued employment of the skeleton 
crew does not effectively continue operations of the facility, PBGC 
would determine that there is a permanent and complete plant closing 
(for purposes of the plan's plant closing provision) as of December 31, 
2008, which is the date the phase-in period under ERISA section 4022 
begins with respect to employees who incurred a break in continuous 
service at that time. The UCEB of those participants would be a 
nonforfeitable benefit as of the plan termination date, but PBGC's 
guarantee of the UCEB would be 0 percent phased in. In the case of the 
skeleton crew members, such participants would not be eligible for the 
UCEB because they did not incur a break in continuous service until 
after the plan termination date. (If the plan had a provision that 
there is no shutdown until all employees, including any skeleton crew 
are terminated, or if the plan were reasonably interpreted to so 
provide in light of past practice, PBGC would determine that the date 
that the UCE occurred was after the plan termination date. Thus the 
UCEB would not be a nonforfeitable benefit as of the plan termination 
date and therefore would not be guaranteeable.)
    (4) Creep-type layoff benefit/bankruptcy of contributing sponsor. 
(i) Facts: A plan provides that participants who are at least age 55 
and whose age plus years of continuous service equal at least 80 are 
entitled to an unreduced early retirement benefit if their continuous 
service is broken due to a permanent layoff. The plan further provides 
that a participant's continuous service is broken due to a permanent 
layoff when the participant is terminated due to the permanent shutdown 
of a facility, or the participant has been on layoff status for two 
years. These provisions were adopted and effective in 1986. Participant 
A is 56 years old and has 25 years of continuous service when he is 
laid off in a reduction-in-force on May 15, 2008. He is not recalled to 
employment, and on May 15, 2010, under the terms of the plan, his 
continuous service is broken due to the layoff. He goes into pay status 
on June 1, 2010, with an unreduced early retirement benefit. The 
contributing sponsor of Participant A's plan files a bankruptcy 
petition under Chapter 11 of the U.S. Bankruptcy Code on September 1, 
2011, and the plan terminates during the bankruptcy proceedings with a 
termination date of October 1, 2012. Under section 4022(g) of ERISA, 
because the plan terminated while the contributing sponsor was in 
bankruptcy, the five-year phase-in period ended on the bankruptcy 
filing date.
    (ii) Conclusion: PBGC would determine that the guarantee of the 
UCEB is phased in beginning on May 15, 2010, the date of the later of 
the two UCEs necessary to make this benefit payable (i.e., the first 
UCE is the initial layoff and the second UCE is the expiration of the 
two-year period without rehire). Since that date is more than one year 
(but less than two years) before the September 1, 2011, bankruptcy 
filing date, 20 percent of Participant A's UCEB (or $20 per month, if 
greater) would be guaranteed under the phase-in rule.
    (5) Creep-type layoff benefit with provision for declaration that 
return to work unlikely. (i) Facts: A plan provides that participants 
who are at least age 60 and have at least 20 years of continuous 
service are entitled to an unreduced early retirement benefit if their

[[Page 13311]]

continuous service is broken by a permanent layoff. The plan further 
provides that a participant's continuous service is broken by a 
permanent layoff if the participant is laid off and the employer 
declares that the participant's return to work is unlikely. 
Participants may earn up to 2 years of credited service while on 
layoff. The plan was adopted and effective in 1990. On March 1, 2009, 
Participant B, who is age 60 and has 20 years of service, is laid off. 
On June 15, 2009, the employer declares that Participant B's return to 
work is unlikely. Participant B retires and goes into pay status as of 
July 1, 2009. The employer files for bankruptcy on September 1, 2011.
    (ii) Conclusion: PBGC would determine that the phase-in period of 
the guarantee of the UCEB would begin on June 15, 2009--the later of 
the two UCEs necessary to make the benefit payable (i.e., the first UCE 
is the initial layoff and the second UCE is the employer's declaration 
that it is unlikely that Participant B will return to work). The phase-
in period would end on September 1, 2011, the date of the bankruptcy 
filing. Thus 40 percent of Participant B's UCEB (or $40 per month, if 
greater) would be guaranteed under the phase-in rule.
    (6) Shutdown benefit with special post-employment eligibility 
provision. (i) Facts: A plan provides that, in the event of a permanent 
shutdown of a plant, a participant age 60 or older who terminates 
employment due to the shutdown and who has at least 20 years of service 
is entitled to an unreduced early retirement benefit. The plan also 
provides that a participant with at least 20 years of service who 
terminates employment due to a plant shutdown at a time when the 
participant is under age 60 also will be entitled to an unreduced early 
retirement benefit, provided the participant's commencement of benefits 
is on or after attainment of age 60 and the time required to attain age 
60 does not exceed the participant's years of service with the plan 
sponsor. The plan imposes no other conditions on receipt of the 
benefit. Plan provisions were adopted and effective in 1991. On January 
1, 2006, Participant C's plant is permanently shut down. At the time of 
the shutdown, Participant C had 20 years of service and was age 58. On 
June 1, 2007, Participant C reaches age 60 and retires. The plan 
terminates as of September 1, 2007.
    (ii) Conclusion: PBGC would determine that the guarantee of the 
shutdown benefit is phased in from January 1, 2006, which is the date 
of the only UCE (the permanent shutdown of the plant) necessary to make 
the benefit payable. Thus 20 percent of Participant C's UCEB (or $20 
per month, if greater) would be guaranteed under the phase-in rule.
    (7) Phase-in of retroactive UCEB. (i) Facts: As the result of a 
settlement in a class-action lawsuit, a plan provision is adopted on 
September 1, 2011, to provide that age/service-qualified participants 
are entitled to an unreduced early retirement benefit if permanently 
laid off due to a plant shutdown occurring after January 1, 2008. 
Benefits under the provision are payable prospectively only, beginning 
March 1, 2012. Participant A, who was age/service-qualified, was 
permanently laid off due to a plant shutdown occurring on January 1, 
2009, and therefore he is scheduled to be placed in pay status as of 
March 1, 2012. The plan is a calendar year plan. The unreduced early 
retirement benefit is paid to Participant A beginning on March 1, 2012. 
The plan terminates as of February 1, 2014. The termination is not a 
PPA 2006 bankruptcy termination.
    (ii) Conclusion: PBGC would determine that the guarantee of the 
UCEB is phased in beginning on March 1, 2012. This is the date the 
benefit was effective (since it was the first date on which the new 
benefit was payable), and it is later than the adoption date of the 
plan provision (September 1, 2011) and the date of the UCE (January 1, 
2009). The guarantee of the unreduced early retirement benefit is 20% 
phased in.
    (8) Removal of IRC section 436 restriction. (i) Facts: A plan 
provision was adopted on September 1, 1989, to provide that age/
service-qualified participants are entitled to an unreduced early 
retirement benefit if permanently laid off due to a plant shutdown 
occurring after January 1, 1990. Participant A, who was age/service-
qualified, was permanently laid off due to a plant shutdown occurring 
on April 1, 2011. The plan is a calendar year plan. Under the rules of 
Code section 436 (ERISA section 206(g)) and Treasury regulations 
thereunder, a plan cannot provide a UCEB payable with respect to an 
unpredictable contingent event, if the event occurs during a plan year 
in which the plan's adjusted funding target attainment percentage is 
less than 60%. On January 30, 2011, the plan's enrolled actuary issued 
a certification stating that the plan's adjusted funding target 
attainment percentage for 2011 is 58%. Therefore, the plan restricts 
payment of the unreduced early retirement benefit payable with respect 
to the shutdown on April 1, 2011. On August 15, 2011, the plan sponsor 
makes an additional contribution to the plan that is designated as a 
contribution under Code section 436(b)(2) to eliminate the restriction 
on payment of the shutdown benefits. On September 15, 2011, the plan's 
enrolled actuary issues a certification stating that, due to the 
additional section 436(b)(2) contribution, the plan's adjusted funding 
target attainment percentage for 2011 is 60%. On October 1, 2011, 
Participant A is placed in pay status for the unreduced early 
retirement benefit and, as required under Code section 436 and Treasury 
regulations thereunder, is in addition paid retroactively the unreduced 
benefit for the period May 1, 2011 (the date the unreduced early 
retirements would have become payable) through September 1, 2011. The 
plan terminates as of February 1, 2014. The termination is not a PPA 
2006 bankruptcy termination.
    (ii) Conclusion: PBGC would determine that the guarantee of the 
UCEB is phased in beginning on April 1, 2011, the date the UCE 
occurred. Because April 1, 2011, is later than both the date the plan 
provision that established the UCEB was adopted (September 1, 1989) and 
the date the UCEB became effective (January 1, 1990), it would be the 
date the phase-in period under ERISA section 4022 begins. Commencement 
of the phase-in period is not affected by the delay in providing the 
unreduced early retirement benefit to Participant A due to the 
operation of the rules of Code section 436 and the Treasury regulations 
thereunder. The guarantee of the unreduced early retirement benefit is 
40% phased in.
    6. In Sec.  4022.62(c)(2)(i), add a sentence after the third 
sentence to read as follows:


Sec.  4022.62  Estimated guaranteed benefit.

* * * * *
    (c) * * *
    (2) * * *
    (i) * * * ``New benefits'' also result from increases that become 
payable by reason of the occurrence of an unpredictable contingent 
event (provided the event occurred after July 26, 2005), to the extent 
the increase would not be payable but for the occurrence of the event; 
in the case of such new benefits, the date of the occurrence of the 
unpredictable contingent event is treated as the amendment date for 
purposes of Table I. * * *
* * * * *


[[Page 13312]]


    Issued in Washington, DC, this 3rd day of March, 2011.
Joshua Gotbaum,
Director, Pension Benefit Guaranty Corporation.
[FR Doc. 2011-5696 Filed 3-10-11; 8:45 am]
BILLING CODE 7709-01-P


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