[Federal Register Volume 74, Number 144 (Wednesday, July 29, 2009)]
[Proposed Rules]
[Pages 37666-37669]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-18074]


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PENSION BENEFIT GUARANTY CORPORATION

29 CFR Parts 4001, 4022

RIN 1212-AB19


USERRA Benefits Under Title IV of ERISA

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Proposed rule.

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SUMMARY: The Uniformed Services Employment and Reemployment Rights Act 
of 1994 (``USERRA'') provides that an individual who leaves his or her 
job to serve in the uniformed services is generally entitled to 
reemployment by his or her previous employer and, upon reemployment, to 
receive credit for benefits, including employee pension plan benefits, 
that would have accrued but for the employee's absence due to the 
military service. This proposed rule would amend PBGC's regulation on 
Benefits Payable in Terminated Single-Employer Plans (29 CFR part 4022) 
to address a narrow but important issue regarding PBGC's guarantee of 
benefits for participants who are serving in the uniformed services at 
the time that their pension plan terminates. Under PBGC's existing 
regulations, a benefit is guaranteed only if the participant satisfies 
the conditions for entitlement to the benefit on or before the plan's 
termination date. PBGC proposes to provide an exception to this rule in 
the unique circumstances of persons serving in the uniformed services 
as of the plan's termination date, consistent with USERRA's statutory 
mandate to treat such persons, upon reemployment, as if they had never 
left the employ of their former employer. This proposed rule would 
provide that so long as a service member is reemployed within the time 
limits set by USERRA, even if the reemployment occurs after the plan's 
termination date, PBGC would treat the participant as having satisfied 
the reemployment condition as of the termination date. This would 
ensure that the pension benefits of reemployed service members, like 
those of other employees, would generally be guaranteed for periods up 
to the plan's termination date.

DATES: Comments must be received on or before September 28, 2009

ADDRESSES: Comments, identified by RIN 1212-AB19 may be submitted by 
any of the following methods:
    Federal eRulemaking Portal: http://www.regulations.gov. Follow the 
Web site instructions for submitting comments.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#c6b4a3a1e8a5a9ababa3a8b2b586b6a4a1a5e8a1a9b0"><span class="__cf_email__" data-cfemail="b0c2d5d79ed3dfddddd5dec4c3f0c0d2d7d39ed7dfc6">[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.
All submissions must include the Regulatory Information Number for this 
rulemaking (RIN 1212-AB19). Comments received, including personal 
information provided, will be posted to http://www.pbgc.gov.
    Copies of comments may also be obtained by writing to Disclosure 
Division, Office of the General Counsel, Pension Benefit Guaranty 
Corp., 1200 K Street, NW, Washington, DC 20005-4026 or calling 202-326-
4040 during normal business hours. (TTY and TDD users may call the 
Federal relay service toll-free at 1-800-877-8339 and ask to be 
connected to 202-326-4040.)

FOR FURTHER INFORMATION CONTACT: John H. Hanley, Director, or Constance 
Markakis, Attorney, Legislative and Regulatory Department, Pension 
Benefit Guaranty Corporation, Suite 12300, 1200 K Street, NW., 
Washington, DC 20005-4026, 202-326-4024. (TTY and TTD users may call 
the Federal relay service toll-free at 1-800-877-8339 and ask to be 
connected to 202-326-4024.)

SUPPLEMENTARY INFORMATION: 

[[Page 37667]]

Background

    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''). 
When a covered plan terminates in either a distress termination under 
section 4041(c) of ERISA, or an involuntary termination (one initiated 
by PBGC) under section 4042 of ERISA, PBGC typically becomes statutory 
trustee of the plan with responsibility for paying benefits in 
accordance with the provisions of Title IV.
    The amount of benefits paid by PBGC under a terminated, trusteed 
plan is generally determined as of the plan's termination date.\1\ 
Under section 4022(a) of ERISA, PBGC guarantees the payment of 
nonforfeitable benefits under the plan, subject to the limitations of 
section 4022(b), as of the date the plan terminates. Under Sec.  4022.3 
of PBGC's regulation on Benefits Payable in Terminated Single-Employer 
Plans, PBGC guarantees the amount, as of the termination date, of a 
benefit provided under the plan (subject to certain limitations) if 
``the benefit is, on the termination date, a nonforfeitable benefit.'' 
To be guaranteed, the benefit must also qualify as a pension benefit as 
defined in Sec.  4022.2, and the participant must be entitled to the 
benefit under Sec.  4022.4. The amount of any additional nonguaranteed 
benefits payable from the plan's assets under section 4044 or PBGC's 
recoveries under section 4022(c) of ERISA is also determined as of the 
termination date.
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    \1\ Section 404 of the Pension Protection Act of 2006 (``PPA 
2006''), Public Law 109-280, added sections 4022(g) and 4044(e) of 
ERISA, which provide that, when an underfunded plan terminates 
during the bankruptcy of the plan sponsor, the date the sponsor's 
bankruptcy petition was filed is treated as the termination date of 
the plan for purposes of determining the amount of benefits PBGC 
guarantees and the amount of benefits in priority category 3 in the 
section 4044 asset allocation. These changes apply to plan 
terminations that occur during the bankruptcy of the plan sponsor if 
the bankruptcy filing date is on or after September 16, 2006. See 
PBGC proposed rule on Bankruptcy Filing Date Treated as Plan 
Termination Date for Certain Purposes, 73 FR 37390 (Jul. 1, 2008). 
For convenience, this preamble generally will refer to the plan's 
termination date, although in many cases this reference will instead 
apply to the bankruptcy filing date.
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    Section 4001(a)(8) of ERISA and Sec.  4001.2 define a 
``nonforfeitable benefit'' with respect to a plan as:

a benefit for which a participant has satisfied the conditions for 
entitlement under the plan or the requirements of this Act (other 
than the submission of a formal application, retirement, completion 
of a required waiting period, or death in the case of a benefit 
which returns all or a portion of a participant's accumulated 
mandatory employee contributions upon the participant's death), 
whether or not the benefit may subsequently be reduced or suspended 
by a plan amendment, an occurrence of any condition, or operation of 
this Act or the Internal Revenue Code of 1986.

Guaranteed benefits under Title IV of ERISA are benefits with respect 
to which a participant has satisfied the conditions for entitlement 
under the plan as of the termination date. Therefore, plan benefits 
such as an early retirement subsidy or disability retirement benefit 
with respect to which a participant has not satisfied the conditions 
for entitlement (e.g., a years-of-service requirement or the onset of 
disability) as of the termination date are not guaranteed.\2\
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    \2\ ERISA section 4022(e) provides that a qualified 
preretirement survivor annuity under a single-employer plan is not 
treated as forfeitable solely because the participant has not died 
as of the termination date.
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    This proposed rule addresses the interaction of Title IV's 
requirement that benefits be nonforfeitable on the termination date in 
order to be guaranteed with the rights of reemployed service members in 
their employee pension benefit plans under the Uniformed Services 
Employment and Reemployment Rights Act of 1994 (``USERRA''), Public Law 
103-353 (October 13, 1994).
    Congress enacted USERRA to protect certain rights and benefits of 
employees who voluntarily or involuntarily leave civilian employment to 
serve in the uniformed services.\3\ Under USERRA, returning service 
members are generally entitled to reemployment in their pre-service 
positions, with the status, pay, and benefits to which they would have 
been entitled had they not served in the uniformed services. The stated 
purposes of USERRA are--
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    \3\ Terms used in this proposed rule, such as ``service in the 
uniformed services,'' are intended to have the meaning provided 
under USERRA and the Department of Labor regulations implementing 
USERRA. For convenience, this preamble sometimes uses the term 
``military service'' as shorthand for ``service in the uniformed 
services.''
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    <bullet> To encourage noncareer service in the uniformed services 
by eliminating or minimizing the disadvantages to civilian careers and 
employment which can result from such service,
    <bullet> To minimize the disruption to the lives of persons 
performing service in the uniformed services as well as to their 
employers, their fellow employees, and their communities, by providing 
for the prompt reemployment of such persons upon their completion of 
such service under honorable conditions, and
    <bullet> To prohibit discrimination against persons because of 
their service in the uniformed services.

38 U.S.C. 4301. The provisions of USERRA are generally effective with 
respect to reemployments initiated on or after December 12, 1994.
    The Department of Labor (``DOL'') issued a final rule on USERRA, 70 
FR 75246 (Dec. 19, 2005). The preamble to that rule states that, in 
construing USERRA and its implementing regulations, DOL intends to 
``apply with full force and effect'' the interpretive maxim of the 
Supreme Court in Fishgold v. Sullivan Drydock and Repair Corp., 328 
U.S. 275, 285 (1946), that legislation on reemployment rights for 
service members ``is to be liberally construed for the benefit of those 
who left private life to serve their country in its hour of great need. 
* * *'' 70 FR 75246.
    DOL's final regulation on USERRA, codified at 20 CFR part 1002, 
covers various types of military training and service. Section 1002.6 
provides:

    USERRA's definition of ``service in the uniformed services'' 
covers all categories of military training and service, including 
duty performed on a voluntary or involuntary basis, in time of peace 
or war. Although most often understood as applying to National Guard 
and reserve military personnel, USERRA also applies to persons 
serving in the active components of the Armed Forces. Certain types 
of service specified in 42 U.S.C. 300hh-11 by members of the 
National Disaster Medical System are covered by USERRA.

    USERRA establishes specific rights for reemployed service members 
in their employee pension benefit plans. Each period of service 
performed by an individual in the uniformed services is deemed, upon 
reemployment, to constitute service with the employer(s) maintaining 
the plan for purposes of determining participation, vesting, and 
accrual of benefits under the plan. 38 U.S.C. 4318(a)(2)(A) and (B); 20 
CFR 1002.259. As explained in the preamble to DOL's final rule 
implementing USERRA, the reemployed service member is treated for 
pension purposes under the plan as though he or she had remained 
continuously employed. 70 FR at 75280.\4\
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    \4\ Consistent with this principle of treating a reemployed 
service member as if his or her employment had not been interrupted 
by military service, DOL's final rule requires that any preparation 
time before entering military service or recuperation time (or 
period of hospitalization or convalescence) after completing service 
before reporting back to work, to the extent permitted by USERRA, be 
treated as continuous service with the employer upon reemployment 
for purposes of determining the employee's pension entitlement. 20 
CFR 1002.259; see 70 FR at 75276.

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[[Page 37668]]

    Entitlement to pension credit arises only where the returning 
service member is reemployed by his or her pre-service employer.\5\ 
There is no entitlement to pension credit in cases in which an employee 
permanently and lawfully loses reemployment rights--for example, where 
an employee dies during the period of military service (however, see 
recent changes to the Internal Revenue Code),\6\ where an employer is 
excused from its reemployment obligations based on a statutory defense, 
or where an employee elects not to seek reemployment within the 
specified time frame.\7\ 38 U.S.C. 4312(d)(1); see 70 FR at 75280. Plan 
termination, however, is not identified as a circumstance that results 
in a permanent and lawful loss of reemployment rights for purposes of 
computing an employee's pension entitlement.
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    \5\ A service member who meets five eligibility criteria is 
entitled to be reemployed: the employee is absent from employment by 
reason of service in the uniformed services; the employee gives 
advance notice of the service; the employee has five years or less 
of cumulative service in the uniformed services with respect to the 
employment relationship with the employer; the service member makes 
a timely return to, or application for reinstatement in, his or her 
employment after completing service; and the employee receives an 
honorable discharge from service. 38 U.S.C. 4312(a)-(c). There are 
three statutory defenses that an employer may assert against a claim 
for USERRA benefits; the employer bears the burden of proving these 
defenses. 38 U.S.C. 4312(d).
    \6\ The Heroes Earnings Assistance and Relief Tax Act of 2008 
(``HEART'') amended the Internal Revenue Code with respect to the 
provision of certain benefits under an employee pension benefit plan 
for participants who die or become disabled while performing 
qualified military service. 26 U.S.C. 401(a)(37); 26 U.S.C. 
414(u)(9). PBGC may provide additional guidance in the future 
regarding HEART provisions under Title IV.
    \7\ USERRA contains a broad prohibition against waivers of 
statutory rights. The preamble provides that an employee cannot 
waive USERRA's right to reemployment until that right has matured, 
i.e., until the period of service is completed. 70 FR at 75257.
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    In the case of a standard termination, under ERISA section 
4041(b)(1)(D) and Sec.  4041.28(a) of PBGC's regulation on Termination 
of Single-Employer Plans, plan assets must satisfy all plan benefits 
through priority category 6 under section 4044 of ERISA. Priority 
category 6 includes benefits that, as of the termination date, are 
conditioned on a future event. Accordingly, even without the proposed 
rule, a plan terminating in a standard termination must provide 
benefits relating to periods of military service through the 
termination date for participants who become reemployed in accordance 
with USERRA provisions, even if such reemployment occurs after the 
plan's termination date.\8\
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    \8\ Under the proposed rule, as explained below, such benefits 
would be in priority category 4 (covering guaranteed benefits) if 
the reemployment occurs after the plan's termination date and if all 
other conditions are met. These benefits thus would continue to be 
part of benefit liabilities that would have to be provided in a 
standard termination.
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    Section 4312(f) of USERRA describes the information that a service 
member must submit to an employer in order to establish that the 
individual meets the statutory requirement for reemployment, including 
information establishing that the individual's application for 
reemployment is timely; that he or she has not exceeded the five-year 
military service limitation; and that the type of separation from 
military service does not disqualify the individual from reemployment.

Proposed Regulatory Changes

    Under USERRA, an individual who is reemployed following military 
service is entitled to the pension benefits that he or she would have 
earned if he or she had remained continuously employed. As noted above, 
Title IV of ERISA provides that, for a benefit to be nonforfeitable, 
the conditions for entitlement to the benefit must be satisfied on or 
before the plan's termination date. In order to harmonize the 
significant federal mandate to protect service members' rights and 
benefits under USERRA with Title IV's rules on nonforfeitable benefits, 
PBGC is proposing to amend its regulation on Benefits Payable in 
Terminated Single-Employer Plans. This amendment would provide that a 
participant would be deemed to have satisfied the reemployment 
condition for entitlement to the benefit as of the plan's termination 
date, for purposes of PBGC's guarantee, if PBGC determines, based on a 
demonstration by the participant or otherwise, that he or she became 
reemployed and entitled to the restoration of the pension benefit 
pursuant to USERRA, even if the reemployment occurred after the plan's 
termination date. Thus, for example, if a participant had 14 years of 
pension service at the time he or she entered military service, and had 
spent one year in the military as of the plan's termination date, the 
participant would be considered to have 15 years of service, for 
guarantee purposes, so long as he or she returns to his or her former 
employment within the bounds set by USERRA.
    When a plan termination occurs during the bankruptcy of the plan 
sponsor, PBGC treats the bankruptcy filing date as the plan's 
termination date for certain purposes (see note 1). Proposed new Sec.  
4022.11 includes a provision that applies this concept to USERRA 
benefits. For example, if a participant is performing military service 
as of the bankruptcy filing date, any benefit relating to the period of 
military service that is accrued and vested through the bankruptcy 
filing date would be considered nonforfeitable if the participant 
becomes reemployed pursuant to USERRA after the bankruptcy filing date.
    PBGC will provide guidance on how individuals can establish, for 
purposes of their Title IV benefit, their entitlement to benefits under 
USERRA. Persons with questions about these benefits should contact 
PBGC's Benefits Administration and Payment Department.
    PBGC emphasizes that the changes that would be made by this 
amendment to PBGC's regulations are very narrow, applying only to the 
unique circumstances presented by federal statutes affording special 
protection to the men and women serving the nation in the uniformed 
services. Except as would be provided in this amendment, a benefit will 
be treated as nonforfeitable only if all conditions for entitlement to 
the benefit have been satisfied on or before the termination date. This 
includes benefits such as disability benefits, subsidized early 
retirement benefits (e.g., ``30 and out'' benefits), and benefits that 
may be similar in certain respects to the benefits covered by this 
amendment, such as a benefit conditioned on an employee's being 
reemployed after a period of layoff.

Applicability

    The amendments made by this proposed rule would apply to 
reemployments under USERRA initiated on or after December 12, 1994.

Compliance With Rulemaking Guidelines

    PBGC has determined, in consultation with the Office of Management 
and Budget, that this proposed rule is not a ``significant regulatory 
action'' under Executive Order 12866.

Regulatory Flexibility Act

    PBGC certifies under section 605(b) of the Regulatory Flexibility 
Act (5 U.S.C. 601 et seq.) that the amendments in this proposed rule 
would not have a significant economic impact on a substantial number of 
small entities. The amendments harmonize the requirements of USERRA 
with the nonforfeitable benefits requirements of Title IV of ERISA. 
Virtually all of the amendments affect only PBGC and persons who 
receive benefits from PBGC. Accordingly, as provided in

[[Page 37669]]

section 605 of the Regulatory Flexibility Act, sections 603 and 604 do 
not apply.

List of Subjects

29 CFR Part 4001

    Pensions.

29 CFR Part 4022

    Pension insurance, Pensions.

    For the reasons given above, PBGC proposes to amend 29 CFR parts 
4001 and 4022 as follows.

PART 4001--TERMINOLOGY

    1. The authority citation for part 4001 continues to read as 
follows:


    Authority:  29 U.S.C. 1301, 1302(b)(3).

    2. In Sec.  4001.2, add a new definition in alphabetical order to 
read as follows:


Sec.  4001.2  Definitions

* * * * *
    PPA 2006 bankruptcy termination means a plan termination to which 
section 404 of the Pension Protection Act of 2006 applies. Section 404 
of the Pension Protection Act of 2006 applies to any plan termination 
in which the termination date occurs while bankruptcy proceedings are 
pending with respect to the contributing sponsor of the plan, if the 
bankruptcy proceedings were initiated on or after September 16, 2006. 
Bankruptcy proceedings are pending, for this purpose, if a contributing 
sponsor has filed or has had filed against it a petition seeking 
liquidation or reorganization in a case under title 11, United States 
Code, or under any similar Federal law or law of a State or political 
subdivision, and the case has not been dismissed as of the termination 
date of the plan.
* * * * *

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

    3. 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.

    4. In Sec.  4022.2, amend the first paragraph by removing the words 
``plan year, proposed termination date, substantial owner'' and adding 
in their place ``plan year, PPA 2006 bankruptcy termination, proposed 
termination date, statutory hybrid plan, substantial owner.''
    5. Add new Sec.  4022.11 to subpart A to read as follows:


Sec.  4022.11  Guarantee of benefits relating to uniformed service.

    This section applies to a benefit of a participant who becomes 
reemployed after service in the uniformed services that is covered by 
the Uniformed Services Employment and Reemployment Rights Act of 1994 
(USERRA).
    (a) A benefit described in paragraph (b) of this section that would 
satisfy the requirements of Sec.  4022.3(a) and (c) (together with any 
benefit earned for the period preceding military service) except for 
the fact that the participant was not reemployed on or before the 
termination date will be deemed to satisfy those requirements if PBGC 
determines, based upon a demonstration by the participant or otherwise, 
that he or she became reemployed after the termination date and 
entitled to the benefit under USERRA.
    (b) A benefit described in this paragraph (b) is a benefit 
attributable to a period of service commencing before the termination 
date and ending on the termination date during which the participant 
was serving in the uniformed services as defined in 38 U.S.C. 4303(13) 
(or was in a subsequent reemployment eligibility period) and to which 
the participant is entitled under USERRA.
    (c) Example: A plan's vesting requirement is 5 years of service 
with the employer. A participant has completed 4 years of service when 
he leaves employment for uniformed service. The plan terminates while 
the participant is in military service. As of the termination date, the 
participant would have had 5 years of service and 5 years of benefit 
accruals if he had remained continuously employed. Upon reemployment 
after the termination date but within the time limits set by USERRA, 
the participant would have had 6 years of service under the plan for 
vesting and benefit accrual purposes, if the plan had not terminated. 
PBGC would treat the participant as having a vested, nonforfeitable 
plan benefit with 5 years of vesting service and benefit accruals as of 
the termination date.
    (d) In the case of a PPA 2006 bankruptcy termination, ``bankruptcy 
filing date'' is substituted for ``termination date'' each place that 
``termination date'' appears in this section.

    Issued in Washington, DC, this 24th day of July 2009.
Vincent K. Snowbarger,
Acting Director, Pension Benefit Guaranty Corporation.
[FR Doc. E9-18074 Filed 7-28-09; 8:45 am]
BILLING CODE 7709-01-P


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