60424 Federal Register / Vol. 62, No. 216 / Friday, November 7, 1997 / Rules and Regulations

PENSION BENEFIT GUARANTY

CORPORATION

29 CFR Parts 4001, 4006, 4022, 4041,

4050

RIN 1212–AA82

Termination of Single-Employer Plans

AGENCY: Pension Benefit Guaranty

Corporation.

ACTION: Final rule.

SUMMARY: The Pension Benefit Guaranty

Corporation is amending its termination

regulation to extend deadlines, to

otherwise simplify the standard

termination process, and to ensure that

participants receive information on state

guaranty association coverage of

annuities.

EFFECTIVE DATE: January 1, 1998. This

rule is applicable to terminations for

which the first notice of intent to

terminate is issued on or after January

1, 1998. Certain provisions of the rule

that provide increased flexibility during

the termination process apply to

pending terminations, as explained

under Applicability of Final Rule in

SUPPLEMENTARY INFORMATION.

FOR FURTHER INFORMATION CONTACT:

Harold J. Ashner, Assistant General

Counsel, or Catherine B. Klion,

Attorney, Office of the General Counsel,

PBGC, 1200 K Street, NW., Washington,

DC 20005–4026, 202–326–4024 (800–

877–8339 for TTY and TDD).

SUPPLEMENTARY INFORMATION:

Background

A single-employer plan covered by

the PBGC’s insurance program may be

voluntarily terminated only in a

standard or distress termination. The

rules governing voluntary terminations

are in section 4041 of the Employee

Retirement Income Security Act of 1974

and part 4041 of the PBGC’s regulations.

On March 14, 1997, the PBGC

published a proposed rule (62 FR

12508) revising and simplifying the

standard termination process and

making a limited number of conforming

changes to the distress termination and

premium regulations, as well as

conforming and simplifying changes to

the missing participants regulation. The

proposal was developed after

conducting focus groups with plan

practitioners and took into account

participant concerns and the PBGC’s

experience.

The proposed regulation extended

certain standard termination

deadlines—most significantly the

deadlines for filing the standard

termination notice (Form 500) and for

distributing benefits after receiving a

determination letter from the Internal

Revenue Service (IRS)—and gave the

PBGC discretion to extend these and

other deadlines.

The final regulation generally follows

the proposed regulation. The

commenters commended the PBGC for

extending deadlines, but raised some

technical and other issues. The PBGC

has carefully considered all comments.

The following includes a discussion of

the major comments and the significant

changes from the proposed regulation.

Notice of Intent To Terminate

One commenter suggested that the

notice of intent to terminate include a

copy of the summary plan description.

Plan administrators are required to

provide participants and beneficiaries

with the summary plan description

periodically and upon request pursuant

to section 104(b) of ERISA. The final

regulation requires plan administrators

to include in the notice of intent to

terminate a statement as to how a

participant or beneficiary can get the

summary plan description under section

104(b).

Another commenter suggested that

the PBGC specify different information

requirements for the notice in the case

of affected parties discovered long after

the termination process is complete.

The PBGC has not adopted the

suggestion because tailoring the

information requirements depending on

the passage of time would be

unnecessarily complicated.

The PBGC received a number of

inquiries, including a comment on the

proposed rule, about the relationship

between the notice of intent to terminate

and section 204(h) of ERISA, and about

the proposed requirement that the

notice of intent to terminate address

whether accruals have been or will be

frozen.

The final regulation, like the proposed

regulation, requires that the notice of

intent to terminate make clear when,

and under what circumstances, accruals

cease. The notice of intent to terminate,

in and of itself, does not constitute a

section 204(h) notice. If the termination

is successfully completed, the plan will

be deemed to satisfy section 204(h) not

later than the termination date, and

therefore there will be no posttermination date accruals (see Treas.

Reg. § 1.411(d)–6T, Q&A 14(a)). The

deeming rule does not apply if the plan

does not successfully complete the

termination process. In addition, the

deeming rule will not cause accruals to

stop before the termination date. In

order for accruals to cease before the

termination date, the plan administrator

must provide a notice that satisfies

section 204(h). The notice may be

provided separately or with or as part of

the notice of intent to terminate.

The final regulation provides that the

notice of intent to terminate (and the

notice of plan benefits) must be issued

to each person who becomes a

beneficiary of a deceased participant or

an alternate payee after the proposed

termination date and on or before the

distribution date. (The notice will be

saved from being untimely, provided

the ‘‘after-discovered affected parties’’

requirements are satisfied.)

Notice of Plan Benefits

While the proposed regulation did not

make substantive changes to the existing

requirements for the content of the

notice of plan benefits, there were

several comments and questions about

this notice. The notice of plan benefits

is designed to facilitate the ability of

participants and beneficiaries to

determine whether their benefit

calculations are correct before all plan

assets are distributed.

One commenter asked what actions

are required when necessary personal

data is unavailable. The final regulation

requires the plan administrator to

provide the best available data, to

inform the affected party of any

personal data needed to calculate a

benefit that is not available, and to give

the affected party an opportunity to

supply it and to correct any information

he or she believes to be incorrect.

Another commenter suggested

eliminating the personal data

requirement for persons who have

already received a prior benefit notice

(e.g., a terminated vested participant)

and asked whether personal data should

be provided in the form of ‘‘root data’’

or ‘‘derived data.’’ To facilitate the

ability of participants and beneficiaries

to review benefit calculations at the

time of termination, the final regulation

retains the requirement that personal

data be provided in all cases except

where a participant or beneficiary has

been in pay status for more than one

year. The final regulation continues to

give plan administrators the flexibility

to provide personal data in the form

they consider to be most useful.

The same commenter also suggested

that the PBGC drop the existing

requirement to provide information

about alternative benefit forms (because

it is available in the summary plan

description) and actuarial adjustment

factors (because it is not provided by

ongoing plans and is difficult for

affected parties to understand). The

final regulation retains this requirement,

thereby keeping in a single document
Federal Register / Vol. 62, No. 216 / Friday, November 7, 1997 / Rules and Regulations 60425

key information that helps affected

parties (or their advisors) check the

accuracy of benefit calculations.

To further ensure that the notice of

plan benefits provides affected parties

with adequate information to check

their benefit calculations, the final

regulation requires that, for benefits that

will or may be paid in lump sum form,

the plan administrator must specify the

mortality table used to convert the

benefit, describe the interest rate to be

used to convert to the lump sum benefit

(e.g., the 30-year Treasury rate for the

third month before the month in which

the lump sum is distributed), and (if

known) provide the applicable interest

rate. This information will enable

affected parties to ensure that plan

administrators are using permissible

interest and mortality assumptions in

calculating lump sums.

State Guaranty Information

The proposed regulation, in response

to a General Accounting Office

recommendation, required plan

administrators to include with the

notice of identity of insurer a general

explanation of state guaranty coverage

and state-by-state information

(addresses, telephone numbers, and

coverage limits for each state). The

proposed forms and instructions

package included all of the required

information so that plan administrators

could copy it and provide it to affected

parties.

Several commenters thought the

information on state guaranty coverage

was burdensome and not useful. They

argued that the majority of participants

elect lump sums, and that participants

who choose annuities do not need the

information unless and until the

annuity provider experiences financial

difficulty. On the other hand, a

participant organization did not believe

the notice went far enough in clearly

informing participants of the

consequences of insurance company

failure (in particular that, in certain

limited circumstances, they may not

receive state guaranty protection).

Basic information about state guaranty

coverage is useful at the time of plan

termination. Participants who

understand the potential consequences

of the plan administrator’s selection of

an insurer can make better informed

decisions as to the form of their benefit

and whether to bring any concerns

about a particular insurer to the

attention of the plan administrator.

The final regulation retains the state

guaranty information requirement with

some modifications. Plan administrators

must still provide a general explanation

of state guaranty coverage. (A model

notice is included in the forms and

instructions package.) The notice must

inform affected parties that a guaranty

association is responsible for all, part, or

none of the annuity if the insurance

company cannot pay. While the detailed

state-by-state information is not

required, the notice must include a

statement generally describing

applicable dollar coverage limits, and

must also inform affected parties how

they can obtain the addresses and

telephone numbers of state guaranty

association offices from the PBGC. The

PBGC intends to maintain a current list

of these addresses and telephone

numbers on its home page and to

respond to inquiries for this information

so that affected parties may obtain

current information whenever it is most

useful to them.

Closeout of Plan

Several commenters addressed the

statement in the proposed rule that the

PBGC intends to audit insurer selections

for compliance with Title I fiduciary

standards and to take appropriate

corrective action, with one specifically

questioning the PBGC’s statutory

authority for this statement. One

commenter suggested that the PBGC

periodically publish a list of ‘‘safeharbor’’ insurers that plan

administrators could select and thereby

avoid audit. Another commenter

suggested that the PBGC audit proposed

insurer selections before the selection is

made and include in the notice of

identity of insurer both insurance

company ratings and a certification of

compliance with fiduciary standards in

selecting an insurer.

By requiring compliance with Title I

fiduciary standards to have a valid

termination and by monitoring that

compliance, the PBGC is furthering one

of Title IV’s fundamental purposes—‘‘to

provide for the timely and

uninterrupted payment of pension

benefits’’ (section 4002(a)(1) of ERISA).

The Department of Labor’s Interpretive

Bulletin 95–1 (60 FR 12329, March 6,

1995), codified at 29 CFR § 2509.95–1,

provides guidance with respect to the

application of Title I of ERISA to the

selection of annuity providers when

purchasing annuities for the purpose of

distributing benefits under a pension

plan. As explained in Interpretive

Bulletin 95–1, the selection process

depends in part on the relevant facts

and circumstances at the time an

annuity is purchased. The PBGC will

coordinate with the Department of

Labor in this area.

The PBGC does not believe it

appropriate to publish a list of ‘‘safe

harbor’’ insurers, to audit proposed

insurer selections, or to require as part

of the notice of identity of insurer either

ratings or a special certification for this

one aspect of the termination process.

PBGC Audits

The PBGC currently reviews benefit

calculations after distribution for a

statistically significant number of plans

terminating in standard terminations, as

required by section 4003(a) of ERISA. A

participant organization suggested that

the PBGC review benefit calculations

before distribution. Prior to passage of

the Single-Employer Pension Plan

Amendments Act of 1986 (SEPPAA), the

PBGC did conduct pre-distribution

reviews of benefit calculations.

Congress’s intent in passing SEPPAA

was to reduce the PBGC’s role in

standard terminations, thereby enabling

the PBGC to devote more of its resources

to underfunded terminations (where

both premium payers and participants

can face significant exposure). See 52

FR 33318, 33318–19, September 2, 1987.

Although the PBGC has not adopted the

commenter’s suggestion, the PBGC has

revised the forms and instructions

packages to address common errors

found in post-distribution audits by

including detailed guidance on

calculating lump sum distributions. The

PBGC will continue to conduct postdistribution audits and require

appropriate corrective action.

Filing and Issuance Rules

The proposed regulation eased filing

deadlines by changing the date of filing

a notice with the PBGC from the date of

receipt to the date of the U.S. Postal

Service postmark or (if the notice is

received by the PBGC within two

regular business days) the date of

deposit with a commercial delivery

service. The final regulation provides

further flexibility in situations where

the postmark was made by a private

postage meter or is illegible.

For filings by commercial delivery

service, the final regulation

supplements the two-day receipt rule

with IRS rules under section 7502(f) of

the Internal Revenue Code. Under the

IRS rules, a document is generally

considered filed on the date it is

provided to a ‘‘designated private

delivery service’’ for delivery using a

specified type of delivery service, e.g.,

overnight service. (See I.R.S. Notice 97–

26, 1997–17 I.R.B. 6 (April 10, 1997)

and I.R.S. Notice 97–50, 1997–37 I.R.B.

21 (August 29, 1997) for relevant rules

and IRS’s first two lists of designated

private delivery services.)

The proposed regulation allowed

electronic filing in certain

circumstances and provided that the
60426 Federal Register / Vol. 62, No. 216 / Friday, November 7, 1997 / Rules and Regulations

date of electronic filing is the date of

receipt by the PBGC. The final

regulation liberalizes these rules by

generally providing that the date of

electronic filing is the date of electronic

transmission to the PBGC.

The final regulation, like the proposed

regulation, allows the plan

administrator to issue a notice to an

affected party by electronic means

reasonably calculated to ensure actual

receipt. The PBGC received comments

relating to confirmation of receipt of

electronically-issued notices.

Confirmation of receipt is not required.

However, the final rule provides that, if

there is reason to believe that a notice

was not delivered, the plan

administrator must reissue the notice

promptly in order for the transmission

date to be treated as the issuance date.

(A similar rule applies to documents

filed electronically with the PBGC.)

The final regulation makes clear that

plan administrators are not required to

issue notices to persons they cannot

locate after making reasonable efforts, as

long as they issue the notice promptly

in the event the person is located.

In response to a comment, the final

regulation provides that plan

administrators may provide additional

information with any notice only if the

information is not misleading.

Miscellaneous

Definitions

In response to a comment, the PBGC

has clarified the definition of ‘‘plan

benefits.’’ The final regulation also ties

this definition to the rules governing

post-termination amendments.

A commenter questioned the

inclusion of PBGC premiums as a plan

liability in the ‘‘residual assets’’

definition. The proposed regulation

merely conformed this definition to the

existing requirement that PBGC

premiums be taken into account in

determining sufficiency for a standard

termination (see existing § 4041.27(b)).

Distribution of plan benefits in a

standard termination without taking

into account the plan’s premium

obligation may result in nullification of

the termination or imposition of

personal liability on the plan

administrator (see 57 FR 59206, 59214

(December 14, 1992); PBGC Op. Ltr. 94–

6 (September 28, 1994)).

The PBGC has rejected as unnecessary

the suggestions of another commenter to

change two definitions. The commenter

requested that the definition of

‘‘participant’’ exclude individuals who

have received a ‘‘deemed’’ zero-dollar

cashout and that the definition of

‘‘majority owner’’ provide for expanded

attribution rules. The definition of

‘‘participant’’ already excludes any

nonvested individual who has been

cashed out under the terms of the plan

and in accordance with applicable law

and regulations (see section 411(a)(7) of

the Code and Treas. Reg. § 1.411(a)–7)

because the individual is no longer

‘‘earning or retaining’’ credited service.

Similarly, the ‘‘majority owner’’

definition already incorporates Code

attribution rules, which provide for

attribution of ownership to spouses,

ascendants, and descendants in certain

circumstances. The PBGC sees no

reason to provide for greater attribution

in its termination regulations.

Facilitating Plan Sufficiency

In response to a comment seeking

clarification of the election and consent

requirements governing alternative

treatment of a majority owner’s benefit,

the final regulation makes clear that the

election and consent may be made at

any time during the termination

process.

The Taxpayer Relief Act of 1997

(which was enacted after the

publication of the proposed rule)

amends section 206(d) of ERISA to

provide for the offset of a participant’s

benefit against the amount the

participant owes to a plan as a result of

settlement or other resolution of certain

fiduciary breach or criminal actions.

Because this offset reduces the benefits

that must be taken into account in a

voluntary termination, there is no need

to revise the regulation to reflect this

legislation.

Qualified Domestic Relations Orders

A participant organization asked the

PBGC to address the relationship

between the termination process and

qualified domestic relations orders

(QDRO’s). A standard termination has

no effect on the ability to obtain a QDRO

or on benefits received under a QDRO.

(Of course, as is the case with an

ongoing plan, a distribution from the

plan may affect the ability to obtain

benefits under a QDRO.) Plan

administrators and annuity providers

must comply with the terms of a QDRO.

As affected parties, alternate payees

under QDRO’s receive all required

notices, including the notice of plan

benefits. A spouse contemplating a

divorce (and QDRO) retains his or her

spousal consent rights.

Post-Termination Amendments

The proposed regulation provided

that, with limited exceptions, a plan

amendment adopted after a plan’s

termination date is disregarded with

respect to a participant or beneficiary.

The final regulation clarifies how the

rule works where a share of residual

assets will go to participants and

beneficiaries based on an allocation

formula.

Lump Sum Assumptions

The final regulation clarifies the rules

for determining the valuation date for a

lump sum distribution.

Participating Annuity Contracts

In response to a comment, the PBGC

notes that its change in the rules

governing purchase of participating

annuity contracts (from existing

§ 4041.6(d) to proposed and final

§ 4041.28(c)(2)) is merely clarifying, not

substantive.

Deadlines and Extensions

Commenters approved of the

proposed regulation’s provision giving

the PBGC discretionary authority to

extend standard termination deadlines.

The final regulation extends this

discretionary authority to distress

termination and missing participants

deadlines.

One commenter recommended that

the PBGC eliminate intermediate

deadlines. The PBGC believes that

intermediate deadlines are useful in

managing the termination process, in

particular, in coordinating with the IRS

determination letter process. The

combination of extended deadlines and

the ability to obtain discretionary

extensions should result in the

intermediate deadlines causing few, if

any, difficulties.

The PBGC has not incorporated a

suggestion that the final regulation

include more specific criteria for

discretionary extensions. The grounds

for granting a discretionary extension

will vary with the facts and

circumstances of the particular case.

The final regulation, like the proposed

regulation, includes factors (e.g., length

of the delay) that the PBGC will

consider.

Record Retention and Availability

In response to a comment, the final

regulation allows records to be retained

in any format that reasonably ensures

the integrity of the original information,

as long as the records can be converted

to hardcopy if requested by the PBGC.

(This provision addresses only the

record retention requirements under

section 4041 of ERISA and part 4041 of

the PBGC’s regulations; it does not

address record retention requirements

under Title I of ERISA or the Code.) The

final regulation also clarifies that the

plan administrator must make available

to the PBGC upon request any records
Federal Register / Vol. 62, No. 216 / Friday, November 7, 1997 / Rules and Regulations 60427

necessary to demonstrate compliance

with the termination requirements

under section 4041 of ERISA and part

4041 of the PBGC’s regulations, and

applies this same test to the record

retention requirement.

Missing Participants

The final rule gives the PBGC

authority to grant discretionary

extensions and makes technical changes

to (1) the deadline for payment of

residual assets for a participant or

beneficiary who cannot be located; and

(2) the rules governing post-age 701⁄2

PBGC payments.

Other

In response to comments, the PBGC

(1) has reviewed its model notice of

intent to terminate and model state

guaranty notice for readability and made

simplifying changes, and (2) has added

a standard termination time line to the

forms and instructions package.

The PBGC has not adopted

suggestions to change the requirements

for calculating lump sum distributions

(because they are prescribed by the

Code and IRS regulations) or the

deadline for filing the post-distribution

certification (because it is prescribed by

Title IV of ERISA). (As discussed in

Applicability of Final Rule below, the

PBGC has provided penalty relief for

late filing of the post-distribution

certification.) The PBGC also has not

adopted suggestions to change certain

existing requirements and

interpretations.

The final rule makes other clarifying,

conforming, or editorial changes from

the proposed rule in the PBGC’s

termination, missing participants, and

benefit payment regulations.

Applicability of Final Rule

This rule is applicable to terminations

for which the first notice of intent to

terminate is issued on or after January

1, 1998. As explained below, certain

provisions of the rule apply to

terminations for which the first notice of

intent to terminate is issued before

January 1, 1998.

Deadline Extensions

Any deadline that has not passed as

of January 1, 1998 is extended to the

deadline that applies under this final

rule, including a deadline extended

under the PBGC’s discretionary

authority under § 4041.30.

Filing and Issuance Rules

The filing rules in § 4041.3(b) and

issuance rules in § 4041.3(c)(1) through

(c)(4) apply to any information (except

for the notice under § 4041.31(g) that a

termination is nullified) required to be

filed or issued on or after January 1,

1998.

Notice of Noncompliance

The rules in § 4041.31 that (1) address

the PBGC’s discretion not to issue a

notice of noncompliance for failure to

meet a distribution requirement

(§ 4041.31(b)), and (2) deem a

termination valid if the plan

administrator files a post-distribution

certification and the PBGC does not

issue a notice of noncompliance

(§ 4041.31(f)(2)) apply to any

termination for which, as of January 1,

1998, the distribution deadline has not

passed.

Late Filing of Post-Distribution

Certification

The final regulation provides penalty

relief for late filing of the postdistribution certification and certain

information under the missing

participants program. It also eliminates

two other potential consequences for

late post-distribution certification

filings: (1) the loss of part or all of the

plan’s premium refund for its final short

plan year; and (2) the loss of the

interest-free grace period for late

payment of a designated benefit for a

missing participant. The relevant

amendments ‘‘ in § 4041.29(b)

(regarding assessment of penalties for

late filing of the post-distribution

certification), § 4050.6(b)(2) (regarding

assessment of interest for late payment

of a designated benefit for a missing

participant and penalties for late filing

of information), and § 4006.5(f)(3)

(regarding the plan’s premium refund

for its final short plan year)—are

applicable to terminations for which, as

of January 1, 1998, the statutory

deadline for filing the post-distribution

certification has not passed.

The penalty relief described in the

PBGC’s March 14, 1997, policy

statement (62 FR 12521) ‘‘ which does

not eliminate the other potential

consequences of a late post-distribution

certification ‘‘ will continue for pending

terminations for which the postdistribution certification is statutorily

due before January 1, 1998.

Forms and Instructions Packages

The PBGC will issue new forms and

instructions packages for terminations

for which the first notice of intent to

terminate is issued on or after January

1, 1998.

The PBGC will also issue revised

forms and instructions packages for

terminations for which the first notice of

intent to terminate is issued before

January 1, 1998. These packages explain

in detail which provisions of the final

rule apply to pending terminations. As

discussed in Applicability of Final Rule,

the only changes that apply provide

increased flexibility for plan

administrators; plan administrators may

therefore complete pending

terminations by complying with existing

requirements.

After the new and revised forms and

instructions packages are approved by

the Office of Management and Budget

(see Compliance with Rulemaking and

Paperwork Reduction Act Guidelines),

the PBGC intends to mail the revised

packages to persons with pending

terminations on file with the PBGC and

to mail the new and revised packages to

practitioners who have requested that

they be placed on a mailing list to

receive policy and technical updates

from the PBGC. Persons may also obtain

the packages by contacting the PBGC’s

Customer Service Center, 1200 K Street,

NW., Washington, D.C. 20005–4026

((202) 326–4000) or by accessing the

PBGC’s home page at http://

www.pbgc.gov.

Compliance With Rulemaking and

Paperwork Reduction Act Guidelines

The PBGC has determined that this

action is not a ‘‘significant regulatory

action’’ under the criteria set forth in

Executive Order 12866.

The PBGC certifies under section

605(b) of the Regulatory Flexibility Act

that this rule will not have a significant

economic impact on a substantial

number of small entities. While this rule

simplifies procedures and extends

deadlines, the actions required to

terminate a plan are essentially

unchanged. Accordingly, sections 603

and 604 of the Regulatory Flexibility

Act do not apply.

This rule contains information

collection requirements. As required by

the Paperwork Reduction Act of 1995,

the PBGC has submitted a copy of this

information collection, including the

implementing forms and instructions, to

the Office of Management and Budget

for its review. Persons do not have to

comply with the revised information

collection requirements of this rule until

the PBGC publishes in the Federal

Register a notice announcing OMB’s

approval of this collection of

information along with a currently valid

OMB control number.

List of Subjects

29 CFR Part 4001

Pension insurance, Pensions,

Reporting and Recordkeeping

requirements.
60428 Federal Register / Vol. 62, No. 216 / Friday, November 7, 1997 / Rules and Regulations

29 CFR Part 4006

Penalties, Pension insurance,

Pensions, Reporting and Recordkeeping

requirements.

29 CFR Part 4022

Pension insurance, Pensions,

Reporting and Recordkeeping

requirements.

29 CFR Part 4041

Pension insurance, Pensions,

Reporting and Recordkeeping

requirements.

29 CFR Part 4050

Pensions, Reporting and

Recordkeeping requirements.

For the reasons set forth above, the

PBGC is amending parts 4001, 4006,

4022, 4041, and 4050 of 29 CFR chapter

XL 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).

§ 4001.2 [Amended]

2. In § 4001.2, paragraph (2) of the

definition of Distribution date is

amended by removing the words ‘‘Other

than for purposes of determining the

interest rate to be used in calculating the

value of a benefit to be paid as a lump

sum to a late-discovered participant,

the’’ and adding in their place ‘‘The’’;

and by removing the words ‘‘PBGC, a

benefit provided after the deemed

distribution date to a late-discovered

participant, or an irrevocable

commitment purchased from an insurer

after the deemed distribution date for a

recently-missing participant’’ and

adding in their place the word ‘‘PBGC’’.

PART 4006—PREMIUM RATES

3. The authority citation for Part 4006

continues to read as follows:

Authority: 29 U.S.C. 1302(b)(3), 1306,

1307.

§ 4006.5 [Amended]

4. In § 4006.5, paragraph (f)(3) is

amended by removing the words ‘‘or, if

later (in the case of a single-employer

plan), the date 30 days prior to the date

the PBGC receives the plan’s postdistribution certification’’.

PART 4022—BENEFITS PAYABLE IN

TERMINATED SINGLE-EMPLOYER

PLANS

5. 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.

§ 4022.61 [Amended]

6. In § 4022.61, paragraph (a) is

amended by replacing ‘‘4041.4’’ with

‘‘4041.42’’.

7. Part 4041 is revised to read as

follows:

PART 4041—TERMINATION OF

SINGLE-EMPLOYER PLANS

Subpart A—General Provisions

Sec.

4041.1 Purpose and scope.

4041.2 Definitions.

4041.3 Computation of time; filing and

issuance rules.

4041.4 Disaster relief.

4041.5 Record retention and availability.

4041.6 Effect of failure to provide required

information.

4041.7 Challenges to plan termination

under collective bargaining agreement.

4041.8 Post-termination amendments.

Subpart B—Standard Termination Process

4041.21 Requirements for a standard

termination.

4041.22 Administration of plan during

pendency of termination process.

4041.23 Notice of intent to terminate.

4041.24 Notices of plan benefits.

4041.25 Standard termination notice.

4041.26 PBGC review of standard

termination notice.

4041.27 Notice of annuity information.

4041.28 Closeout of plan.

4041.29 Post-distribution certification.

4041.30 Requests for deadline extensions.

4041.31 Notice of noncompliance.

Subpart C—Distress Termination Process

4041.41 Requirements for a distress

termination.

4041.42 Administration of plan during

termination process.

4041.43 Notice of intent to terminate.

4041.44 PBGC review of notice of intent to

terminate.

4041.45 Distress termination notice.

4041.46 PBGC determination of compliance

with requirements for distress

termination.

4041.47 PBGC determination of plan

sufficiency/insufficiency.

4041.48 Sufficient plans; notice

requirements.

4041.49 Verification of plan sufficiency

prior to closeout.

4041.50 Closeout of plan.

Authority: 29 U.S.C. 1302(b)(3), 1341,

1344, 1350.

Subpart A—General Provisions

§ 4041.1 Purpose and scope.

This part sets forth the rules and

procedures for terminating a singleemployer plan in a standard or distress

termination under section 4041 of

ERISA, the exclusive means of

voluntarily terminating a plan.

§ 4041.2 Definitions.

The following terms are defined in

§ 4001.2 of this chapter: affected party,

annuity, benefit liabilities, Code,

contributing sponsor, controlled group,

distress termination, distribution date,

EIN, employer, ERISA, guaranteed

benefit, insurer, irrevocable

commitment, IRS, mandatory employee

contributions, normal retirement age,

notice of intent to terminate, PBGC,

person, plan administrator, plan year,

PN, single-employer plan, standard

termination, termination date, and title

IV benefit. In addition, for purposes of

this part:

Distress termination notice means the

notice filed with the PBGC pursuant to

§ 4041.45.

Distribution notice means the notice

issued to the plan administrator by the

PBGC pursuant to § 4041.47(c) upon the

PBGC’s determination that the plan has

sufficient assets to pay at least

guaranteed benefits.

Majority owner means, with respect to

a contributing sponsor of a singleemployer plan, an individual who

owns, directly or indirectly, 50 percent

or more (taking into account the

constructive ownership rules of section

414(b) and (c) of the Code) of—

(1) An unincorporated trade or

business;

(2) The capital interest or the profits

interest in a partnership; or

(3) Either the voting stock of a

corporation or the value of all of the

stock of a corporation.

Notice of noncompliance means a

notice issued to a plan administrator by

the PBGC pursuant to § 4041.31

advising the plan administrator that the

requirements for a standard termination

have not been satisfied and that the plan

is an ongoing plan.

Notice of plan benefits means the

notice to each participant and

beneficiary required by § 4041.24.

Participant means—

(1) Any individual who is currently in

employment covered by the plan and

who is earning or retaining credited

service under the plan, including any

individual who is considered covered

under the plan for purposes of meeting

the minimum participation

requirements but who, because of offset

or similar provisions, does not have any

accrued benefits;

(2) Any nonvested individual who is

not currently in employment covered by

the plan but who is earning or retaining

credited service under the plan; and

(3) Any individual who is retired or

separated from employment covered by

the plan and who is receiving benefits

under the plan or is entitled to begin

receiving benefits under the plan in the

future, excluding any such individual to

whom an insurer has made an

irrevocable commitment to pay all the
Federal Register / Vol. 62, No. 216 / Friday, November 7, 1997 / Rules and Regulations 60429

benefits to which the individual is

entitled under the plan.

Plan benefits means benefit liabilities

determined as of the termination date

(taking into account the rules in

§ 4041.8(a)).

Proposed termination date means the

date specified as such by the plan

administrator in the notice of intent to

terminate or, if later, in the standard or

distress termination notice.

Residual assets means the plan assets

remaining after all plan benefits and

other liabilities (e.g., PBGC premiums)

of the plan have been satisfied (taking

into account the rules in § 4041.8(b)).

Standard termination notice means

the notice filed with the PBGC pursuant

to § 4041.25.

State guaranty association means an

association of insurers created by a

State, the District of Columbia, or the

Commonwealth of Puerto Rico to pay

benefits and to continue coverage,

within statutory limits, under life and

health insurance policies and annuity

contracts when an insurer fails.

§ 4041.3 Computation of time; filing and

issuance rules.

(a) Computation of time. In computing

any period of time under this part, the

day of the event from which the period

begins is not counted. The last day of

the period is counted. If the last day

falls on a Saturday, Sunday, or Federal

holiday, the period runs until the end of

the next regular business day. A

proposed termination date may be any

day, including a Saturday, Sunday, or

Federal holiday.

(b) Filing with the PBGC. Any

document to be filed under this part

must be filed with the PBGC in the

manner described in the applicable

forms and instructions package. The

document is deemed filed on the date

described in paragraph (b)(1), (b)(2),

(b)(3) or (b)(4) of this section, as

applicable, or such earlier date as is

provided in the applicable forms and

instructions package. For purposes of

this paragraph (b), information received

by the PBGC on a weekend or Federal

holiday or after 5:00 p.m. on a weekday

is considered filed on the next regular

business day.

(1) Filing by mail. If the document is

mailed with the United States Postal

Service by first class mail postage

prepaid to the PBGC, the document is

filed on—

(i) The date of the legible United

States Postal Service postmark;

(ii) If there is no legible United States

Postal Service postmark, the date of the

legible postmark made by a private

postage meter, provided that the

document is received by the PBGC not

later than the date when a document

sent by first class mail would ordinarily

be received if it were postmarked at the

same point of origin by the United

States Postal Service on the last date

prescribed for filing the document; or

(iii) In any other case, the date that

the plan administrator can establish the

document was deposited in the mail

before the last collection of mail from

the place of deposit.

(2) Filing by commercial delivery

service. If the document is deposited

with a commercial delivery service, the

document is filed on the earlier of—

(i) The date that would be considered

the postmark date under section 7502(f)

of the Code; or

(ii) The date it is deposited for

delivery with the commercial delivery

service, provided it is received by the

PBGC within two regular business days.

(3) Electronic filings. If the document

is filed electronically, the document is

filed on the date on which it is

transmitted electronically to the PBGC,

provided that, if there is reason to

believe the document was not delivered,

the plan administrator promptly refiles

the document in accordance with the

applicable forms and instructions

package.

(4) Other filings. If a filing date is not

established under paragraphs (b)(1)

through (b)(3) of this section, the

document is filed on the date on which

it is received by the PBGC.

(c) Issuance to other parties. The

following rules apply to affected parties

(other than the PBGC). For purposes of

this paragraph (c), a person entitled to

notice under the spin-off/termination

transaction rules of §§ 4041.23(c) or

4041.24(f) is treated as an affected party.

(1) Permissible methods of issuance.

The plan administrator must issue any

notice to an affected party

individually—

(i) By hand delivery;

(ii) By first-class mail or commercial

delivery service to the affected party’s

last known address; or

(iii) By electronic means reasonably

calculated to ensure actual receipt by

the affected party.

(2) Date of issuance. Any notice is

deemed issued to an affected party on

the date on which it is—

(i) Handed to the affected party;

(ii) Deposited in the mail;

(iii) Deposited with a commercial

delivery service; or

(iv) Transmitted electronically to the

affected party, provided that, if there is

reason to believe the notice was not

delivered, the plan administrator

promptly reissues the notice in

accordance with the applicable forms

and instructions package.

(3) Omission of affected parties. The

failure to issue any notice to an affected

party (other than any employee

organization) within the specified time

period will not cause the notice to be

untimely if—

(i) After-discovered affected parties.

The plan administrator could not

reasonably have been expected to know

of the affected party, and issues the

notice promptly after discovering the

affected party;

(ii) De minimis administrative errors.

The failure was due to administrative

error involving only a de minimis

percentage of affected parties, and the

plan administrator issues the notice to

each such affected party promptly after

discovering the error; or

(iii) Unlocated participants. The plan

administrator could not locate the

affected party after making reasonable

efforts, and issues the notice promptly

in the event the affected party is located.

(4) Deceased participants. In the case

of a deceased participant, the plan

administrator need not issue a notice to

the participant’s estate if the estate is

not entitled to a distribution.

(5) Form of notices to affected parties.

All notices to affected parties must be

readable and written in a manner

calculated to be understood by the

average plan participant. The plan

administrator may provide additional

information with a notice only if the

information is not misleading.

(6) Foreign languages. The plan

administrator of a plan that (as of the

proposed termination date) covers the

numbers or percentages in § 2520.104b–

10(e) of this title of participants literate

only in the same non-English language

must, for any notice to affected parties—

(i) Include a prominent legend in that

common non-English language advising

them how to obtain assistance in

understanding the notice; or

(ii) Provide the notice in that common

non-English language to those affected

parties literate only in that language.

§ 4041.4 Disaster relief.

When the President of the United

States declares that, under the Disaster

Relief Act (42 U.S.C. 5121, 5122(2),

5141(b)), a major disaster exists, the

Executive Director of the PBGC (or his

or her designee) may, by issuing one or

more notices of disaster relief, extend by

up to 180 days any due date under this

part.

§ 4041.5 Record retention and availability.

(a) Retention requirement. (1) Persons

subject to requirement. Each

contributing sponsor and the plan

administrator of a plan terminating in a

standard termination, or in a distress
60430 Federal Register / Vol. 62, No. 216 / Friday, November 7, 1997 / Rules and Regulations

termination that closes out in

accordance with § 4041.50, must

maintain all records necessary to

demonstrate compliance with section

4041 of ERISA and this part. A record

may be maintained in any format that

reasonably ensures the integrity of the

original information and that allows the

record to be converted to hardcopy if

necessary under paragraph (b) of this

section. If a contributing sponsor or the

plan administrator maintains

information in accordance with this

paragraph (a)(1), the other(s) need not

maintain that information.

(2) Retention period. The records

described in paragraph (a)(1) of this

section must be preserved for six years

after the date when the post-distribution

certification under this part is filed with

the PBGC.

(b) Availability of records. The

contributing sponsor or plan

administrator must make all records

needed to determine compliance with

section 4041 of ERISA and this part

available to the PBGC upon request for

inspection and photocopying, and must

submit such records to the PBGC within

30 days after the date of a written

request by the PBGC or by a later date

specified therein. Unless the PBGC

agrees to a different format, records

must be submitted in hardcopy.

§ 4041.6 Effect of failure to provide

required information.

If a plan administrator fails to provide

any information required under this part

within the specified time limit, the

PBGC may assess a penalty under

section 4071 of ERISA of up to $1,100

a day for each day that the failure

continues. The PBGC may also pursue

any other equitable or legal remedies

available to it under the law, including,

if appropriate, the issuance of a notice

of noncompliance under § 4041.31.

§ 4041.7 Challenges to plan termination

under collective bargaining agreement.

(a) Suspension upon formal challenge

to termination (1) Notice of formal

challenge. (i) If the PBGC is advised,

before its review period under

§ 4041.26(a) ends, or before issuance of

a notice of inability to determine

sufficiency or a distribution notice

under § 4041.47(b) or (c), that a formal

challenge to the termination has been

initiated as described in paragraph (c) of

this section, the PBGC will suspend the

termination proceeding and so advise

the plan administrator in writing.

(ii) If the PBGC is advised of a

challenge described in paragraph

(a)(1)(i) of this section after the time

specified therein, the PBGC may

suspend the termination proceeding and

will so advise the plan administrator in

writing.

(2) Standard terminations. During any

period of suspension in a standard

termination —

(i) The running of all time periods

specified in ERISA or this part relevant

to the termination will be suspended;

and

(ii) The plan administrator must

comply with the prohibitions in

§ 4041.22.

(3) Distress terminations. During any

period of suspension in a distress

termination —

(i) The issuance by the PBGC of any

notice of inability to determine

sufficiency or distribution notice will be

stayed or, if any such notice was

previously issued, its effectiveness will

be stayed;

(ii) The plan administrator must

comply with the prohibitions in

§ 4041.42; and

(iii) The plan administrator must file

a distress termination notice with the

PBGC pursuant to § 4041.45.

(b) Existing collective bargaining

agreement. For purposes of this section,

an existing collective bargaining

agreement means a collective bargaining

agreement that has not been made

inoperative by a judicial ruling and, by

its terms, either has not expired or is

extended beyond its stated expiration

date because neither of the collective

bargaining parties took the required

action to terminate it. When a collective

bargaining agreement no longer meets

these conditions, it ceases to be an

‘‘existing collective bargaining

agreement,’’ whether or not any or all of

its terms may continue to apply by

operation of law.

(c) Formal challenge to termination. A

formal challenge to a plan termination

asserting that the termination would

violate the terms and conditions of an

existing collective bargaining agreement

is initiated when —

(1) Any procedure specified in the

collective bargaining agreement for

resolving disputes under the agreement

commences; or

(2) Any action before an arbitrator,

administrative agency or board, or court

under applicable labor-management

relations law commences.

(d) Resolution of challenge.

Immediately upon the final resolution of

the challenge, the plan administrator

must notify the PBGC in writing of the

outcome of the challenge, provide the

PBGC with a copy of any award or

order, and, if the validity of the

proposed termination has been upheld,

advise the PBGC whether the proposed

termination is to proceed. The final

resolution ends the suspension period

under paragraph (a) of this section.

(1) Challenge sustained. If the final

resolution is that the proposed

termination violates an existing

collective bargaining agreement, the

PBGC will dismiss the termination

proceeding, all actions taken to effect

the plan termination will be null and

void, and the plan will be an ongoing

plan. In this event, in a distress

termination, § 4041.42(d) will apply as

of the date of the dismissal by the PBGC.

(2) Termination sustained. If the final

resolution is that the proposed

termination does not violate an existing

collective bargaining agreement and the

plan administrator has notified the

PBGC that the termination is to proceed,

the PBGC will reactivate the termination

proceeding by sending a written notice

thereof to the plan administrator, and —

(i) The termination proceeding will

continue from the point where it was

suspended;

(ii) All actions taken to effect the

termination before the suspension will

be effective;

(iii) Any time periods that were

suspended will resume running from

the date of the PBGC’s notice of the

reactivation of the proceeding;

(iv) Any time periods that had fewer

than 15 days remaining will be

extended to the 15th day after the date

of the PBGC’s notice, or such later date

as the PBGC may specify; and

(v) In a distress termination, the PBGC

will proceed to issue a notice of

inability to determine sufficiency or a

distribution notice (or reactivate any

such notice stayed under paragraph

(a)(3) of this section), either with or

without first requesting updated

information from the plan administrator

pursuant to § 4041.45(c).

(e) Final resolution of challenge. A

formal challenge to a proposed

termination is finally resolved when—

(1) The parties involved in the

challenge enter into a settlement that

resolves the challenge;

(2) A final award, administrative

decision, or court order is issued that is

not subject to review or appeal; or

(3) A final award, administrative

decision, or court order is issued that is

not appealed, or review or enforcement

of which is not sought, within the time

for filing an appeal or requesting review

or enforcement.

(f) Involuntary termination by the

PBGC. Notwithstanding any other

provision of this section, the PBGC

retains the authority in any case to

initiate a plan termination in

accordance with the provisions of

section 4042 of ERISA.
Federal Register / Vol. 62, No. 216 / Friday, November 7, 1997 / Rules and Regulations 60431

§ 4041.8 Post-termination amendments.

(a) Plan benefits. A participant’s or

beneficiary’s plan benefits are

determined under the plan’s provisions

in effect on the plan’s termination date.

Notwithstanding the preceding

sentence, an amendment that is adopted

after the plan’s termination date is taken

into account with respect to a

participant’s or beneficiary’s plan

benefits to the extent the amendment—

(1) Does not decrease the value of the

participant’s or beneficiary’s plan

benefits under the plan’s provisions in

effect on the termination date; and

(2) Does not eliminate or restrict any

form of benefit available to the

participant or beneficiary on the plan’s

termination date.

(b) Residual assets. In a plan in which

participants or beneficiaries will receive

some or all of the plan’s residual assets

based on an allocation formula, the

amount of the plan’s residual assets and

each participant’s or beneficiary’s share

thereof is determined under the plan’s

provisions in effect on the plan’s

termination date. Notwithstanding the

preceding sentence, an amendment

adopted after the plan’s termination

date is taken into account with respect

to a participant’s or beneficiary’s

allocation of residual assets to the extent

the amendment does not decrease the

value of the participant’s or

beneficiary’s allocation of residual

assets under the plan’s provisions in

effect on the termination date.

(c) Permitted decreases. For purposes

of this section, an amendment shall not

be treated as decreasing the value of a

participant’s or beneficiary’s plan

benefits or allocation of residual assets

to the extent—

(1) The decrease is necessary to meet

a qualification requirement under

section 401 of the Code;

(2) The participant’s or beneficiary’s

allocation of residual assets is paid in

the form of an increase in the

participant’s or beneficiary’s plan

benefits; or

(3) The decrease is offset by assets

that would otherwise revert to the

contributing sponsor or by additional

contributions.

(d) Distress terminations. In the case

of a distress termination, a participant’s

or beneficiary’s benefit liabilities are

determined as of the termination date in

the same manner as plan benefits under

this section.

Subpart B—Standard Termination

Process

§ 4041.21 Requirements for a standard

termination.

(a) Notice and distribution

requirements. A standard termination is

valid if the plan administrator—

(1) Issues a notice of intent to

terminate to all affected parties (other

than the PBGC) in accordance with

§ 4041.23;

(2) Issues notices of plan benefits to

all affected parties entitled to plan

benefits in accordance with § 4041.24;

(3) Files a standard termination notice

with the PBGC in accordance with

§ 4041.25;

(4) Distributes the plan’s assets in

satisfaction of plan benefits in

accordance with § 4041.28(a) and (c);

and

(5) In the case of a spin-off/

termination transaction (as defined in

§ 4041.23(c)), issues the notices required

by § 4041.23(c), § 4041.24(f), and

§ 4041.27(a)(2) in accordance with such

sections.

(b) Plan sufficiency. (1) Commitment

to make plan sufficient. A contributing

sponsor of a plan or any other member

of the plan’s controlled group may make

a commitment to contribute any

additional sums necessary to enable the

plan to satisfy plan benefits in

accordance with § 4041.28. A

commitment will be valid only if—

(i) It is made to the plan;

(ii) It is in writing, signed by the

contributing sponsor or controlled

group member(s); and

(iii) In any case in which the person

making the commitment is the subject of

a bankruptcy liquidation or

reorganization proceeding, as described

in § 4041.41(c)(1) or (c)(2), the

commitment is approved by the court

before which the liquidation or

reorganization proceeding is pending or

a person not in bankruptcy

unconditionally guarantees to meet the

commitment at or before the time

distribution of assets is required.

(2) Alternative treatment of majority

owner’s benefit. A majority owner may

elect to forgo receipt of his or her plan

benefits to the extent necessary to

enable the plan to satisfy all other plan

benefits in accordance with § 4041.28.

Any such alternative treatment of the

majority owner’s plan benefits is valid

only if—

(i) The majority owner’s election is in

writing;

(ii) In any case in which the plan

would require the spouse of the majority

owner to consent to distribution of the

majority owner’s receipt of his or her

plan benefits in a form other than a

qualified joint and survivor annuity, the

spouse consents in writing to the

election;

(iii) The majority owner makes the

election and the spouse consents during

the time period beginning with the date

of issuance of the first notice of intent

to terminate and ending with the date of

the last distribution; and

(iv) Neither the majority owner’s

election nor the spouse’s consent is

inconsistent with a qualified domestic

relations order (as defined in section

206(d)(3) of ERISA).

§ 4041.22 Administration of plan during

pendency of termination process.

(a) In general. A plan administrator

may distribute plan assets in connection

with the termination of the plan only in

accordance with the provisions of this

part. From the first day the plan

administrator issues a notice of intent to

terminate to the last day of the PBGC’s

review period under § 4041.26(a), the

plan administrator must continue to

carry out the normal operations of the

plan. During that time period, except as

provided in paragraph (b) of this

section, the plan administrator may

not—

(1) Purchase irrevocable commitments

to provide any plan benefits; or

(2) Pay benefits attributable to

employer contributions, other than

death benefits, in any form other than

an annuity.

(b) Exception. The plan administrator

may pay benefits attributable to

employer contributions either through

the purchase of irrevocable

commitments or in a form other than an

annuity if—

(1) The participant has separated from

active employment or is otherwise

permitted under the Code to receive the

distribution;

(2) The distribution is consistent with

prior plan practice; and

(3) The distribution is not reasonably

expected to jeopardize the plan’s

sufficiency for plan benefits.

§ 4041.23 Notice of intent to terminate.

(a) Notice requirement. (1) In general.

At least 60 days and no more than 90

days before the proposed termination

date, the plan administrator must issue

a notice of intent to terminate to each

person (other than the PBGC) that is an

affected party as of the proposed

termination date. In the case of a

beneficiary of a deceased participant or

an alternate payee, the plan

administrator must issue a notice of

intent to terminate promptly to any

person that becomes an affected party

after the proposed termination date and

on or before the distribution date.
60432 Federal Register / Vol. 62, No. 216 / Friday, November 7, 1997 / Rules and Regulations

(2) Early issuance of NOIT. The PBGC

may consider a notice of intent to

terminate to be timely under paragraph

(a)(1) of this section if the notice was

early by a de minimis number of days

and the PBGC finds that the early

issuance was the result of

administrative error.

(b) Contents of notice. The PBGC’s

standard termination forms and

instructions package includes a model

notice of intent to terminate. The notice

of intent to terminate must include —

(1) Identifying information. The name

and PN of the plan, the name and EIN

of each contributing sponsor, and the

name, address, and telephone number of

the person who may be contacted by an

affected party with questions

concerning the plan’s termination;

(2) Intent to terminate plan. A

statement that the plan administrator

intends to terminate the plan in a

standard termination as of a specified

proposed termination date and will

notify the affected party if the proposed

termination date is changed to a later

date or if the termination does not

occur;

(3) Sufficiency requirement. A

statement that, in order to terminate in

a standard termination, plan assets must

be sufficient to provide all plan benefits

under the plan;

(4) Cessation of accruals. A statement

(as applicable) that—

(i) Benefit accruals will cease as of the

termination date, but will continue if

the plan does not terminate;

(ii) A plan amendment has been

adopted under which benefit accruals

will cease, in accordance with section

204(h) of ERISA, as of the proposed

termination date or a specified date

before the proposed termination date,

whether or not the plan is terminated;

or

(iii) Benefit accruals ceased, in

accordance with section 204(h) of

ERISA, as of a specified date before the

notice of intent to terminate was issued;

(5) Annuity information. If required

under § 4041.27, the annuity

information described therein;

(6) Benefit information. A statement

that each affected party entitled to plan

benefits will receive a written

notification regarding his or her plan

benefits;

(7) Summary plan description. A

statement as to how an affected party

entitled to receive the latest updated

summary plan description under section

104(b) of ERISA can obtain it.

(8) Continuation of monthly benefits.

For persons who are, as of the proposed

termination date, in pay status, a

statement (as applicable) —

(i) That their monthly (or other

periodic) benefit amounts will not be

affected by the plan’s termination; or

(ii) Explaining how their monthly (or

other periodic) benefit amounts will be

affected under plan provisions); and

(9) Extinguishment of guarantee. A

statement that after plan assets have

been distributed in full satisfaction of

all plan benefits under the plan with

respect to a participant or a beneficiary

of a deceased participant, either by the

purchase of irrevocable commitments

(annuity contracts) or by an alternative

form of distribution provided for under

the plan, the PBGC no longer guarantees

that participant’s or beneficiary’s plan

benefits.

(c) Spin-off/termination transactions.

In the case of a transaction in which a

single defined benefit plan is split into

two or more plans and there is a

reversion of residual assets to an

employer upon the termination of one

or more but fewer than all of the

resulting plans (a ‘‘spin-off/termination

transaction’’), the plan administrator

must, within the time period specified

in paragraph (a) of this section, provide

a notice describing the transaction to all

participants, beneficiaries of deceased

participants, and alternate payees in the

original plan who are, as of the

proposed termination date, covered by

an ongoing plan.

§ 4041.24 Notices of plan benefits.

(a) Notice requirement. The plan

administrator must, no later than the

time the plan administrator files the

standard termination notice with the

PBGC, issue a notice of plan benefits to

each person (other than the PBGC and

any employee organization) who is an

affected party as of the proposed

termination date. In the case of a

beneficiary of a deceased participant or

an alternate payee, the plan

administrator must issue a notice of

plan benefits promptly to any person

that becomes an affected party after the

proposed termination date and on or

before the distribution date.

(b) Contents of notice. The plan

administrator must include in each

notice of plan benefits—

(1) The name and PN of the plan, the

name and EIN of each contributing

sponsor, and the name, address, and

telephone number of an individual who

may be contacted to answer questions

concerning plan benefits;

(2) The proposed termination date

given in the notice of intent to terminate

and any extended proposed termination

date under § 4041.25(b);

(3) If the amount of plan benefits set

forth in the notice is an estimate, a

statement that the amount is an estimate

and that plan benefits paid may be

greater than or less than the estimate;

(4) Except in the case of an affected

party in pay status for more than one

year as of the proposed termination

date—

(i) The personal data (if available)

needed to calculate the affected party’s

plan benefits, along with a statement

requesting that the affected party

promptly correct any information he or

she believes to be incorrect; and

(ii) If any of the personal data needed

to calculate the affected party’s plan

benefits is not available, the best

available data, along with a statement

informing the affected party of the data

not available and affording him or her

the opportunity to provide it; and

(5) The information in paragraphs (c)

through (e) of this section, as applicable.

(c) Benefits of persons in pay status.

For an affected party in pay status as of

the proposed termination date, the plan

administrator must include in the notice

of plan benefits —

(1) The amount and form of the

participant’s or beneficiary’s plan

benefits payable as of the proposed

termination date;

(2) The amount and form of plan

benefits, if any, payable to a beneficiary

upon the participant’s death and the

name of the beneficiary; and

(3) The amount and date of any

increase or decrease in the benefit

scheduled to occur (or that has already

occurred) after the proposed termination

date and an explanation of the increase

or decrease, including, where

applicable, a reference to the pertinent

plan provision.

(d) Benefits of persons with valid

elections or de minimis benefits. For an

affected party who, as of the proposed

termination date, has validly elected a

form and starting date with respect to

plan benefits not yet in pay status, or

with respect to whom the plan

administrator has determined that a

nonconsensual lump sum distribution

will be made, the plan administrator

must include in the notice of plan

benefits—

(1) The amount and form of the

person’s plan benefits payable as of the

projected benefit starting date, and what

that date is;

(2) The information in paragraphs

(c)(2) and (c)(3) of this section;

(3) If the plan benefits will be paid in

any form other than a lump sum and the

age at which, or form in which, the plan

benefits will be paid differs from the

normal retirement benefit—

(i) The age or form stated in the plan;

and

(ii) The age or form adjustment

factors; and
Federal Register / Vol. 62, No. 216 / Friday, November 7, 1997 / Rules and Regulations 60433

(4) If the plan benefits will be paid in

a lump sum —

(i) An explanation of when a lump

sum may be paid without the consent of

the participant or the participant’s

spouse;

(ii) A description of the mortality

table used to convert to the lump sum

benefit (e.g., the mortality table

published by the IRS in Revenue Ruling

95–6, 1995–1 C.B. 80) and a reference to

the pertinent plan provisions;

(iii) A description of the interest rate

to be used to convert to the lump sum

benefit (e.g., the 30-year Treasury rate

for the third month before the month in

which the lump sum is distributed), a

reference to the pertinent plan

provision, and (if known) the applicable

interest rate;

(iv) An explanation of how interest

rates are used to calculate lump sums;

(v) A statement that the use of a

higher interest rate results in a smaller

lump sum amount; and

(vi) A statement that the applicable

interest rate may change before the

distribution date.

(e) Benefits of all other persons not in

pay status. For any other affected party

not described in paragraph (c) or (d) of

this section (or described therein only

with respect to a portion of the affected

party’s plan benefits), the plan

administrator must include in the notice

of plan benefits—

(1) The amount and form of the

person’s plan benefits payable at normal

retirement age in any one form

permitted under the plan;

(2) Any alternative benefit forms,

including those payable to a beneficiary

upon the person’s death either before or

after benefits commence;

(3) If the person is or may become

entitled to a benefit that would be

payable before normal retirement age,

the amount and form of benefit that

would be payable at the earliest benefit

commencement date (or, if more than

one such form is payable at the earliest

benefit commencement date, any one of

those forms) and whether the benefit

commencing on such date would be

subject to future reduction; and

(4) If the plan benefits may be paid in

a lump sum, the information in

paragraph (d)(4) of this section.

(f) Spin-off/termination transactions.

In the case of a spin-off/termination

transaction (as defined in § 4041.23(c)),

the plan administrator must, no later

than the time the plan administrator

files the standard termination notice for

any terminating plan, provide all

participants, beneficiaries of deceased

participants, and alternate payees in the

original plan who are (as of the

proposed termination date) covered by

an ongoing plan with a notice of plan

benefits containing the information in

paragraphs (b) through (e) of this

section.

§ 4041.25 Standard termination notice.

(a) Notice requirement. The plan

administrator must file with the PBGC

a standard termination notice,

consisting of the PBGC Form 500,

completed in accordance with the

instructions thereto, on or before the

180th day after the proposed

termination date.

(b) Change of proposed termination

date. The plan administrator may, in the

standard termination notice, select a

proposed termination date that is later

than the date specified in the notice of

intent to terminate, provided it is not

later than 90 days after the earliest date

on which a notice of intent to terminate

was issued to any affected party.

(c) Request for IRS determination

letter. To qualify for the distribution

deadline in § 4041.28(a)(1)(ii), the plan

administrator must submit to the IRS a

valid request for a determination of the

plan’s qualification status upon

termination (‘‘determination letter’’) by

the time the standard termination notice

is filed.

§ 4041.26 PBGC review of standard

termination notice.

(a) Review period. (1) In general. The

PBGC will notify the plan administrator

in writing of the date on which it

received a complete standard

termination notice at the address

provided in the PBGC’s standard

termination forms and instructions

package. If the PBGC does not issue a

notice of noncompliance under

§ 4041.31 during its 60-day review

period following such date, the plan

administrator must proceed to close out

the plan in accordance with § 4041.28.

(2) Extension of review period. The

PBGC and the plan administrator may,

before the expiration of the PBGC

review period in paragraph (a)(1) of this

section, agree in writing to extend that

period.

(b) If standard termination notice is

incomplete. (1) For purposes of timely

filing. If the standard termination notice

is incomplete, the PBGC may, based on

the nature and extent of the omission,

provide the plan administrator an

opportunity to complete the notice. In

such a case, the standard termination

notice will be deemed to have been

complete as of the date when originally

filed for purposes of § 4041.25(a),

provided the plan administrator

provides the missing information by the

later of—

(i) The 180th day after the proposed

termination date; or

(ii) The 30th day after the date of the

PBGC notice that the filing was

incomplete.

(2) For purposes of PBGC review

period. If the standard termination

notice is completed under paragraph

(b)(1) of this section, the PBGC will

determine whether the notice will be

deemed to have been complete as of the

date when originally filed for purposes

of determining when the PBGC’s review

period begins under § 4041.26(a)(1).

(c) Additional information. (1)

Deadline for providing additional

information. The PBGC may in any case

require the submission of additional

information relevant to the termination

proceeding. Any such additional

information becomes part of the

standard termination notice and must be

submitted within 30 days after the date

of a written request by the PBGC, or

within a different time period specified

therein. The PBGC may in its discretion

shorten the time period where it

determines that the interests of the

PBGC or participants may be prejudiced

by a delay in receipt of the information.

(2) Effect on termination proceeding.

A request for additional information

will suspend the running of the PBGC’s

60-day review period. The review

period will begin running again on the

day the required information is received

and continue for the greater of—

(i) The number of days remaining in

the review period; or

(ii) Five regular business days.

§ 4041.27 Notice of annuity information.

(a) Notice requirement. (1) In general.

The plan administrator must provide

notices in accordance with this section

to each affected party entitled to plan

benefits other than an affected party

whose plan benefits will be distributed

in the form of a nonconsensual lump

sum.

(2) Spin-off/termination transactions.

The plan administrator must provide

the information in paragraph (d) of this

section to a person entitled to notice

under §§ 4041.23(c) or 4041.24(f), at the

same time and in the same manner as

required for an affected party.

(b) Content of notice. The plan

administrator must include, as part of

the notice of intent to terminate—

(1) Identity of insurers. The name and

address of the insurer or insurers from

whom (if known), or (if not) from among

whom, the plan administrator intends to

purchase irrevocable commitments

(annuity contracts);

(2) Change in identity of insurers. A

statement that if the plan administrator

later decides to select a different
60434 Federal Register / Vol. 62, No. 216 / Friday, November 7, 1997 / Rules and Regulations

insurer, affected parties will receive a

supplemental notice no later than 45

days before the distribution date; and

(3) State guaranty association

coverage information. A statement

informing the affected party—

(i) That once the plan distributes a

benefit in the form of an annuity

purchased from an insurance company,

the insurance company takes over the

responsibility for paying that benefit;

(ii) That all states, the District of

Columbia, and the Commonwealth of

Puerto Rico have established ‘‘guaranty

associations’’ to protect policy holders

in the event of an insurance company’s

financial failure;

(iii) That a guaranty association is

responsible for all, part, or none of the

annuity if the insurance company

cannot pay;

(iv) That each guaranty association

has dollar limits on the extent of its

guaranty coverage, along with a general

description of the applicable dollar

coverage limits;

(v) That in most cases the policy

holder is covered by the guaranty

association for the state where he or she

lives at the time the insurance company

fails to pay; and

(vi) How to obtain the addresses and

telephone numbers of guaranty

association offices from the PBGC (as

described in the applicable forms and

instructions package).

(c) Where insurer(s) not known. (1)

Extension of deadline for notice. If the

identity-of-insurer information in

paragraph (b)(1) of this section is not

known at the time the plan

administrator is required to provide it to

an affected party as part of a notice of

intent to terminate, the plan

administrator must instead provide it in

a supplemental notice under paragraph

(d) of this section.

(2) Alternative NOIT information. A

plan administrator that qualifies for the

extension in paragraph (c)(1) of this

section with respect to a notice of intent

to terminate must include therein (in

lieu of the information in paragraph (b)

of this section) a statement that—

(i) Irrevocable commitments (annuity

contracts) may be purchased from an

insurer to provide some or all of the

benefits under the plan;

(ii) The insurer or insurers have not

yet been identified; and

(iii) Affected parties will be notified at

a later date (but no later than 45 days

before the distribution date) of the name

and address of the insurer or insurers

from whom (if known), or (if not) from

among whom, the plan administrator

intends to purchase irrevocable

commitments (annuity contracts).

(d) Supplemental notice. The plan

administrator must provide a

supplemental notice to an affected party

in accordance with this paragraph (d) if

the plan administrator did not

previously notify the affected party of

the identity of insurer(s) or, after having

previously notified the affected party of

the identity of insurer(s), decides to

select a different insurer. A failure to

provide a required supplemental notice

to an affected party will be deemed to

be a failure to comply with the notice

of intent to terminate requirements.

(1) Deadline for supplemental notice.

The deadline for issuing the

supplemental notice is 45 days before

the affected party’s distribution date (or,

in the case of an employee organization,

45 days before the earliest distribution

date for any affected party that it

represents).

(2) Content of supplemental notice.

The supplemental notice must

include—

(i) The identity-of-insurer information

in paragraph (b)(1) of this section;

(ii) The information regarding change

of identity of insurer(s) in paragraph

(b)(2) of this section; and

(iii) Unless the state guaranty

association coverage information in

paragraph (b)(3) of this section was

previously provided to the affected

party, such information and the

extinguishment-of-guarantee

information in § 4041.23(b)(9).

§ 4041.28 Closeout of plan.

(a) Distribution deadline. (1) In

general. Unless a notice of

noncompliance is issued under

§ 4041.31(a), the plan administrator

must complete the distribution of plan

assets in satisfaction of plan benefits

(through priority category 6 under

section 4044 of ERISA and part 4044 of

this chapter) by the later of—

(i) 180 days after the expiration of the

PBGC’s 60-day (or extended) review

period under § 4041.26(a); or

(ii) If the plan administrator meets the

requirements of § 4041.25(c), 120 days

after receipt of a favorable

determination from the IRS.

(2) Revocation of notice of

noncompliance. If the PBGC revokes a

notice of noncompliance issued under

§ 4041.31(a), the distribution deadline is

extended until the 180th day after the

date of the revocation.

(b) Assets insufficient to satisfy plan

benefits. If, at the time of any

distribution, the plan administrator

determines that plan assets are not

sufficient to satisfy all plan benefits

(with assets determined net of other

liabilities, including PBGC premiums),

the plan administrator may not make

any further distribution of assets to

effect the plan’s termination and must

promptly notify the PBGC.

(c) Method of distribution. (1) In

general. The plan administrator must, in

accordance with all applicable

requirements under the Code and

ERISA, distribute plan assets in

satisfaction of all plan benefits by

purchase of an irrevocable commitment

from an insurer or in another permitted

form.

(2) Lump sum calculations. In the

absence of evidence establishing that

another date is the ‘‘annuity starting

date’’ under the Code, the distribution

date is the ‘‘annuity starting date’’ for

purposes of—

(i) Calculating the present value of

plan benefits that may be provided in a

form other than by purchase of an

irrevocable commitment from an insurer

(e.g., in selecting the interest rate(s) to

be used to value a lump sum

distribution); and

(ii) Determining whether plan benefits

will be paid in such other form.

(3) Selection of insurer. In the case of

plan benefits that will be provided by

purchase of an irrevocable commitment

from an insurer, the plan administrator

must select the insurer in accordance

with the fiduciary standards of Title I of

ERISA.

(4) Participating annuity contracts. In

the case of a plan in which any residual

assets will be distributed to participants,

a participating annuity contract may be

purchased to satisfy the requirement

that annuities be provided by the

purchase of irrevocable commitments

only if the portion of the price of the

contract that is attributable to the

participation feature—

(i) Is not taken into account in

determining the amount of residual

assets; and

(ii) Is not paid from residual assets

allocable to participants.

(5) Missing participants. The plan

administrator must distribute plan

benefits to missing participants in

accordance with part 4050.

(d) Provision of annuity contract. If

plan benefits are provided through the

purchase of irrevocable commitments—

(1) Either the plan administrator or

the insurer must, within 30 days after it

is available, provide each participant

and beneficiary with a copy of the

annuity contract or certificate showing

the insurer’s name and address and

clearly reflecting the insurer’s obligation

to provide the participant’s or

beneficiary’s plan benefits; and

(2) If such a contract or certificate is

not provided to the participant or

beneficiary by the date on which the

post-distribution certification is
Federal Register / Vol. 62, No. 216 / Friday, November 7, 1997 / Rules and Regulations 60435

required to be filed in order to avoid the

assessment of penalties under

§ 4041.29(b), the plan administrator

must, no later than that date, provide

the participant and beneficiary with a

notice that includes—

(i) A statement that the obligation for

providing the participant’s or

beneficiary’s plan benefits has

transferred to the insurer;

(ii) The name and address of the

insurer;

(iii) The name, address, and telephone

number of the person designated by the

insurer to answer questions concerning

the annuity; and

(iv) A statement that the participant or

beneficiary will receive from the plan

administrator or insurer a copy of the

annuity contract or a certificate showing

the insurer’s name and address and

clearly reflecting the insurer’s obligation

to provide the participant’s or

beneficiary’s plan benefits.

§ 4041.29 Post-distribution certification.

(a) Deadline. Within 30 days after the

last distribution date for any affected

party, the plan administrator must file

with the PBGC a post-distribution

certification consisting of the PBGC

Form 501, completed in accordance

with the instructions thereto.

(b) Assessment of penalties. The

PBGC will assess a penalty for late filing

of a post-distribution certification only

to the extent the certification is filed

more than 90 days after the distribution

deadline (including extensions) under

§ 4041.28(a).

§ 4041.30 Requests for deadline

extensions.

(a) In general. The PBGC may in its

discretion extend a deadline for taking

action under this subpart to a later date.

The PBGC will grant such an extension

where it finds compelling reasons why

it is not administratively feasible for the

plan administrator (or other persons

acting on behalf of the plan

administrator) to take the action until

the later date and the delay is brief. The

PBGC will consider—

(1) The length of the delay; and

(2) Whether ordinary business care

and prudence in attempting to meet the

deadline is exercised.

(b) Time of extension request. Any

request for an extension under

paragraph (a) of this section that is filed

later than the 15th day before the

applicable deadline must include a

justification for not filing the request

earlier.

(c) IRS determination letter requests.

Any request for an extension under

paragraph (a) of this section of the

deadline in § 4041.25(c) for submitting a

determination letter request to the IRS

(in order to qualify for the distribution

deadline in § 4041.28(a)(1)(ii)) will be

deemed to be granted unless the PBGC

notifies the plan administrator

otherwise within 60 days after receipt of

the request (or, if later, by the end of the

PBGC’s review period under

§ 4041.26(a)). The PBGC will notify the

plan administrator in writing of the date

on which it receives such request.

(d) Statutory deadlines not

extendable. The PBGC will not—

(1) Pre-distribution deadlines. (i)

Extend the 60-day time limit under

§ 4041.23(a) for issuing the notice of

intent to terminate; or

(ii) Waive the requirement in

§ 4041.24(a) that the notice of plan

benefits be issued by the time the plan

administrator files the standard

termination notice with the PBGC; or

(2) Post-distribution deadlines. Extend

the deadline under § 4041.29(a) for

filing the post-distribution certification.

However, the PBGC will assess a

penalty for late filing of a postdistribution certification only under the

circumstances described in § 4041.29(b).

§ 4041.31 Notice of noncompliance.

(a) Failure to meet pre-distribution

requirements. (1) In general. Except as

provided in paragraphs (a)(2) and (c) of

this section, the PBGC will issue a

notice of noncompliance within the 60-

day (or extended) time period

prescribed by § 4041.26(a) whenever it

determines that—

(i) The plan administrator failed to

issue the notice of intent to terminate to

all affected parties (other than the

PBGC) in accordance with § 4041.23;

(ii) The plan administrator failed to

issue notices of plan benefits to all

affected parties entitled to plan benefits

in accordance with § 4041.24;

(iii) The plan administrator failed to

file the standard termination notice in

accordance with § 4041.25;

(iv) As of the distribution date

proposed in the standard termination

notice, plan assets will not be sufficient

to satisfy all plan benefits under the

plan; or

(v) In the case of a spin-off/

termination transaction (as described in

§ 4041.23(c)), the plan administrator

failed to issue any notice required by

§ 4041.23(c), § 4041.24(f), or

§ 4041.27(a)(2) in accordance with such

section.

(2) Interests of participants. The PBGC

may decide not to issue a notice of

noncompliance based on a failure to

meet a requirement under paragraphs

(a)(1)(i) through (a)(1)(iii) or (a)(1)(v) of

this section if it determines that

issuance of the notice would be

inconsistent with the interests of

participants and beneficiaries.

(3) Continuing authority. The PBGC

may issue a notice of noncompliance or

suspend the termination proceeding

based on a failure to meet a requirement

under paragraphs (a)(1)(i) through

(a)(1)(v) of this section after expiration

of the 60-day (or extended) time period

prescribed by § 4041.26(a) (including

upon audit) if the PBGC determines

such action is necessary to carry out the

purposes of Title IV.

(b) Failure to meet distribution

requirements. (1) In general. If the PBGC

determines, as part of an audit or

otherwise, that the plan administrator

has not satisfied any distribution

requirement of § 4041.28(a) or (c), it may

issue a notice of noncompliance.

(2) Criteria. In deciding whether to

issue a notice of noncompliance under

paragraph (b)(1) of this section, the

PBGC may consider—

(i) The nature and extent of the failure

to satisfy a requirement of § 4041.28(a)

or (c);

(ii) Any corrective action taken by the

plan administrator; and

(iii) The interests of participants and

beneficiaries.

(3) Late distributions. The PBGC will

not issue a notice of noncompliance for

failure to distribute timely based on any

facts disclosed in the post-distribution

certification if 60 or more days have

passed from the PBGC’s receipt of the

post-distribution certification. The 60-

day period may be extended by

agreement between the plan

administrator and the PBGC.

(c) Correction of errors. The PBGC

will not issue a notice of noncompliance

based solely on the plan administrator’s

inclusion of erroneous information (or

omission of correct information) in a

notice required to be provided to any

person under this part if —

(1) The PBGC determines that the

plan administrator acted in good faith in

connection with the error;

(2) The plan administrator corrects

the error no later than —

(i) In the case of an error in the notice

of plan benefits under § 4041.24, the

latest date an election notice may be

provided to the person; or

(ii) In any other case, as soon as

practicable after the plan administrator

knows or should know of the error, or

by any later date specified by the PBGC;

and

(3) The PBGC determines that the

delay in providing the correct

information will not substantially harm

any person.

(d) Reconsideration. A plan

administrator may request

reconsideration of a notice of
60436 Federal Register / Vol. 62, No. 216 / Friday, November 7, 1997 / Rules and Regulations

noncompliance in accordance with the

rules prescribed in part 4003, subpart C.

(e) Consequences of notice of

noncompliance. (1) Effect on

termination. A notice of noncompliance

ends the standard termination

proceeding, nullifies all actions taken to

terminate the plan, and renders the plan

an ongoing plan. A notice of

noncompliance is effective upon the

expiration of the period within which

the plan administrator may request

reconsideration under paragraph (d) of

this section or, if reconsideration is

requested, a decision by the PBGC

upholding the notice. However, once a

notice is issued, the running of all time

periods specified in ERISA or this part

relevant to the termination will be

suspended, and the plan administrator

may take no further action to terminate

the plan (except by initiation of a new

termination) unless and until the notice

is revoked. A plan administrator that

still desires to terminate a plan must

initiate the termination process again,

starting with the issuance of a new

notice of intent to terminate.

(2) Effect on plan administration. If

the PBGC issues a notice of

noncompliance, the prohibitions in

§ 4041.22(a)(1) and (a)(2) will cease to

apply—

(i) Upon expiration of the period

during which reconsideration may be

requested or, if earlier, at the time the

plan administrator decides not to

request reconsideration; or

(ii) If reconsideration is requested,

upon PBGC issuance of a decision on

reconsideration upholding the notice of

noncompliance.

(3) Revocation of notice of

noncompliance. If a notice of

noncompliance is revoked, unless the

PBGC provides otherwise, any time

period suspended by the issuance of the

notice will resume running from the

date of the revocation. In no case will

the review period under § 4041.26(a)

end less than 60 days from the date the

PBGC received the standard termination

notice.

(f) If no notice of noncompliance is

issued. A standard termination is

deemed to be valid if—

(1) The plan administrator files a

standard termination notice under

§ 4041.25 and the PBGC does not issue

a notice of noncompliance pursuant to

§ 4041.31(a); and

(2) The plan administrator files a postdistribution certification under

§ 4041.29 and the PBGC does not issue

a notice of noncompliance pursuant to

§ 4041.31(b).

(g) Notice to affected parties. Upon a

decision by the PBGC on

reconsideration affirming the issuance

of a notice of noncompliance or, if

earlier, upon the plan administrator’s

decision not to request reconsideration,

the plan administrator must notify the

affected parties (other than the PBGC),

and any persons who were provided

notice under § 4041.23(c), in writing

that the plan is not going to terminate

or, if applicable, that the termination

was invalid but that a new notice of

intent to terminate is being issued.

Subpart C—Distress Termination

Process

§ 4041.41 Requirements for a distress

termination.

(a) Distress requirements. A plan may

be terminated in a distress termination

only if—

(1) The plan administrator issues a

notice of intent to terminate to each

affected party in accordance with

§ 4041.43 at least 60 days and (except

with PBGC approval) not more than 90

days before the proposed termination

date;

(2) The plan administrator files a

distress termination notice with the

PBGC in accordance with § 4041.45 no

later than 120 days after the proposed

termination date; and

(3) The PBGC determines that each

contributing sponsor and each member

of its controlled group satisfy one of the

distress criteria set forth in paragraph (c)

of this section.

(b) Effect of failure to satisfy

requirements. (1) Except as provided in

paragraph (b)(2)(i) of this section, if the

plan administrator does not satisfy all of

the requirements for a distress

termination, any action taken to effect

the plan termination is null and void,

and the plan is an ongoing plan. A plan

administrator who still desires to

terminate the plan must initiate the

termination process again, starting with

the issuance of a new notice of intent to

terminate.

(2)(i) The PBGC may, upon its own

motion, waive any requirement with

respect to notices to be filed with the

PBGC under paragraph (a)(1) or (a)(2) of

this section if the PBGC believes that it

will be less costly or administratively

burdensome to the PBGC to do so. The

PBGC will not entertain requests for

waivers under this paragraph.

(ii) Notwithstanding any other

provision of this part, the PBGC retains

the authority in any case to initiate a

plan termination in accordance with the

provisions of section 4042 of ERISA.

(c) Distress criteria. In a distress

termination, each contributing sponsor

and each member of its controlled group

must satisfy at least one (but not

necessarily the same one) of the

following criteria in order for a distress

termination to occur:

(1) Liquidation. This criterion is met

if, as of the proposed termination date—

(i) A person has filed or had filed

against it a petition seeking liquidation

in a case under title 11, United States

Code, or under a similar federal law or

law of a State or political subdivision of

a State, or a case described in paragraph

(e)(2) of this section has been converted

to such a case; and

(ii) The case has not been dismissed.

(2) Reorganization. This criterion is

met if—

(i) As of the proposed termination

date, a person has filed or had filed

against it a petition seeking

reorganization in a case under title 11,

United States Code, or under a similar

law of a state or a political subdivision

of a state, or a case described in

paragraph (e)(1) of this section has been

converted to such a case;

(ii) As of the proposed termination

date, the case has not been dismissed;

(iii) The person notifies the PBGC of

any request to the bankruptcy court (or

other appropriate court in a case under

such similar law of a state or a political

subdivision of a state) for approval of

the plan termination by concurrently

filing with the PBGC a copy of the

motion requesting court approval,

including any documents submitted in

support of the request; and

(iv) The bankruptcy court or other

appropriate court determines that,

unless the plan is terminated, such

person will be unable to pay all its debts

pursuant to a plan of reorganization and

will be unable to continue in business

outside the reorganization process and

approves the plan termination.

(3) Inability to continue in business.

This criterion is met if a person

demonstrates to the satisfaction of the

PBGC that, unless a distress termination

occurs, the person will be unable to pay

its debts when due and to continue in

business.

(4) Unreasonably burdensome

pension costs. This criterion is met if a

person demonstrates to the satisfaction

of the PBGC that the person’s costs of

providing pension coverage have

become unreasonably burdensome

solely as a result of declining covered

employment under all single-employer

plans for which that person is a

contributing sponsor.

(d) Non-duplicative efforts. (1) If a

person requests approval of the plan

termination by a court, as described in

paragraph (c)(2) of this section, the

PBGC—

(i) Will normally enter an appearance

to request that the court make specific

findings as to whether the contributing
Federal Register / Vol. 62, No. 216 / Friday, November 7, 1997 / Rules and Regulations 60437

sponsor or controlled group member

meets the distress test in paragraph

(c)(3) of this section, or state that it is

unable to make such findings;

(ii) Will provide the court with any

information it has that may be germane

to the court’s ruling;

(iii) Will, if the person has requested,

or later requests, a determination by the

PBGC under paragraph (c)(3) of this

section, defer action on the request until

the court makes its determination; and

(iv) Will be bound by a final and nonappealable order of the court.

(2) If a person requests a

determination by the PBGC under

paragraph (c)(3) of this section, the

PBGC determines that the distress

criterion is not met, and the person

thereafter requests approval of the plan

termination by a court, as described in

paragraph (c)(2) of this section, the

PBGC will advise the court of its

determination and make its

administrative record available to the

court.

(e) Non-recognition of certain actions.

If the PBGC finds that a person

undertook any action or failed to act for

the principal purpose of satisfying any

of the distress criteria contained in

paragraph (c) of this section, rather than

for a reasonable business purpose, the

PBGC will disregard such act or failure

to act in determining whether the

person has satisfied any of those

criteria.

(f) Requests for deadline extensions.

The PBGC may extend any deadline

under this subpart in accordance with

the rules described in section § 4041.30,

except that the PBGC will not extend—

(1) Pre-distribution deadlines. The 60-

day time limit under § 4041.43(a) for

issuing the notice of intent to terminate;

or

(2) Post-distribution deadlines. The

deadline under § 4041.50 for filing the

post-distribution certification.

§ 4041.42 Administration of plan during

termination process.

(a) General rule. Except to the extent

specifically prohibited by this section,

during the pendency of termination

proceedings the plan administrator must

continue to carry out the normal

operations of the plan, such as putting

participants into pay status, collecting

contributions due the plan, and

investing plan assets.

(b) Prohibitions after issuing notice of

intent to terminate. The plan

administrator may not make loans to

plan participants beginning on the first

day he or she issues a notice of intent

to terminate, and from that date until a

distribution is permitted pursuant to

§ 4041.50, the plan administrator may

not—

(1) Distribute plan assets pursuant to,

or (except as required by this part) take

any other actions to implement, the

termination of the plan;

(2) Pay benefits attributable to

employer contributions, other than

death benefits, in any form other than as

an annuity; or

(3) Purchase irrevocable commitments

to provide benefits from an insurer.

(c) Limitation on benefit payments on

or after proposed termination date.

Beginning on the proposed termination

date, the plan administrator must

reduce benefits to the level determined

under part 4022, subpart D, of this

chapter.

(d) Failure to qualify for distress

termination. In any case where the

PBGC determines, pursuant to

§ 4041.44(c) or § 4041.46(c)(1), that the

requirements for a distress termination

are not satisfied—

(1) The prohibitions in paragraph (b)

of this section, other than those in

paragraph (b)(1), will cease to apply—

(i) Upon expiration of the period

during which reconsideration may be

requested under §§ 4041.44(e) and

4041.46(e) or, if earlier, at the time the

plan administrator decides not to

request reconsideration; or

(ii) If reconsideration is requested,

upon PBGC issuance of its decision on

reconsideration.

(2) Any benefits that were not paid

pursuant to paragraph (c) of this section

will be due and payable as of the

effective date of the PBGC’s

determination, together with interest

from the date (or dates) on which the

unpaid amounts were originally due

until the date on which they are paid in

full at the rate or rates prescribed under

§ 4022.81(d) of this chapter.

(e) Effect of subsequent insufficiency.

If the plan administrator makes a

finding of subsequent insufficiency for

guaranteed benefits pursuant to

§ 4041.49(b), or the PBGC notifies the

plan administrator that it has made a

finding of subsequent insufficiency for

guaranteed benefits pursuant to

§ 4041.40(d), the prohibitions in

paragraph (b) of this section will apply

in accordance with § 4041.49(e).

§ 4041.43 Notice of intent to terminate.

(a) General rules. (1) At least 60 days

and (except with PBGC approval) no

more than 90 days before the proposed

termination date, the plan administrator

must issue a written notice of intent to

terminate to each person who is an

affected party as of the proposed

termination date.

(2) The plan administrator must issue

the notice of intent to terminate to all

affected parties other than the PBGC at

or before the time he or she files the

notice with the PBGC.

(3) The notice to affected parties other

than the PBGC must contain all of the

information specified in paragraph (b) of

this section.

(4) The notice to the PBGC must be

filed on PBGC Form 600, Distress

Termination, Notice of Intent to

Terminate, completed in accordance

with the instructions thereto.

(5) In the case of a beneficiary of a

deceased participant or an alternate

payee, the plan administrator must issue

a notice of intent to terminate promptly

to any person that becomes an affected

party after the proposed termination

date and on or before the date a trustee

is appointed for the plan pursuant to

section 4042(c) of ERISA (or, in the case

of a plan that distributes assets pursuant

to § 4041.50, the distribution date).

(b) Contents of notice to affected

parties other than the PBGC. The plan

administrator must include in the notice

of intent to terminate to each affected

party other than the PBGC all of the

following information:

(1) The name of the plan and of the

contributing sponsor;

(2) The EIN of the contributing

sponsor and the PN; if there is no EIN

or PN, the notice must so state;

(3) The name, address, and telephone

number of the person who may be

contacted by an affected party with

questions concerning the plan’s

termination;

(4) A statement that the plan

administrator expects to terminate the

plan in a distress termination on a

specified proposed termination date;

(5) The cessation of accruals

information in § 4041.23(b)(4);

(6) A statement as to how an affected

party entitled to receive the latest

updated summary plan description

under section 104(b) of ERISA can

obtain it;

(7) A statement of whether plan assets

are sufficient to pay all guaranteed

benefits or all benefit liabilities;

(8) A brief description of what

benefits are guaranteed by the PBGC

(e.g., if only a portion of the benefits are

guaranteed because of the phase-in rule,

this should be explained), and a

statement that participants and

beneficiaries also may receive a portion

of the benefits to which each is entitled

under the terms of the plan in excess of

guaranteed benefits; and

(9) A statement, if applicable, that

benefits may be subject to reduction

because of the limitations on the

amounts guaranteed by the PBGC or
60438 Federal Register / Vol. 62, No. 216 / Friday, November 7, 1997 / Rules and Regulations

because plan assets are insufficient to

pay for full benefits (pursuant to part

4022, subparts B and D, of this chapter)

and that payments in excess of the

amount guaranteed by the PBGC may be

recouped by the PBGC (pursuant to part

4022, subpart E, of this chapter).

(c) Spin-off/termination transactions.

In the case of a spin-off/termination

transaction (as described in

§ 4041.23(c)), the plan administrator

must provide all participants and

beneficiaries in the original plan who

are also participants or beneficiaries in

the ongoing plan (as of the proposed

termination date) with a notice

describing the transaction no later than

the date on which the plan

administrator completes the issuance of

notices of intent to terminate under this

section.

§ 4041.44 PBGC review of notice of intent

to terminate.

(a) General. When a notice of intent to

terminate is filed with it, the PBGC—

(1) Will determine whether the notice

was issued in compliance with

§ 4041.43; and

(2) Will advise the plan administrator

of its determination, in accordance with

paragraph (b) or (c) of this section, no

later than the proposed termination date

specified in the notice.

(b) Tentative finding of compliance. If

the PBGC determines that the issuance

of the notice of intent to terminate

appears to be in compliance with

§ 4041.43, it will notify the plan

administrator in writing that—

(1) The PBGC has made a tentative

determination of compliance;

(2) The distress termination

proceeding may continue; and

(3) After reviewing the distress

termination notice filed pursuant to

§ 4041.45, the PBGC will make final, or

reverse, this tentative determination.

(c) Finding of noncompliance. If the

PBGC determines that the issuance of

the notice of intent to terminate was not

in compliance with § 4041.43 (except

for requirements that the PBGC elects to

waive under § 4041.41(b)(2)(i) with

respect to the notice filed with the

PBGC), the PBGC will notify the plan

administrator in writing—

(1) That the PBGC has determined

that the notice of intent to terminate was

not properly issued; and

(2) That the proposed distress

termination is null and void and the

plan is an ongoing plan.

(d) Information on need to institute

section 4042 proceedings. The PBGC

may require the plan administrator to

submit, within 20 days after the plan

administrator’s receipt of the PBGC’s

written request (or such other period as

may be specified in such written

request), any information that the PBGC

determines it needs in order to decide

whether to institute termination or

trusteeship proceedings pursuant to

section 4042 of ERISA, whenever—

(1) A notice of intent to terminate

indicates that benefits currently in pay

status (or that should be in pay status)

are not being paid or that this is likely

to occur within the 180-day period

following the issuance of the notice of

intent to terminate;

(2) The PBGC issues a determination

under paragraph (c) of this section; or

(3) The PBGC has any reason to

believe that it may be necessary or

appropriate to institute proceedings

under section 4042 of ERISA.

(e) Reconsideration of finding of

noncompliance. A plan administrator

may request reconsideration of the

PBGC’s determination of

noncompliance under paragraph (c) of

this section in accordance with the rules

prescribed in part 4003, subpart C, of

this chapter. Any request for

reconsideration automatically stays the

effectiveness of the determination until

the PBGC issues its decision on

reconsideration, but does not stay the

time period within which information

must be submitted to the PBGC in

response to a request under paragraph

(d) of this section.

(f) Notice to affected parties. Upon a

decision by the PBGC affirming a

finding of noncompliance or upon the

expiration of the period within which

the plan administrator may request

reconsideration of a finding of

noncompliance (or, if earlier, upon the

plan administrator’s decision not to

request reconsideration), the plan

administrator must notify the affected

parties (and any persons who were

provided notice under § 4041.43(e)) in

writing that the plan is not going to

terminate or, if applicable, that the

termination is invalid but that a new

notice of intent to terminate is being

issued.

§ 4041.45 Distress termination notice.

(a) General rule. The plan

administrator must file with the PBGC

a PBGC Form 601, Distress Termination

Notice, Single-Employer Plan

Termination, with Schedule EA–D,

Distress Termination Enrolled Actuary

Certification, that has been completed in

accordance with the instructions

thereto, on or before the 120th day after

the proposed termination date.

(b) Participant and benefit

information. (1) Plan insufficient for

guaranteed benefits. Unless the enrolled

actuary certifies, in the Schedule EA–D

filed in accordance with paragraph (a) of

this section, that the plan is sufficient

either for guaranteed benefits or for

benefit liabilities, the plan administrator

must file with the PBGC the participant

and benefit information described in

PBGC Form 601 and the instructions

thereto by the later of—

(i) 120 days after the proposed

termination date, or

(ii) 30 days after receipt of the PBGC’s

determination, pursuant to § 4041.46(b),

that the requirements for a distress

termination have been satisfied.

(2) Plan sufficient for guaranteed

benefits or benefit liabilities. If the

enrolled actuary certifies that the plan is

sufficient either for guaranteed benefits

or for benefit liabilities, the plan

administrator need not submit the

participant and benefit information

described in PBGC Form 601 and the

instructions thereto unless requested to

do so pursuant to paragraph (c) of this

section.

(3) Effect of failure to provide

information. The PBGC may void the

distress termination if the plan

administrator fails to provide complete

participant and benefit information in

accordance with this section.

(c) Additional information. The PBGC

may in any case require the submission

of any additional information that it

needs to make the determinations that it

is required to make under this part or

to pay benefits pursuant to section 4061

or 4022(c) of ERISA. The plan

administrator must submit any

information requested under this

paragraph within 30 days after receiving

the PBGC’s written request (or such

other period as may be specified in such

written request).

§ 4041.46 PBGC determination of

compliance with requirements for distress

termination.

(a) General. Based on the information

contained and submitted with the PBGC

Form 600 and the PBGC Form 601, with

Schedule EA–D, and on any information

submitted by an affected party or

otherwise obtained by the PBGC, the

PBGC will determine whether the

requirements for a distress termination

set forth in § 4041.41(c) have been met

and will notify the plan administrator in

writing of its determination, in

accordance with paragraph (b) or (c) of

this section.

(b) Qualifying termination. If the

PBGC determines that all of the

requirements of § 4041.41(c) have been

satisfied, it will so advise the plan

administrator and will also advise the

plan administrator of whether

participant and benefit information

must be submitted in accordance with

§ 4041.45(b).
Federal Register / Vol. 62, No. 216 / Friday, November 7, 1997 / Rules and Regulations 60439

(c) Non-qualifying termination. (1)

Except as provided in paragraph (c)(2)

of this section, if the PBGC determines

that any of the requirements of

§ 4041.41 have not been met, it will

notify the plan administrator of its

determination, the basis therefor, and

the effect thereof (as provided in

§ 4041.41(b)).

(2) If the only basis for the PBGC’s

determination described in paragraph

(c)(1) of this section is that the distress

termination notice is incomplete, the

PBGC will advise the plan administrator

of the missing item(s) of information

and that the information must be filed

with the PBGC no later than the 120th

day after the proposed termination date

or the 30th day after the date of the

PBGC’s notice of its determination,

whichever is later.

(d) Reconsideration of determination

of non-qualification. A plan

administrator may request

reconsideration of the PBGC’s

determination under paragraph (c)(1) of

this section in accordance with the rules

prescribed in part 4003, subpart C, of

this chapter. The filing of a request for

reconsideration automatically stays the

effectiveness of the determination until

the PBGC issues its decision on

reconsideration.

(e) Notice to affected parties. Upon a

decision by the PBGC affirming a

determination of non-qualification or

upon the expiration of the period within

which the plan administrator may

request reconsideration of a

determination of non-qualification (or, if

earlier, upon the plan administrator’s

decision not to request reconsideration),

the plan administrator must notify the

affected parties (and any persons who

were provided notice under

§ 4041.43(e)) in writing that the plan is

not going to terminate or, if applicable,

that the termination is invalid but that

a new notice of intent to terminate is

being issued.

§ 4041.47 PBGC determination of plan

sufficiency/insufficiency.

(a) General. Upon receipt of

participant and benefit information filed

pursuant to § 4041.45 (b)(1) or (c), the

PBGC will determine the degree to

which the plan is sufficient and notify

the plan administrator in writing of its

determination in accordance with

paragraph (b) or (c) of this section.

(b) Insufficiency for guaranteed

benefits. If the PBGC finds that it is

unable to determine that a plan is

sufficient for guaranteed benefits, it will

issue a ‘‘notice of inability to determine

sufficiency’’ notifying the plan

administrator of this finding and

advising the plan administrator that—

(1) The plan administrator must

continue to administer the plan under

the restrictions imposed by § 4041.42;

and

(2) The termination will be completed

under section 4042 of ERISA.

(c) Sufficiency for guaranteed benefits

or benefit liabilities. If the PBGC

determines that a plan is sufficient for

guaranteed benefits but not for benefit

liabilities or is sufficient for benefit

liabilities, the PBGC will issue to the

plan administrator a distribution notice

advising the plan administrator—

(1) To issue notices of benefit

distribution in accordance with

§ 4041.48;

(2) To close out the plan in

accordance with § 4041.50;

(3) To file a timely post-distribution

certification with the PBGC in

accordance with § 4041.50(b); and

(4) That either the plan administrator

or the contributing sponsor must

preserve and maintain plan records in

accordance with § 4041.5.

(d) Alternative treatment of majority

owner’s benefit. A majority owner may

elect to forgo receipt of all or part of his

or her plan benefits in connection with

a distress termination. Any such

alternative treatment—

(1) Is valid only if the conditions in

§ 4041.21(b)(2) (i) through (iv) are met

(except that, in the case of a plan that

does not distribute assets pursuant to

§ 4041.50, the majority owner may make

the election and the spouse may consent

any time on or after the date of issuance

of the first notice of intent to terminate);

and—

(2) Is subject to the PBGC’s approval

if the election—

(i) Is made after the termination date;

and

(ii) Would result in the PBGC

determining that the plan is sufficient

for guaranteed benefits under paragraph

(c).

§ 4041.48 Sufficient plans; notice

requirements.

(a) Notices of benefit distribution.

When a distribution notice is issued by

the PBGC pursuant to § 4041.47, the

plan administrator must issue notices of

benefit distribution in accordance with

the rules regarding notices of plan

benefits in § 4041.24, except that—

(1) The deadline for issuing the

notices of benefit distribution is the

60th day after receipt of the distribution

notice; and

(2) With respect to the information

described in § 4041.24 (b) through (e),

the term ‘‘plan benefits’’ is replaced

with ‘‘title IV benefits’’ and the term

‘‘proposed termination date’’ is replaced

with ‘‘termination date’’.

(b) Certification to PBGC. No later

than 15 days after the date on which the

plan administrator completes the

issuance of the notices of benefit

distribution, the plan administrator

must file with the PBGC a certification

that the notices were so issued in

accordance with the requirements of

this section.

(c) Notice of annuity information. (1)

In general. Unless all title IV benefits

will be distributed in the form of

nonconsensual lump sums, the plan

administrator must provide a notice of

annuity information to each affected

party other than—

(i) An affected party whose title IV

benefits will be distributed in the form

of a nonconsensual lump sum; and

(ii) The PBGC.

(2) Spin-off/termination transactions.

The plan administrator must provide

the information in paragraph (c)(4) of

this section to a person entitled to

notice under § 4041.43(c), at the same

time and in the same manner as

required for an affected party described

in paragraph (c)(1) of this section.

(3) Selection of different insurer. A

plan administrator that decides to select

a different insurer after having

previously notified the affected party of

the identity of insurer(s) under this

paragraph must provide another notice

of annuity information.

(4) Content of notice. The notice must

include—

(i) The identity-of-insurer information

in § 4041.27(b)(1);

(ii) The information regarding change

in identity of insurer(s) in

§ 4041.27(b)(2); and

(iii) Unless the state guaranty

coverage information in § 4041.27(b)(3)

was previously provided to the affected

party, such information and the

extinguishment-of-guaranty information

in § 4041.23(b)(9) (replacing the term

‘‘plan benefits’’ with ‘‘title IV benefits’’).

(5) Deadline for notice. The plan

administrator must issue the notice of

annuity information to each affected

party by the deadline in § 4041.27(d)(1).

(d) Request for IRS determination

letter. To qualify for the distribution

deadline in § 4041.28(a)(1)(ii) (as

modified and made applicable by

§ 4041.50(c)), the plan administrator

must submit to the IRS a valid request

for a determination of the plan’s

qualification status upon termination

(‘‘determination letter’’) by the day on

which the plan administrator completes

the issuance of the notices of benefit

distribution.

§ 4041.49 Verification of plan sufficiency

prior to closeout.

(a) General rule. Before distributing

plan assets pursuant to a closeout under
60440 Federal Register / Vol. 62, No. 216 / Friday, November 7, 1997 / Rules and Regulations

§ 4041.50, the plan administrator must

verify whether the plan’s assets are still

sufficient to provide for benefits at the

level determined by the PBGC, i.e.,

guaranteed benefits or benefit liabilities.

If the plan administrator finds that the

plan is no longer able to provide for

benefits at the level determined by the

PBGC, then paragraph (b) or (c) of this

section, as appropriate, will apply.

(b) Subsequent insufficiency for

guaranteed benefits. When a plan

administrator finds that a plan is no

longer sufficient for guaranteed benefits,

the plan administrator must promptly

notify the PBGC in writing of that fact

and may take no further action to

implement the plan termination,

pending the PBGC’s determination and

notice pursuant to paragraph (b)(1) or

(b)(2) of this section.

(1) PBGC concurrence with finding. If

the PBGC concurs with the plan

administrator’s finding, the distribution

notice will be void, and the PBGC will—

(i) Issue the plan administrator a

notice of inability to determine

sufficiency in accordance with

§ 4041.47(b); and

(ii) Require the plan administrator to

submit a new valuation, certified to by

an enrolled actuary, of the benefit

liabilities and guaranteed benefits under

the plan, valued in accordance with

§§ 4044.41 through 4044.57 of this

chapter as of the date of the plan

administrator’s notice to the PBGC.

(2) PBGC non-concurrence with

finding. If the PBGC does not concur

with the plan administrator’s finding, it

will so notify the plan administrator in

writing, and the distribution notice will

remain in effect.

(c) Subsequent insufficiency for

benefit liabilities. When a plan

administrator finds that a plan is

sufficient for guaranteed benefits but is

no longer sufficient for benefit

liabilities, the plan administrator must

immediately notify the PBGC in writing

of this fact, but must continue with the

distribution of assets in accordance with

§ 4041.50.

(d) Finding by PBGC of subsequent

insufficiency. In any case in which the

PBGC finds on its own initiative that a

subsequent insufficiency for guaranteed

benefits has occurred, paragraph (b)(1)

of this section will apply, except that

the guaranteed benefits must be

revalued as of the date of the PBGC’s

finding.

(e) Restrictions upon finding of

subsequent insufficiency. When the plan

administrator makes the finding

described in paragraph (b) of this

section or receives notice that the PBGC

has made the finding described in

paragraph (d) of this section, the plan

administrator is (except to the extent the

PBGC otherwise directs) subject to the

prohibitions in § 4041.42.

§ 4041.50 Closeout of plan.

If a plan administrator receives a

distribution notice from the PBGC

pursuant to § 4041.47 and neither the

plan administrator nor the PBGC makes

the finding described in § 4041.49(b) or

(d), the plan administrator must

distribute plan assets in accordance

with § 4041.28 and file a postdistribution certification in accordance

with § 4041.29, except that—

(a) The term ‘‘plan benefits’’ is

replaced with ‘‘title IV benefits’’;

(b) For purposes of applying the

distribution deadline in

§ 4041.28(a)(1)(i), the phrase ‘‘after the

expiration of the PBGC’s 60-day (or

extended) review period under

§ 4041.26(a)’’ is replaced with ‘‘the day

on which the plan administrator

completes the issuance of the notices of

benefit distribution pursuant to

§ 4041.48(a)’’; and

(c) For purposes of applying the

distribution deadline in

§ 4041.28(a)(1)(ii), the phrase ‘‘the

requirements of § 4041.25(c)’’ is

replaced with ‘‘the requirements of

§ 4041.48(d)’’.

8. Part 4050 is revised to read as

follows:

PART 4050—MISSING PARTICIPANTS

Sec.

4050.1 Purpose and scope.

4050.2 Definitions.

4050.3 Method of distribution for missing

participants.

4050.4 Diligent search.

4050.5 Designated benefit.

4050.6 Payment and required

documentation.

4050.7 Benefits of missing participants—in

general.

4050.8 Automatic lump sum.

4050.9 Annuity or elective lump sum—

living missing participant.

4050.10 Annuity or elective lump sum—

beneficiary of deceased missing

participant.

4050.11 Limitations.

4050.12 Special rules.

Appendix A to part 4050—Examples of

designated benefit determinations for

missing participants under § 4050.5

Appendix B to part 4050—Examples of

benefit payments for missing

participants under §§ 4050.8 through

4050.10

Authority: 29 U.S.C. 1302(b)(3), 1350.

§ 4050.1 Purpose and scope.

This part prescribes rules for

distributing benefits under a terminating

single-employer plan for any individual

whom the plan administrator has not

located when distributing benefits

under § 4041.28 of this chapter. This

part applies to a plan if the plan’s

deemed distribution date (or the date of

a payment made in accordance with

§ 4050.12) is in a plan year beginning on

or after January 1, 1996.

§ 4050.2 Definitions.

The following terms are defined in

§ 4001.2 of this chapter: annuity, Code,

ERISA, insurer, irrevocable

commitment, mandatory employee

contributions, normal retirement age,

PBGC, person, plan, plan administrator,

plan year and title IV benefit.

In addition, for purposes of this part:

Deemed distribution date means—

(1) The last day of the period in which

distribution may be made under part

4041 of this chapter; or

(2) If the plan administrator selects an

earlier date that is no earlier than the

date when all benefit distributions have

been made under the plan except for

distributions to missing participants

whose designated benefits are paid to

the PBGC, such earlier date.

Designated benefit means the amount

payable to the PBGC for a missing

participant pursuant to § 4050.5.

Designated benefit interest rate means

the rate of interest applicable to

underpayments of guaranteed benefits

by the PBGC under § 4022.81(d) of this

chapter.

Guaranteed benefit form means, with

respect to a benefit, the form in which

the PBGC would pay a guaranteed

benefit to a participant or beneficiary in

the PBGC’s program for trusteed plans

under subparts A and B of part 4022 of

this chapter (treating the deemed

distribution date as the termination date

for this purpose).

Missing participant means a

participant or beneficiary entitled to a

distribution under a terminating plan

whom the plan administrator has not

located as of the date when the plan

administrator pays the individual’s

designated benefit to the PBGC (or

distributes the individual’s benefit by

purchasing an irrevocable commitment

from an insurer). In the absence of proof

of death, individuals not located are

presumed living.

Missing participant annuity

assumptions means the interest rate

assumptions and actuarial methods

(using the interest rates for annuity

valuations in Table I of appendix B to

part 4044 of this chapter) for valuing a

benefit to be paid by the PBGC as an

annuity under subpart B of part 4044,

applied—

(1) As if the deemed distribution date

were the termination date;

(2) Using unisex mortality rates that

are a fixed blend of 50 percent of the
Federal Register / Vol. 62, No. 216 / Friday, November 7, 1997 / Rules and Regulations 60441

male mortality rates and 50 percent of

the female mortality rates from the 1983

Group Annuity Mortality Table as

prescribed in Rev. Rul. 95–6, 1995–1

C.B. 80 (Cumulative Bulletins are

available from the Superintendent of

Documents, Government Printing

Office, Washington, DC 20402);

(3) Without using the expected

retirement age assumptions in

§§ 4044.55 through 4044.57 of this

chapter;

(4) Without making the adjustment for

expenses provided for in § 4044.52(a)(5)

of this chapter; and

(5) By adding $300, as an adjustment

(loading) for expenses, for each missing

participant whose designated benefit

without such adjustment would be

greater than $3,500.

Missing participant forms and

instructions means PBGC Forms 501

and 602, Schedule MP thereto, and

related forms, and their instructions.

Missing participant lump sum

assumptions means the interest rate

assumptions and actuarial methods

(using the interest rates for lump sum

valuations in Table II of appendix B to

part 4044 of this chapter) for valuing a

benefit to be paid by the PBGC as a

lump sum under subpart B of part 4044

of this chapter, applied—

(1) As if the deemed distribution date

were the termination date;

(2) Using mortality assumptions from

Table 3 of appendix A to part 4044 of

this chapter; and

(3) Without using the expected

retirement age assumptions in

§§ 4044.55 through 4044.57 of this

chapter.

Pay status means, with respect to a

benefit under a plan, that the plan

administrator has made or (except for

administrative delay or a waiting

period) would have made one or more

benefit payments.

Post-distribution certification means

the post-distribution certification

required by § 4041.29 or § 4041.50 of

this chapter.

Unloaded designated benefit means

the designated benefit reduced by $300;

except that the reduction does not apply

in the case of a designated benefit

determined using the missing

participant annuity assumptions

without adding the $300 load described

in paragraph (5) of the definition of

‘‘missing participant annuity

assumptions.’’

§ 4050.3 Method of distribution for missing

participants.

The plan administrator of a

terminating plan must distribute

benefits for each missing participant

by—

(a) Purchasing from an insurer an

irrevocable commitment that satisfies

the requirements of § 4041.28(c) or

§ 4041.50 of this chapter (whichever is

applicable); or

(b) Paying the PBGC a designated

benefit in accordance with §§ 4050.4

through 4050.6 (subject to the special

rules in § 4050.12).

§ 4050.4 Diligent search.

(a) Search required. A diligent search

must be made for each missing

participant before information about the

missing participant or payment is

submitted to the PBGC pursuant to

§ 4050.6.

(b) Diligence. A search is a diligent

search only if the search —

(1) Begins not more than 6 months

before notices of intent to terminate are

issued and is carried on in such a

manner that if the individual is found,

distribution to the individual can

reasonably be expected to be made on

or before the deemed distribution date;

(2) Includes inquiry of any plan

beneficiaries (including alternate

payees) of the missing participant

whose names and addresses are known

to the plan administrator; and

(3) Includes use of a commercial

locator service to search for the missing

participant (without charge to the

missing participant or reduction of the

missing participant’s plan benefit).

§ 4050.5 Designated benefit.

(a) Amount of designated benefit. The

amount of the designated benefit is the

amount determined under paragraph

(a)(1), (a)(2), (a)(3), or (a)(4) of this

section (whichever is applicable) or, if

less, the maximum amount that could

be provided under the plan to the

missing participant in the form of a

single sum in accordance with section

415 of the Code.

(1) Mandatory lump sum. The

designated benefit of a missing

participant required under a plan to

receive a mandatory lump sum as of the

deemed distribution date is the lump

sum payment that the plan

administrator would have distributed to

the missing participant as of the deemed

distribution date.

(2) De minimis lump sum. The

designated benefit of a missing

participant not described in paragraph

(a)(1) of this section whose benefit is not

in pay status as of the deemed

distribution date and whose benefit has

a de minimis actuarial present value

($3,500 or less) as of the deemed

distribution date under the missing

participant lump sum assumptions is

such value.

(3) No lump sum. The designated

benefit of a missing participant not

described in paragraph (a)(1) or (a)(2) of

this section who, as of the deemed

distribution date, cannot elect an

immediate lump sum under the plan is

the actuarial present value of the

missing participant’s benefit as of the

deemed distribution date under the

missing participant annuity

assumptions.

(4) Elective lump sum. The designated

benefit of a missing participant not

described in paragraph (a)(1), (a)(2), or

(a)(3) of this section is the greater of the

amounts determined under the

methodologies of paragraph (a)(1) or

(a)(3) of this section.

(b) Assumptions. When the plan

administrator uses the missing

participant annuity assumptions or the

missing participant lump sum

assumptions for purposes of

determining the designated benefit

under paragraph (a) of this section, the

plan administrator must value the most

valuable benefit, as determined under

paragraph (b)(1) of this section, using

the assumptions described in paragraph

(b)(2) or (b)(3) of this section (whichever

is applicable).

(1) Most valuable benefit. For a

missing participant whose benefit is in

pay status as of the deemed distribution

date, the most valuable benefit is the

pay status benefit. For a missing

participant whose benefit is not in pay

status as of the deemed distribution

date, the most valuable benefit is the

benefit payable at the age on or after the

deemed distribution date (beginning

with the participant’s earliest early

retirement age and ending with the

participant’s normal retirement age) for

which the present value as of the

deemed distribution date is the greatest.

The present value as of the deemed

distribution date with respect to any age

is determined by multiplying:

(i) The monthly (or other periodic)

benefit payable under the plan; by

(ii) The present value (determined as

of the deemed distribution date using

the missing participant annuity

assumptions) of a $1 monthly (or other

periodic) annuity beginning at the

applicable age.

(2) Participant. A missing participant

who is a participant, and whose benefit

is not in pay status as of the deemed

distribution date, is assumed to be

married to a spouse the same age, and

the form of benefit that must be valued

is the qualified joint and survivor

annuity benefit that would be payable

under the plan. If the participant’s

benefit is in pay status as of the deemed

distribution date, the form and

beneficiary of the participant’s benefit
60442 Federal Register / Vol. 62, No. 216 / Friday, November 7, 1997 / Rules and Regulations

are the form of benefit and beneficiary

of the pay status benefit.

(3) Beneficiary. A missing participant

who is a beneficiary, and whose benefit

is not in pay status as of the deemed

distribution date, is assumed not to be

married, and the form of benefit that

must be valued is the survivor benefit

that would be payable under the plan.

If the beneficiary’s benefit is in pay

status as of the deemed distribution

date, the form and beneficiary of the

beneficiary’s benefit are the form of

benefit and beneficiary of the pay status

benefit.

(4) Examples. See Appendix A to this

part for examples illustrating the

provisions of this section.

(c) Missed payments. In determining

the designated benefit, the plan

administrator must include the value of

any payments that were due before the

deemed distribution date but that were

not made.

(d) Payment of designated benefits.

Payment of designated benefits must be

made in accordance with § 4050.6 and

will be deemed made on the deemed

distribution date.

§ 4050.6 Payment and required

documentation.

(a) Time of payment and filing. The

plan administrator must pay designated

benefits, and file the information and

certifications (of the plan administrator

and the plan’s enrolled actuary)

specified in the missing participant

forms and instructions, by the time the

post-distribution certification is due.

Except as otherwise provided in the

missing participant forms and

instructions, the plan administrator

must submit the designated benefits,

information, and certifications with the

post-distribution certification.

(b) Late charges. (1) Interest on late

payments. Except as provided in

paragraph (b)(2) of this section, if the

plan administrator does not pay a

designated benefit by the time specified

in paragraph (a) of this section, the plan

administrator must pay interest as

assessed by the PBGC for the period

beginning on the deemed distribution

date and ending on the date when the

payment is received by the PBGC.

Interest will be assessed at the rate

provided for late premium payments in

§ 4007.7 of this chapter. Interest

assessed under this paragraph will be

deemed paid in full if payment of the

amount assessed is received by the

PBGC within 30 days after the date of

a PBGC bill for such amount.

(2) Assessment of interest and

penalties. The PBGC will assess interest

for late payment of a designated benefit

or a penalty for late filing of information

only to the extent paid or filed beyond

the time provided in § 4041.29(b).

(c) Supplemental information. Within

30 days after the date of a written

request from the PBGC, a plan

administrator required to provide the

information and certifications described

in paragraph (a) of this section must file

supplemental information, as requested,

for the purpose of verifying designated

benefits, determining benefits to be paid

by the PBGC under this part, and

substantiating diligent searches.

(d) Filing with the PBGC. The rules

described in § 4041.3(b) of this chapter

apply to filings with the PBGC under

this part.

§ 4050.7 Benefits of missing participants—

in general.

(a) If annuity purchased. If a plan

administrator distributes a missing

participant’s benefit by purchasing an

irrevocable commitment from an

insurer, and the missing participant (or

his or her beneficiary or estate) later

contacts the PBGC, the PBGC will

inform the person of the identity of the

insurer, the relevant policy number, and

(to the extent known) the amount or

value of the benefit.

(b) If designated benefit paid. If the

PBGC locates or is contacted by a

missing participant (or his or her

beneficiary or estate) for whom a plan

administrator paid a designated benefit

to the PBGC, the PBGC will pay benefits

in accordance with §§ 4050.8 through

4050.10 (subject to the limitations and

special rules in §§ 4050.11 and 4050.12).

(c) Examples. See Appendix B to this

part for examples illustrating the

provisions of §§ 4050.8 through 4050.10.

§ 4050.8 Automatic lump sum.

This section applies to a missing

participant whose designated benefit

was determined under § 4050.5(a)(1)

(mandatory lump sum) or § 4050.5(a)(2)

(de minimis lump sum).

(a) General rule. (1) Benefit paid. The

PBGC will pay a single sum benefit

equal to the designated benefit plus

interest at the designated benefit interest

rate from the deemed distribution date

to the date on which the PBGC pays the

benefit.

(2) Payee. Payment will be made—

(i) To the missing participant, if

located;

(ii) If the missing participant died

before the deemed distribution date, and

if the plan so provides, to the missing

participant’s beneficiary or estate; or

(iii) If the missing participant dies on

or after the deemed distribution date, to

the missing participant’s estate.

(b) De minimis annuity alternative. If

the guaranteed benefit form for a

missing participant whose designated

benefit was determined under

§ 4050.5(a)(2) (de minimis lump sum)

(or the guaranteed benefit form for a

beneficiary of such a missing

participant) would provide for the

election of an annuity, the missing

participant (or the beneficiary) may

elect to receive an annuity. If such an

election is made —

(1) The PBGC will pay the benefit in

the elected guaranteed benefit form,

beginning on the annuity starting date

elected by the missing participant (or

the beneficiary), which may not be

before the later of the date of the

election or the earliest date on which

the missing participant (or the

beneficiary) could have begun receiving

benefits under the plan; and

(2) The benefit paid will be actuarially

equivalent to the designated benefit, i.e.,

each monthly (or other periodic) benefit

payment will equal the designated

benefit divided by the present value

(determined as of the deemed

distribution date under the missing

participant lump sum assumptions) of a

$1 monthly (or other periodic) annuity

beginning on the annuity starting date.

§ 4050.9 Annuity or elective lump sum—

living missing participant.

This section applies to a missing

participant whose designated benefit

was determined under § 4050.5(a)(3) (no

lump sum) or § 4050.5(a)(4) (elective

lump sum) and who is living on the date

as of which the PBGC begins paying

benefits.

(a) Missing participant whose benefit

was not in pay status as of the deemed

distribution date. The PBGC will pay

the benefit of a missing participant

whose benefit was not in pay status as

of the deemed distribution date as

follows.

(1) Time and form of benefit. The

PBGC will pay the missing participant’s

benefit in the guaranteed benefit form,

beginning on the annuity starting date

elected by the missing participant

(which may not be before the later of the

date of the election or the earliest date

on which the missing participant could

have begun receiving benefits under the

plan).

(2) Amount of benefit. The PBGC will

pay a benefit that is actuarially

equivalent to the unloaded designated

benefit, i.e., each monthly (or other

periodic) benefit payment will equal the

unloaded designated benefit divided by

the present value (determined as of the

deemed distribution date under the

missing participant annuity

assumptions) of a $1 monthly (or other

periodic) annuity beginning on the

annuity starting date.
Federal Register / Vol. 62, No. 216 / Friday, November 7, 1997 / Rules and Regulations 60443

(b) Missing participant whose benefit

was in pay status as of the deemed

distribution date. The PBGC will pay

the benefit of a missing participant

whose benefit was in pay status as of the

deemed distribution date as follows.

(1) Time and form of benefit. The

PBGC will pay the benefit in the form

that was in pay status, beginning when

the missing participant is located.

(2) Amount of benefit. The PBGC will

pay the monthly (or other periodic)

amount of the pay status benefit, plus a

lump sum equal to the payments the

missing participant would have

received under the plan, plus interest on

the missed payments (at the plan rate up

to the deemed distribution date and

thereafter at the designated benefit

interest rate) to the date as of which the

PBGC pays the lump sum.

(c) Payment of lump sum. If a missing

participant whose designated benefit

was determined under § 4050.5(a)(4)

(elective lump sum) so elects, the PBGC

will pay his or her benefit in the form

of a single sum. This election is not

effective unless the missing

participant’s spouse consents (if such

consent would be required under

section 205 of ERISA). The single sum

equals the designated benefit plus

interest (at the designated benefit

interest rate) from the deemed

distribution date to the date as of which

the PBGC pays the benefit.

§ 4050.10 Annuity or elective lump sum—

beneficiary of deceased missing

participant.

This section applies to a beneficiary

of a deceased missing participant whose

designated benefit was determined

under § 4050.5(a)(3) (no lump sum) or

§ 4050.5(a)(4) (elective lump sum) and

whose benefit is not payable under

§ 4050.9.

(a) If deceased missing participant’s

benefit was not in pay status as of the

deemed distribution date. The PBGC

will pay a benefit with respect to a

deceased missing participant whose

benefit was not in pay status as of the

deemed distribution date as follows.

(1) General rule. (i) Beneficiary. The

PBGC will pay a benefit to the surviving

spouse of a missing participant who was

a participant (unless the surviving

spouse has properly waived a benefit in

accordance with section 205 of ERISA).

(ii) Form and amount of benefit. The

PBGC will pay the survivor benefit in

the form of a single life annuity. Each

monthly (or other periodic) benefit

payment will equal 50 percent of the

quotient that results when the unloaded

designated benefit is divided by the

present value (determined as of the

deemed distribution date under the

missing participant annuity

assumptions, and assuming that the

missing participant survived to the

deemed distribution date) of a $1

monthly (or other periodic) joint and 50

percent survivor annuity beginning on

the annuity starting date, under which

reduced payments (at the 50 percent

level) are made only after the death of

the missing participant during the life of

the spouse (and not after the death of

the spouse during the missing

participant’s life).

(iii) Time of benefit. The PBGC will

pay the survivor benefit beginning at the

time elected by the surviving spouse

(which may not be before the later of the

date of the election or the earliest date

on which the surviving spouse could

have begun receiving benefits under the

plan).

(2) If missing participant died before

deemed distribution date.

Notwithstanding the provisions of

paragraph (a)(1) of this section, if a

beneficiary of a missing participant who

died before the deemed distribution

date establishes to the PBGC’s

satisfaction that he or she is the proper

beneficiary or would have received

benefits under the plan in a form, at a

time, or in an amount different from the

benefit paid under paragraph (a)(1)(ii) or

(a)(1)(iii) of this section, the PBGC will

make payments in accordance with the

facts so established, but only in the

guaranteed benefit form.

(3) Elective lump sum.

Notwithstanding the provisions of

paragraphs (a)(1) and (a)(2) of this

section, if the beneficiary of a missing

participant whose designated benefit

was determined under § 4050.5(a)(4)

(elective lump sum) so elects, the PBGC

will pay his or her benefit in the form

of a single sum. The single sum will be

equal to the actuarial present value

(determined as of the deemed

distribution date under the missing

participant annuity assumptions) of the

death benefit payable on the annuity

starting date, plus interest (at the

designated benefit interest rate) from the

deemed distribution date to the date as

of which the PBGC pays the benefit.

(b) If deceased missing participant’s

benefit was in pay status as of the

deemed distribution date. The PBGC

will pay a benefit with respect to a

deceased missing participant whose

benefit was in pay status as of the

deemed distribution date as follows.

(1) Beneficiary. The PBGC will pay a

benefit to the beneficiary (if any) of the

benefit that was in pay status as of the

deemed distribution date.

(2) Form and amount of benefit. The

PBGC will pay a monthly (or other

periodic) amount equal to the monthly

(or other periodic) amount, if any, that

the beneficiary would have received

under the form of payment in effect,

plus a lump sum payment equal to the

payments the beneficiary would have

received under the plan after the

missing participant’s death and before

the date as of which the benefit is paid

under paragraph (b)(4) of this section,

plus interest on the missed payments (at

the plan rate up to the deemed

distribution date and thereafter at the

designated benefit interest rate) to the

date as of which the benefit is paid

under paragraph (b)(4) of this section.

(3) Lump sum payment to estate. The

PBGC will make a lump sum payment

to the missing participant’s estate equal

to the payments that the missing

participant would have received under

the plan for the period before the

missing participant’s death, plus

interest on the missed payments (at the

plan rate up to the deemed distribution

date and thereafter at the designated

benefit interest rate) to the date when

the lump sum is paid. Notwithstanding

the preceding sentence, if a beneficiary

of a missing participant other than the

estate establishes to the PBGC’s

satisfaction that the beneficiary is

entitled to the lump sum payment, the

PBGC will pay the lump sum to such

beneficiary.

(4) Time of benefit. The PBGC will

pay the survivor benefit beginning when

the beneficiary is located.

(5) Spouse deceased. If the PBGC

locates the estate of the deceased

missing participant’s spouse under

circumstances where a benefit would

have been paid under this paragraph (b)

if the spouse had been located while

alive, the PBGC will pay to the spouse’s

estate a lump sum payment computed

in the same manner as provided for in

paragraph (b)(2) of this section based on

the period from the missing

participant’s death to the death of the

spouse.

§ 4050.11 Limitations.

(a) Exclusive benefit. The benefits

provided for under this part will be the

only benefits payable by the PBGC to

missing participants or to beneficiaries

based on the benefits of deceased

missing participants.

(b) Limitation on benefit value. The

total actuarial present value of all

benefits paid with respect to a missing

participant under §§ 4050.8 through

4050.10, determined as of the deemed

distribution date, will not exceed the

missing participant’s designated benefit.

(c) Guaranteed benefit. If a missing

participant or his or her beneficiary

establishes to the PBGC’s satisfaction

that the benefit under §§ 4050.8 through
60444 Federal Register / Vol. 62, No. 216 / Friday, November 7, 1997 / Rules and Regulations

4050.10 (based on the designated benefit

actually paid to the PBGC) is less than

the minimum benefit in this paragraph

(c), the PBGC will instead pay the

minimum benefit. The minimum benefit

is the lesser of:

(1) The benefit as determined under

the PBGC’s rules for paying guaranteed

benefits in trusteed plans under

subparts A and B of part 4022 of this

chapter (treating the deemed

distribution date as the termination date

for this purpose); or

(2) The benefit based on the

designated benefit that should have

been paid under § 4050.5.

(d) Limitation on annuity starting

date. A missing participant (or his or

her survivor) may not elect an annuity

starting date after the later of—

(1) The required beginning date under

section 401(a)(9) of the Code; or

(2) The date when the missing

participant (or the survivor) is notified

of his or her right to a benefit.

§ 4050.12 Special rules.

(a) Missing participants located

quickly. Notwithstanding the provisions

of §§ 4050.8 through 4050.10, if the

PBGC or the plan administrator locates

a missing participant within 30 days

after the PBGC receives the missing

participant’s designated benefit, the

PBGC may in its discretion return the

missing participant’s designated benefit

to the plan administrator, and the plan

administrator must make distribution to

the individual in such manner as the

PBGC will direct.

(b) Qualified domestic relations

orders. Plan administrators must and

the PBGC will take the provisions of

qualified domestic relations orders

(QDROs) under section 206(d)(3) of

ERISA or section 414(p) of the Code into

account in determining designated

benefits and benefit payments by the

PBGC, including treating an alternate

payee under an applicable QDRO as a

missing participant or as a beneficiary of

a missing participant, as appropriate, in

accordance with the terms of the QDRO.

For purposes of calculating the amount

of the designated benefit of an alternate

payee, the plan administrator must use

the assumptions for a missing

participant who is a beneficiary under

§ 4050.5(b).

(c) Employee contributions. (1)

Mandatory employee contributions.

Notwithstanding the provisions of

§ 4050.5, if a missing participant made

mandatory contributions (within the

meaning of section 4044(a)(2) of ERISA),

the missing participant’s designated

benefit may not be less than the sum of

the missing participant’s mandatory

contributions and interest to the deemed

distribution date at the plan’s rate or the

rate under section 204(c) of ERISA

(whichever produces the greater

amount).

(2) Voluntary employee contributions.

(i) Applicability. This paragraph (c)(2)

applies to any employee contributions

that were not mandatory (within the

meaning of section 4044(a)(2) of ERISA)

to which a missing participant is

entitled in connection with the

termination of a defined benefit plan.

(ii) Payment to PBGC. A plan

administrator, in accordance with the

missing participant forms and

instructions, must pay the employee

contributions described in paragraph

(c)(2)(i) of this section (together with

any earnings thereon) to the PBGC, and

must file Schedule MP with the PBGC,

by the time the designated benefit is due

under § 4050.6. Any such amount must

be in addition to the designated benefit

and must be separately identified.

(iii) Payment by PBGC. In addition to

any other amounts paid by the PBGC

under §§ 4050.8 through 4050.10, the

PBGC will pay any amount paid to it

under paragraph (c)(2)(ii) of this section,

with interest at the designated benefit

interest rate from the date of receipt by

the PBGC to the date of payment by the

PBGC, in the same manner as described

in § 4050.8 (automatic lump sums),

except that if the missing participant

died before the deemed distribution

date and there is no beneficiary,

payment will be made to the missing

participant’s estate.

(d) Residual assets. The PBGC will

determine, in a manner consistent with

the purposes of this part and section

4050 of ERISA, how the provisions of

this part apply to any distribution (to

participants and beneficiaries who

cannot be located) of residual assets

remaining after the satisfaction of plan

benefits (as defined in § 4041.2 of this

chapter) in connection with the

termination of a defined benefit plan.

Unless the PBGC otherwise determines,

the payment of residual assets for a

participant or beneficiary who cannot be

located, and the submission to the PBGC

of the related Schedule MP (or amended

Schedule MP), must be made no earlier

than the date when the post-distribution

certification is filed with the PBGC, and

no later than the later of—

(1) The 30th day after the date on

which all residual assets have been

distributed to all participants and

beneficiaries other than those who

cannot be located and for whom

payment of residual assets is made to

the PBGC, and

(2) The date when the postdistribution certification is filed with

the PBGC.

(e) Sufficient distress terminations. In

the case of a plan undergoing a distress

termination (under section 4041(c) of

ERISA) that is sufficient for at least all

guaranteed benefits and that distributes

its assets in the manner described in

section 4041(b)(3) of ERISA, the benefit

assumed to be payable by the plan for

purposes of determining the amount of

the designated benefit under § 4050.5 is

limited to the title IV benefit plus any

benefit to which funds under section

4022(c) of ERISA have been allocated.

(f) Similar rules for later payments. If

the PBGC determines that one or more

persons should receive benefits (which

may be in addition to benefits already

provided) in order for a plan

termination to be valid (e.g., upon audit

of the termination), and one or more of

such individuals cannot be located, the

PBGC will determine, in a manner

consistent with the purposes of this part

and section 4050 of ERISA, how the

provisions of this part apply to such

benefits.

(g) Discretionary extensions. Any

deadline under this part may be

extended in accordance with the rules

described in § 4041.30 of this chapter.

(h) Payments beginning after required

beginning date. If the PBGC begins

paying an annuity under § 4050.9(a) or

4050.10(a) to a participant or a

participant’s spouse after the required

beginning date under section

401(a)(9)(C) of the Code, the PBGC will

pay to the participant or the spouse (or

their respective estates) or both, as

appropriate, the lump sum equivalent of

the past annuity payments the

participant and spouse would have

received if the PBGC had begun making

payments on the required beginning

date. The PBGC will also pay lump sum

equivalents under this paragraph (g) if

the PBGC locates the estate of the

participant or spouse after both are

deceased. (Nothing in this paragraph (g)

will increase the total value of the

benefits payable with respect to a

missing participant.)

Appendix A to Part 4050—Examples of

Designated Benefit Determinations for

Missing Participants Under § 4050.5

The calculation of the designated benefit

under § 4050.5 is illustrated by the following

examples.

Example 1. Plan A provides that any

participant whose benefit has a value at

distribution of $1,750 or less will be paid a

lump sum, and that no other lump sums will

be paid. P, Q, and R are missing participants.

(1) As of the deemed distribution date, the

value of P’s benefit is $1,700 under plan A’s

assumptions. Under § 4050.5(a)(1), the plan

administrator pays the PBGC $1,700 as P’s

designated benefit.
Federal Register / Vol. 62, No. 216 / Friday, November 7, 1997 / Rules and Regulations 60445

(2) As of the deemed distribution date, the

value of Q’s benefit is $3,700 under plan A’s

assumptions and $3,200 under the missing

participant lump sum assumptions. Under

§ 4050.5(a)(2), the plan administrator pays

the PBGC $3,200 as Q’s designated benefit.

(3) As of the deemed distribution date, the

value of R’s benefit is $3,400 under plan A’s

assumptions, $3,600 under the missing

participant lump sum assumptions, and

$3,450 under the missing participant annuity

assumptions. Under § 4050.5(a)(3), the plan

administrator pays the PBGC $3,450 as R’s

designated benefit.

Example 2. Plan B provides for a normal

retirement age of 65 and permits early

commencement of benefits at any age

between 60 and 65, with benefits reduced by

5 percent for each year before age 65 that the

benefit begins. The qualified joint and 50

percent survivor annuity payable under the

terms of the plan requires in all cases a 16

percent reduction in the benefit otherwise

payable. The plan does not provide for

elective lump sums.

(1) M is a missing participant who

separated from service under plan B with a

deferred vested benefit. M is age 50 at the

deemed distribution date, and has a normal

retirement benefit of $1,000 per month

payable at age 65 in the form of a single life

annuity. M’s benefit as of the deemed

distribution date has a value greater than

$3,500 using either plan assumptions or the

missing participant lump sum assumptions.

Accordingly, M’s designated benefit is to be

determined under § 4050.5(a)(3).

(2) For purposes of determining M’s

designated benefit, M is assumed to be

married to a spouse who is also age 50 on

the deemed distribution date. M’s monthly

benefit in the form of the qualified joint and

survivor annuity under the plan varies from

$840 at age 65 (the normal retirement age)

($1,000 x (1–.16)) to $630 at age 60 (the

earliest retirement age) ($1,000 x (1–5 x (.05))

x (1–.16)).

(3) Under § 4050.5(a)(3), M’s benefit is to

be valued using the missing participant

annuity assumptions. The select and ultimate

interest rates on Plan B’s deemed distribution

date are 7.50 percent for the first 20 years and

5.75 percent thereafter. Using these rates and

the blended mortality table described in

paragraph (2) of the definition of ‘‘missing

participant annuity assumptions’’ in

§ 4050.2, the plan administrator determines

that the benefit commencing at age 60 is the

most valuable benefit (i.e., the benefit at age

60 is more valuable than the benefit at ages

61, 62, 63, 64 or 65). The present value as

of the deemed distribution date of each dollar

of annual benefit (payable monthly as a joint

and 50 percent survivor annuity) is $5.4307

if the benefit begins at age 60. (Because a new

spouse may succeed to the survivor benefit,

the mortality of the spouse during the

deferral period is ignored.) Thus, without

adjustment (loading) for expenses, the value

of the benefit beginning at age 60 is $41,056

(12 x $630 x 5.4307). The designated benefit

is equal to this value plus an expense

adjustment of $300, or a total of $41,356.

Appendix B to Part 4050—Examples of

Benefit Payments for Missing

Participants Under §§ 4050.8 Through

4050.10

The provisions of §§ 4050.8 through

4050.10 are illustrated by the following

examples.

Example 1. Participant M from Plan B (see

Example 2 in Appendix A of this part) is

located. M’s spouse is ten years younger than

M. M elects to receive benefits in the form

of a joint and 50 percent survivor annuity

commencing at age 62.

(1) M’s designated benefit was $41,356.

The unloaded designated benefit was

$41,056. As of Plan B’s deemed distribution

date (and using the missing participant

annuity assumptions), the present value per

dollar of annual benefit (payable monthly as

a joint and 50 percent survivor annuity

commencing at age 62 and reflecting the

actual age of M’s spouse) is $4.7405. Thus,

the monthly benefit to M at age 62 is $722

($41,056 / (4.7405 x 12)). M’s spouse will

receive $361 (50 percent of $722) per month

for life after the death of M.

(2) If M had instead been found to have

died on or after the deemed distribution date,

and M’s spouse wanted benefits to

commence when M would have attained age

62, the same calculation would be performed

to arrive at a monthly benefit of $361 to M’s

spouse.

Example 2. Participant P is a missing

participant from Plan C, a plan that allows

elective lump sums upon plan termination.

Plan C’s administrator pays a designated

benefit of $10,000 to the PBGC on behalf of

P, who was age 30 on the deemed

distribution date.

(1) P’s spouse, S, is located and has a death

certificate showing that P died on or after the

deemed distribution date with S as spouse.

S is the same age as P, and would like

survivor benefits to commence immediately,

at age 55 (as permitted by the plan). S’s

benefit is the survivor’s share of the joint and

50 percent survivor annuity which is

actuarially equivalent, as of the deemed

distribution date, to $9,700 (the unloaded

designated benefit).

(2) The select and ultimate interest rates on

Plan C’s deemed distribution date were 7.50

percent for the first 20 years and 5.75 percent

thereafter. Using these rates and the blended

mortality table described in paragraph (2) of

the definition of ‘‘missing participant annuity

assumptions’’ in § 4050.2, the present value

as of the deemed distribution date of each

dollar of annual benefit (payable monthly as

a joint and 50 percent survivor annuity) is

$2.4048 if the benefit begins when S and P

would have been age 55. Thus, the monthly

benefit to S commencing at age 55 is $168 (50

percent of $9,700 / (2.4048 x 12)). Since P

could have elected a lump sum upon plan

termination, S may elect a lump sum. S’s

lump sum is the present value as of the

deemed distribution date (using the missing

participant annuity assumptions) of the

monthly benefit of $168, accumulated with

interest at the designated benefit interest rate

to the date paid.

Issued in Washington, DC, this 3rd day of

November, 1997.

Alexis M. Herman,

Chairman, Board of Directors, Pension Benefit

Guaranty Corporation.

Issued on the date set forth above pursuant

to a resolution of the Board of Directors

authorizing its Chairman to issue this final

rule.

James J. Keightley,

Secretary, Board of Directors, Pension Benefit

Guaranty Corporation.

[FR Doc. 97–29500 Filed 11–6–97; 8:45 am]

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