Source: https://www.pbgc.gov/prac/other-guidance/insurance-coverage
Timestamp: 2019-04-20 10:29:01+00:00

Document:
PBGC insures most private-sector (i.e., non-governmental) defined benefit pension plans.
When a PBGC-covered single-employer plan fails, PBGC pays participants their earned benefits up to certain legal limits. When a PBGC-covered multiemployer plan becomes insolvent, PBGC provides financial assistance so that the plan can pay benefits up to certain legal limits. Covered plans must comply with PBGC’s rules and requirements, including paying PBGC premiums.
Sponsors of covered plans cannot waive coverage. Similarly, with very few exceptions (i.e., church plans and certain plans based in Puerto Rico), non-covered plans cannot elect to be covered. If a plan is not covered by PBGC, paying PBGC premiums will not trigger coverage.
Whether a private-sector defined benefit plan is or is not covered by PBGC is based on the law (See ERISA Section 4021). In most cases, if such a plan satisfies the section 401(a) tax requirements of the Internal Revenue Code (i.e., if it is a “qualified defined benefit plan”), it is covered by PBGC. However, there are some exceptions as explained below.
Although it’s usually easy to determine if a qualified defined benefit plan is (or is not) covered by PBGC, that isn’t always the case. If you are not absolutely certain your defined benefit plan is (or is not) covered by PBGC, it is very important that you request a coverage determination.
For this purpose, an organization, partnership, etc. is considered a “professional service employer” if its principal business is the performance of professional services and it is owned or controlled by one or more “professional individuals.” ERISA 4021(c)(2)(B) lists 16 types of people considered “professional individuals” for this purpose (e.g., physicians, attorneys, and architects), but the law makes clear that the list is not exhaustive.
With respect to professions that aren’t explicitly listed in the statute (e.g., financial advisors), PBGC will make a determination as to whether the individual in question is a “professional individual” based on an analysis of the services performed and the expertise required to perform them.
Securities and Exchange Commission and/or Financial Industry Regulatory Authority registration.
In a situation where the individual’s knowledge comes from a general academic education, an apprenticeship, or from training in the performance of routine mental, manual, or physical processes, PBGC generally finds that the person does not meet the standard of a “professional individual.” On the other hand, if a person provides services which require knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study, PBGC generally finds that the individual is a professional. In addition, to be considered a “professional individual,” the individual’s performance must require the consistent exercise of discretion and judgment and be predominantly intellectual in character.
Company X is owned by an attorney, John Smith.
Company X sponsors a defined benefit plan that has never had more than 25 participants.
Company X’s primary business is the sale of insurance products.
In this scenario, despite the fact that the company’s owner is an attorney (a profession that’s on the statutory list of professional individuals), Company X’s defined benefit plan would not qualify for the professional service plan coverage exception.
A private-sector qualified defined benefit plan is exempt from PBGC coverage if it is established and maintained exclusively for substantial owners of the plan sponsor (i.e., if all participants are substantial owners).
In the case of a corporation, owns directly or indirectly more than ten percent in value of either the voting stock of that corporation or all the stock of that corporation.
The constructive ownership rules, including spousal attribution rules, of IRC § 414(c) and § 1563(e) apply only in the case of a corporation.
Some Puerto Rico based defined benefit plans (i.e., plans that cover only Puerto Rican residents) are covered by PBGC and some are not. PBGC coverage depends on whether the plan is considered a qualified plan under IRC 401(a).
In general, a Puerto Rico based plan does not meet the 401(a) qualification requirements, and thus is not covered by PBGC, if the trust was created or organized in Puerto Rico.
Puerto Rico plans that do not meet the 401(a) qualification requirements may make an irrevocable election to be considered a qualified plan. See Treasury Regulation §1.401(a)-50 and ERISA § 1022(i)(2). Plans making this election are covered by PBGC.
Puerto Rico Plans that are unsure of their PBGC coverage status should request a coverage determination. In particular, plans that were created or organized in Puerto Rico that have been operating under the assumption that they are covered by PBGC (and that have been paying PBGC premiums accordingly) should request a coverage determination if they did not make an election in accordance with Treasury Regulation §1.401(a)-50.
A private-sector defined benefit plan established and maintained for its employees by a tax-exempt church, convention, or an association of churches is generally considered a “church plan.” See IRC § 414(e). Church plans are generally not covered by PBGC.
IRC § 410(d) provides that church plans may make an irrevocable election to be subject to certain IRC § 401(a) tax qualification requirements (e.g., participation, vesting, funding). Plans making a 410(d) election may also choose to be covered by PBGC. This is accomplished by notifying PBGC that it wishes to be covered by PBGC.
Accordingly, a church plan is exempt from PBGC coverage unless it makes a 410(d) election and notifies the PBGC of its desire to be covered by PBGC.
PBGC defers to the Internal Revenue Service when determining whether a plan is a church plan. Therefore, when reviewing coverage determination requests from plans that believe they qualify for the church plan exception, PBGC’s longstanding practice is to require that plans first obtain an IRS private letter ruling (PLR) indicating that the plan is a church plan. This keeps the responsibility for making church plan determinations with the agency that has the authority to define the criteria and ensures consistency.
To speak to someone before submitting a coverage determination request, call 800-736-2444 or 202-326-4242.
Because each situation is unique, PBGC does not provide a comprehensive list of information to be included in a request for a coverage determination. Instead, PBGC asks that the request contain sufficient information to enable PBGC to make a determination. The following table illustrates the types of information that can be helpful.
The sponsor’s organizational structure (i.e., sole proprietorship, partnership, or corporation).
Name, principal business, services performed, and organizational structure of every employer involved in establishing and maintaining the plan.
Names, occupations, level of education (include degrees, certificates, or licenses), and percentage and period of ownership of all individuals who own or have ever owned the plan sponsor.
Names, occupations, level of education (including degrees, certificates, or licenses), and title of all individuals who control, manage, or direct the plan sponsor.
Educational requirements for the plan sponsor’s profession and qualifications such as course work, graduate school, specific license by the state, or similar requirements (including copies of license(s), degrees, or certifications).
Maximum number of active participants since inception.
List of all participants in the pension plan.
The sponsor’s organizational structure (i.e., sole proprietorship, partnership or corporation).
Copy of documents showing each participants percentage of ownership interest within the last five years.
If the sponsor is a partnership, copy of the partnership agreement or any other document identifying the partners.
If the plan covers only the owner and the owner’s spouse, documents indicating whether the spouse is an employee, director, or manager.
If a Trust Document or Agreement, the name and location of the Trust and Trustee.
If a GAC, who is the Contract holder?
If applicable, copy of election to be considered a qualified plan under Treasury Regulation §1.401(a)-50 and ERISA §1022(i)(2).
Information about the plan administrator (e.g., whether it’s an individual, entity, or committee and the name and documents appointing the administrator).
Documents transferring the Plan Trust from the United States to Puerto Rico (if applicable).
Copies of correspondence with IRS regarding the Pension Plan.
Copy of the qualification letter(s) from the Puerto Rico Department of Treasury.
Information indicating where the active participants reside.

References: § 414
 § 1563
 §1
 § 1022
 §1
 § 414
 § 410
 § 401
 §1
 §1022