As coronavirus-related workforce reductions increase, employers should consider their obligations to report to the Pension Benefit Guaranty Corporation (PBGC) under the Employee Retirement Income Security Act ( ERISA).
Effective March 5, 2020, PBGC, using its regulatory discretion, modified the reporting requirements under ERISA Section 4043. These provisions require employers to notify the PBGC of certain “reportable events” that may indicate financial problems with pension plans or contributing employers.
The PBGC also has the authority under Section 4043 to waive the reporting requirements under certain circumstances. The PBGC made these changes to Section 4043 as part of its ongoing efforts to provide clarity, corrections, and improvements to ERISA.
Reportable events that must be reported to the PBGC include, but are not limited to, the following:
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Lost contributions
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Insufficient funds
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Big payouts
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Sponsor loan defaults
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Controlled group changes
These reportable events are considered to pose a risk to the sponsor’s ability to continue to maintain its plans. Timely notification to the PBGC is intended to provide the agency with the time necessary to encourage the continuation of such plans.
One event that may require notification to PBGC under Section 4043.23 is the “reduction of active participants.” An active participant is defined as a plan participant who receives compensation for work performed. A reduction in active participants generally occurs in two different ways: 1) single-cause events, or 2) attrition events.
A single-cause event often occurs through employer reorganization or layoffs, which must be reported to the PBGC within 30 days of the occurrence if the event causes a reduction of more than 20 percent in active participants in the plan in one year. However, in the case of a normal attrition, which would be the normal hiring and departure of employees, it is not necessary to inform PBGC of such events until the premium filing due date for the plan year following the year of the plan. event. This does not mean that employers who fire active participants at rates below the 20 percent threshold do not have to report.
For multiple single-cause events that do not meet the 20 percent threshold separately, such events will be reported as a churn event if the 20 percent threshold is reached when actions are taken together. In the case of multiple single-cause events, each event must be reported separately to PBGC.
The active participant reduction notice does not apply in the following circumstances:
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Small plans (plans with 100 or fewer participants for which only a flat rate premium had to be paid to PBGC for the previous plan year)
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Low default risk plan sponsors (sponsors that meet PBGC financial criteria)
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Well-funded plans (plans that had no variable rate premium due for the previous plan year)
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Sponsors of public company plans (only if said sponsors timely filed an SEC 8-K form that disclosed the relevant active participant reduction in sections other than those related to operating results or financial statements)
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Plan sponsor is required to report to PBGC under ERISA Section 4062 (e) (regarding the same plan)
Another event that qualifies as a reportable event and requires notification to PBGC is a change in the contributing sponsors of the controlled groups. Under ERISA Section 4043.29, a reportable event occurs when there is a transaction that results in, or will result in, one or more individuals ceasing to be members of the plan’s controlled group.
ERISA notification requirements for plan liquidation
ERISA section 4043.30 (a) (1) also requires employers to report when they plan to liquidate. Liquidation occurs when a member of the controlled group of the plan “decides to cease all income-generating business operations, to sell substantially all of its assets, or to effect or implement its full liquidation (including liquidation in another member of the controlled group) by decision of the member. board of directors (or equivalent body such as managing partners or owners) or other actor with the power to authorize said cessation of operations or liquidation “.
A member who has informed the PBGC as a result of the insolvency also does not need to report the liquidation. To avoid duplicate reporting and given the similarities between the two events, PBGC believes that reporting under Section 4043.40 Liquidation or Section 4043.35 Insolvency is sufficient.
Public companies planning to liquidate do not have to report such liquidation plans to the PBGC as soon as these plans emerge. ERISA Section 4043.30 (c) grants an extension for the filing of such an event until an SEC Form 8-K disclosing the liquidation is timely filed or the issuance of a press release discussing the liquidation, which happen first.
PBGC’s reporting obligations are waived for five reportable events (reductions in active participants, distributions to a substantial owner, changes in contributing sponsors or controlled groups, extraordinary dividends or stock redemptions and profit liability transfers) if any sponsor The business and the contributing sponsor promptly file a SEC 8-K form that properly discloses the reportable event.
All the above reporting obligations are applicable to events occurring after March 5, 2020.
Consult with an experienced ERISA attorney
PBGC’s pension reporting rules under ERISA are complex and may vary depending on plan circumstances. Plan sponsors are encouraged to obtain guidance from an experienced attorney regarding their individual PBGC reporting requirements.