An employer began the process of terminating its overfunded defined benefit plan in 2006. After waiting two years for an IRS determination letter, it decided to restart the termination and selected August 15, 2009, a Saturday, as the plan termination date.
Between 2006 and 2009, the Pension Protection Act of 2006 had changed the rules for calculating lump sum distributions. The terminating plan was amended to conform to the PPA, but the amendment was not adopted until August 17, 2009. When the PBGC audited the termination, it discovered this discrepancy and determined that lump sums should be recomputed under the terms of the pre-amendment plan, which would increase the total amount paid out by $731,000, or over 17%. The plan sponsor refused, and the PBGC sued to enforce its determination. Pension Benefit Guaranty Corporation v. Town & Country Bank and Trust Co., 2012 U.S. Dist. LEXIS 143724 (W.D. Ky., 10/4/12).
At issue was whether the employer was entitled to the benefit of §4000.43 of the PBGC regulations, which provides that time periods that end on a weekend or holiday are extended to the next business day. As the plan termination date fell on a Saturday, the employer contended that adoption of the amendment on the following Monday was timely.
The PBGC and the court disagreed. As the judge put it, “[T]he termination date itself it not a time period, and as such, is not subject to the weekend or holiday rule.” Therefore, the amendment was expensively late, the more so because the court awarded costs and litigation expenses to the PBGC.
Curiously, the court did not take note of a paragraph of the regulation that seems to bear directly on the question before it:
(b) When date is designated. In some cases, our regulations designate a specific day as the end of a time period, such as “the last day” of a plan year or “the fifteenth day” of a calendar month. In these cases, you simply use the designated day, together with the weekend and holiday rule of paragraph (a) of this section. [§4000.43(b) (emphasis added)]
This provision states explicitly that a designated day is a “time period” and that it is postponed to the next business day when it falls on a weekend or holiday. The PBGC’s refusal to apply that rule, merely because the plan termination date is chosen by the employer rather than the PBGC, seems properly characterized as “arbitrary and capricious.”