These days, it’s not uncommon for pension plans to be in some sort of frozen state. It is important for plan sponsors to remember that even though their pension plans may be totally frozen (with no one accruing benefits), partially frozen (closed to some or all new participants), or in some other “frozen status,” the plans are still subject to the PBGC reportable event rules under section 4043 of ERISA. Only once a pension plan is fully terminated and all assets are distributed do the reportable event rules no longer apply. Of course, the reportable event rules also apply to active pension plans. Failure to comply with the rules may result in steep penalties of up to $1,100 a day.
Although there may be a few reportable events that are not likely to occur if a pension plan is frozen, most reportable events can occur regardless of a pension plan’s status. These reportable events include, among others,
- a distribution to a substantial owner from the plan,
- a change in the plan’s controlled group (including a merger or consolidation within the controlled group – who would have ever seen this one coming!),
- liquidation of any member of the plan’s controlled group,
- an extraordinary dividend or stock redemption by any member of the plan’s controlled group,
- a transfer of less than all of the pension plan’s benefit liabilities to another pension plan,
- application of a minimum funding waiver for the pension plan,
- default by any member of the plan’s controlled group on a loan balance of $10 million or more, and
- the bankruptcy or similar settlement of any member of the plan’s controlled group.
Unless a waiver or extension applies, the reportable event rules require the plan administrator and employer responsible for making contributions to the pension plan (generally, the plan sponsor) to notify the PBGC within 30 days after they know, or have reason to know, that the reportable event has occurred. In addition, unless a waiver or extension applies, under certain situations (for non-public companies), the employer responsible for making contributions to the pension plan is required to notify the PBGC no later than 30 days before the reportable event’s effective date. PBGC “Form 10: Post-Event Reportable Events” is used to notify the PBGC of reportable events where notice is required within 30 days after the event occurs and “Form 10: Advance Notice of Reportable Events” where notice is required no later than 30 days before the event occurs.
Although perhaps less likely to be triggered than reportable event reporting, it is also important for plan sponsors to remember that the PBGC reporting and liability rules under section 4062(e) of ERISA apply to all pension plans, regardless of any frozen status. Section 4062(e) reporting and liability is triggered by a permanent substantial cessation of operations at any of the plan sponsor’s facilities if, as a result, there is a workforce reduction of the number of employees at the facility eligible to participate in any of the controlled group’s retirement plans equal to more than 15% of the number of all eligible employees in the controlled group.