The Pension Benefit Guaranty Corporation (PBGC) has launched an enforcement pilot program under ERISA § 4062(e) that will ease financial guaranty obligations for small and financially stable businesses. Under this financial assurance section, in the event a company stops operating at a facility which results in layoffs, the company must take certain steps to ensure that the employees’ pension plans remain financially stable. Specifically, § 4062(e) requires that companies faced with this situation notify the PBGC and make additional monetary contributions to the plan or other financial assurances, such as a letter of credit guaranteeing future plan contributions.
Many businesses had complained about this enforcement provision on the grounds that it was indiscriminately applied, even in situations where there was little or no risk that the company would default on its funding obligations because the plan itself was small or the company’s financial health was sound. To this end, the PBGC has decided not to enforce § 4062(e) cases if the employer’s plan has 100 participants or fewer, or if it meets certain conditions establishing creditworthiness. According to a set of frequently asked questions (FAQs) the PBGC issued on this pilot program, creditworthiness will be determined using “common financial measures of financial soundness such as credit ratings, credit scores, indebtedness, liquidity, and profitability. If a company is creditworthy and there are no other indicators of financial weakness or other risks, PBGC will take no action.” The agency might periodically request additional information to confirm the plan’s continued financial stability, but will take no action if the information shows that the company remains creditworthy.
According to the PBGC’s announcement of this pilot program, as a result of the change, 92 percent of companies that sponsor pension plans will no longer face enforcement efforts under § 4062(e). “Instead of using a one-size-fits-all approach, we are focusing on the handful of companies that pose real risk,” PBGC Director Josh Gotbaum said in the announcement. “For most companies, it will mean fewer requirements and less hassle — and it will let us use our resources where they’re really needed.”