Section 4043 of the Employee Retirement Income Security Act of 1974 (ERISA) requires the plan sponsor or plan administrator of a defined benefit plan to report certain corporate and plan events to the Pension Benefit Guaranty Corporation (PBGC).  PBGC regulations provide waivers for a number of these events.  In 2009, the PBGC issued a proposed rule to increase reporting to the PBGC by eliminating most of the existing waivers.  Plan sponsors, plan administrators and employee benefits practitioners objected to the proposal, indicating it would require reporting of events that posed no actual risk to a plan and the PBGC.  On April 2, 2013, the PBGC changed direction by issuing a new proposed rule that includes a waiver structure more closely focused on reportable events that reflect potential risks to the PBGC. 

ERISA Section 4043 requires defined benefit plan sponsors or plan administrators to notify the PBGC within 30 days after (or, in some cases, in advance of) certain enumerated “reportable events.”  The new proposed rule expands the waivers available to companies and plans for most reportable events.  Under the new rule, reporting obligations are largely limited to companies and plans that are at substantial risk of defaulting on their benefit funding and/or payment obligations.  (This is consistent with other recent PBGC enforcement guidance reflecting a more practical approach.)  Specifically, the new proposed rule waives reporting for five specific reportable events if one of the following “safe harbors” is met:

  • Plan sponsor is financially sound The plan sponsor must have (i) a credit report score from a commonly used commercial credit reporting company indicating a low likelihood that the sponsor would default on its obligations, (ii) positive net income, (iii) no secured debt (with limited exceptions, although the PBGC has requested suggestions for expanding these exceptions), (iv) no loan defaults or similar issues, and (v) no missed pension plan contributions (with some exceptions).
  • Plan is financially soundThe plan is either fully funded on a termination basis or 120% funded on a PBGC premium basis.

The reportable events covered by these new safe harbors include (i) active participant reductions, (ii) extraordinary dividends or stock redemptions, (iii) changes in the contributing sponsor or controlled group, (iv) transfers of benefit liabilities, and (v) distributions to substantial owners.

The proposed rule also offers expanded waivers for small plans and continues to offer foreign entity and de minimis waivers, but eliminates most other waivers.  Reportable events with limited or no waivers include (i) bankruptcy or insolvency of a controlled group member, (ii) liquidation of a controlled group member, (iii) loan default, (iv) failure to make required contributions, (v) application for a funding waiver, or (vi) inability to pay benefits when due.

The PBGC is currently seeking comments on the new proposed rule, and will hold a public hearing in June 2013.