On June 14, 2011, the Pension Benefit Guaranty Corporation (PBGC) published its final rule on the termination of an underfunded pension plan when the sponsor is in bankruptcy. The final rule is substantially the same as the proposed rule published in 2008. The Pension Protection Act of 2006 (PPA) amended the rules for a single-employer pension plan termination when the contributing sponsor is in bankruptcy. After PPA, the relevant date for determining guaranteed benefits and those benefits in "priority category 3" (e.g., benefits already in pay status that exceed the maximum guarantee) are fixed on the bankruptcy filing date, not the plan termination date. The PBGC proposed regulations in 2008 to clarify the new rules for terminating underfunded plans in bankruptcy.
The final regulations clarify that the bankruptcy filing date is treated as the termination date for purposes of determining the participant's service and compensation; the maximum guaranteed benefit; the relevant date for measuring any phase-in of guaranteed benefits; what benefits are nonguaranteed supplements; the relevant date for determining whether a participant has a nonforfeitable right to an early retirement subsidy or disability benefit; and the relevant year for the start of an applicable look-back period. The plan termination date remains the relevant date for other purposes, such as valuation of plan assets.