In a letter to the Pension Benefit Guaranty Corporation, the American Benefits Council applauded the organization's efforts to modernize its enforcement policy for companies that cease their operations but said it was still concerned about the agency's philosophy and approach.
Under ERISA Section 4062(e), if an employer with a pension plan shuts down operations at a facility, and as a result of that shutdown, more than 20 percent of the employer's employees who are plan participants are separated from employment, the employer is required to provide the PBGC with short-term security in the form of a bond or escrow amount based on the plan's unfunded termination liability.
The PBGC's new enforcement policy under 4062(e) aims to target enforcement requirements to plans that are at the most risk and reduce requirements elsewhere by "using measures of financial soundness" such as credit rating.
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"While this policy may provide relief to some credit-worthy companies, the approach presents a number of fundamental challenges to the continued health of the defined benefit pension system," Council Senior Vice President, Policy Lynn Dudley said.
"These proposed regulations — and the new enforcement policy — demonstrate a basic misinterpretation of the ERISA statute itself by radically re-defining what is a 'cessation of operations' and introducing vast new requirements that were not contemplated by Congress," Dudley said.
"In fact, the enforcement policy itself is flawed, since it is being initiated under proposed regulations that have not yet been finalized or amended with the benefit of comments from the public," Dudley said. The Council urged withdrawal and re-proposal of these regulations in an October 2010 comment letter.
"Under this new enforcement policy, PBGC is expected to create its own complex methodology for determining the creditworthiness of a company, including non-profit entities. It is important to note that Congress has roundly rejected creditworthiness as a measure of pension plan strength during recent negotiations of the Pension Protection Act of 2006 and recent PBGC premium increase legislation," Dudley said.
"The final result will be a system that punishes the weakest companies, which will only reduce their ability to sustain the pension plan and recover their core business," Dudley said. "Since PBGC has committed to an open dialogue on this issue, we will continue urging them to withdraw this policy and the proposed regulations on which they are based, so we can start over with an enforcement system that works for plan sponsors, participants and the PBGC."
The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system.
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