As many as 200 large plan sponsors will no longer be able to take advantage of a reporting waiver for underfunded pension plans if a proposed amendment by the Pension Benefit Guaranty Corp. is ultimately approved.
Section 4010 of the Employee Retirement Income Security Act requires certain underfunded plans to report financial and actuarial information to PBGC.
Plans with funding levels at less than 80 percent or sponsors that have missed more than $1 million in scheduled required contributions must submit the extra information annually.
Under the Moving Ahead for Progress in the 21st Century Act and the Highway and Transportation and Funding Act of 2014, Congress set and extended interest rate corridors for sponsors, intended to limit the volatility in funding requirements from year to year
Under current regulation, underfunded plans can get a waiver to avoid the extra section 4010 disclosure requirements if the aggregate underfunding is less than $15 million.
But PBGC has found that waiver has resulted in too much critical information going unreported since the pension-smoothing provisions of MAP-21 and HATFA have been enacted.
To address that, the proposed rule would limit the waiver to those sponsors with less than 500 participants.
In 2009, PBGC passed the $15 million underfunded threshold waiver on the assumption that it would only affect small plans funded less than 80 percent.
But the pension smoothing that stabilized interest rates in the wake of MAP-21 and HATFA pushed about 200 plans that are funded below 80 percent below the $15 million underfunded threshold, allowing more to claim the Section 4010 waiver.
PBGC only received 313 Section 4010 filings for 2013, affecting the Corp.’s capacity to protect plans by limiting its ability to accurately forecast liabilities in the event of a plan termination, it reasoned in a summary of the proposal.
The “vast majority” of the plans that have been able to take advantage of the waiver after the pension-smoothing provisions were implemented are plans with at least 1,000 participants, says PBGC.
That makes for significant liabilities were those plans to be terminated and come under the stewardship of PBGC. Because they have not been required to submit extra actuarial data, PBGC has been unable to accurately report potential liabilities to Congress, as it is statutorily required to do.
“Plans that were never intended to qualify for the regulatory waiver are, in fact, qualifying as a result of” pension-smoothing legislation, according to PBGC.
The new proposal does waive the requirement that sponsors with PBGC liens or outstanding funding waivers for $1 million or more file Section 4010 disclosures.
That requirement results in duplicative reporting, as sponsors are required to report all liens and waivers outside of 4010 requirements.
The proposal is currently open for comments. If enacted, it would affect plan filings made after the end of December 2015.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
