ERISA Reportable Events for Active Participant Reductions in Pension Plans
As coronavirus-related workforce reductions increase, employers should be mindful of their reporting obligations to the Pension Benefit Guaranty Corporation (PBGC) under the worker Retirement Income Security Act (ERISA).
Effective March 5, 2020, PBGC using its regulatory discretion, modified reporting requirements under Section 4043 of ERISA. These provisions require employers to offer notice to the PBGC of certain “reportable events” which will signal financial trouble with pension plans or contributing employers.
The PBGC also has the authority under Section 4043 to waive reporting requirements under certain circumstances. The PBGC made these changes to Section 4043 as a part of their ongoing efforts to supply clarity, corrections, and enhancements to ERISA.
Reportable events that has got to be disclosed to the PBGC include but aren’t limited to the following:
Sponsor loan defaults
Controlled group changes
These reportable events are considered to present a risk to a sponsor’s ability to still maintain their plans. Timely notification to the PBGC is meant to supply the agency with the time needed to encourage the continuation of such plans.
One event which will require notification to PBGC under Section 4043.23 is “active participant reduction.” a lively participant is defined as an idea participant who is receiving compensation for work performed. a lively participant reduction generally occurs through two different ways: 1) single-cause events, or 2) attrition events.
A single-cause event often occurs through employer reorganization or layoffs, which must be reported to the PBGC within 30 days of an event if the event causes quite a 20 percent reduction in active plan participants in one year. However, within the event of normal attrition, which might be the traditional hiring and departure of employees, such events needn’t be reported to PBGC until the premium filing maturity for the plan year following the event year. This doesn’t mean that employers who are shedding active participants at rates but the 20 percent threshold don’t need to report.
In the event of multiple single-cause events that don’t meet the 20 percent threshold separately, such events are going to be reported as an attrition event if the 20 percent threshold is met when the actions are taken together. within the event of multiple single-cause events, each event must be reported separately to PBGC.
Active participant reduction notification is waived under the subsequent circumstances:
Small plans (plans with 100 or fewer participants that only a flat-rate premium had to be paid to PBGC for the prior plan year)
Low-default risk plan sponsors (sponsors that meet PBGC financial criteria)
Well-funded plans (plans that had no variable rate premium due for the prior plan year)
Public company plan sponsors (only if such sponsors timely filed an SEC Form 8-K which disclosed the relevant active participant reduction in sections aside from those concerning Results of Operation or Financial Statements)
Plan sponsor required to report back to PBGC under ERISA Section 4062(e) (with reference to an equivalent plan)
Another event that qualifies as a reportable event and requires PBGC notification may be a change in contributing sponsors of controlled groups. Under ERISA Section 4043.29, a reportable event occurs when there’s a transaction that results, or will result, in one or more persons’ ceasing to be a member of the plan’s controlled group.
ERISA Notification Requirements for Plan Liquidation
Section 4043.30(a)(1) of ERISA also requires employers to report once they decide to liquidate. Liquidation occurs when a member of the plan’s controlled group “resolves to cease all revenue-generating business operations, sell substantially all of its assets, or otherwise effect or implement its complete liquidation (including liquidation into another controlled group member) by decision of the member’s board of directors (or equivalent body like the managing partners or owners) or other actor with the facility to authorize such cessation of operations or liquidation.”
A member that has reported to the PBGC as a results of insolvency also doesn’t got to report liquidation. so as to avoid duplicative reporting and given the similarities between the 2 events, PBGC believes that reporting under either Section 4043.40 Liquidation or Section 4043.35 Insolvency is sufficient.
Public companies that decide to liquidate don’t need to report such liquidation plans to the PBGC as soon as these plans arise. Section 4043.30(c) of ERISA gives an extension for filing such an occasion until the sooner of the timely filing of an SEC Form 8-K disclosing the liquidation or the issuance of a handout discussing the liquidation.
PBGC reporting obligations are waived for five reportable events (active participant reductions, distributions to a considerable owner, changes in contributing sponsors or controlled groups, extraordinary dividend or stock redemptions, and transfers of benefit liabilities) if any contributing sponsor of the plan may be a public company and therefore the contributing sponsor timely files an SEC Form 8-K that properly discloses the reportable event.
All above reporting obligations are applicable to events occurring on or after March 5, 2020.
Consult with an Experienced ERISA Attorney
The PBGC pension reporting rules under ERISA are complex and may vary supported plan circumstances. Plan sponsors are advised to get guidance from experienced counsel in reference to their individual PBGC reporting requirements.
Mark Johnson, Ph.D., J.D., is an experienced pension and ERISA expert. As a former ERISA Plan director and plan fiduciary for a Fortune 500 company, Dr. Johnson has practical knowledge of plan documents also as an in-depth understanding of ERISA obligations. he’s employed as an expert consultant and witness on 401(k), ESOP and pension fiduciary liability; retiree medical benefit coverage; third party administrator disputes; individual benefit claims; pension benefits in bankruptcy; future disability benefits; and cash conversion balances.
ERISA Benefits Consulting, Inc. by Mark Johnson provides benefit consulting and advisory services and doesn’t engage within the practice of law.