On September 11, 2015, the Pension Benefit Guaranty Corporation (PBGC) published final rules updating its existing regulations and guidance for pension plans and plan sponsors regarding when and how they need to report various corporate and plan events to the PBGC. The updated rule is intended to make reporting more efficient and effective, to avoid unnecessary reporting requirements, and to conform PBGC’s reportable events regulation to changes in the law.
Changing the waiver structure
Under the regulation’s long-standing waiver structure for reportable events, which primarily focused on the funded status of a plan, PBGC often did not get reports it needed; at the same time, it received many reports that were unnecessary. This mismatch occurred because the old waiver structure was not well tied to the actual risks and causes of plan terminations, particularly the risk that a plan sponsor will default on its financial obligations, ultimately leading to an underfunded termination of its pension plan.
The final rule provides a new reportable events waiver structure that is more closely focused on risk of default than was the old waiver structure. Some reporting requirements that poorly identify risky situations — like those based on a supposedly modest level of plan underfunding — have been eliminated; at the same time, a new low-default-risk “safe harbor” — based on company financial metrics — is established that the PBGC believes better measures risk to the pension insurance system. This sponsor safe harbor is voluntary and based on existing, readily-available financial information that companies already use for many business purposes.
The final rule also provides a safe harbor based on a plan’s owing no variable-rate premium (VRP) (referred to as the well-funded plan safe harbor). Other waivers, such as public company, small plan, de minimis segment, and foreign entity waivers, have been retained in the final rule, and in many cases expanded, to provide additional relief to plan sponsors where the risk of an event to plans and the pension insurance system is low.
With the expansion in the number of waivers available in the final rule, PBGC estimates that 94 percent of plans covered by the pension insurance system will qualify for at least one waiver of reporting for events dealing with active participant reductions, controlled group changes, extraordinary dividends, benefit liability transfers, and substantial owner distributions.
Revised definitions of reportable events
The rule simplifies the descriptions of several reportable events and makes some event descriptions (e.g., active participant reduction) narrower so that compliance is easier and less burdensome. One event is broadened in scope (loan defaults), and clarification of another event has a similar result (controlled group changes). These changes, like the waiver changes, are aimed at tying reporting burden to risk.
Conforming to changes in the law
The Pension Protection Act of 2006 (PPA) made changes in the law that affect the test for whether advance reporting of certain reportable events is required. This rule conforms the advance reporting test to the new legal requirements.
Mandatory e-filing
The rule makes electronic filing of reportable events notices mandatory.
