PBGC Proposes Rule to Clarify its Regulations on Liability for Termination of Single-Employer Plans

The Pension Benefit Guaranty Corporation (PBGC) will issue a proposed rule (pdf) that seeks to provide guidance on the applicability and enforcement of section 4062(e) of the Employee Retirement Income Security Act (ERISA). This section contains special rules that apply when “an employer ceases operations at a facility in any location and, as a result of such cessation of operations, more than 20 percent of the total number of his employees who are participants under a plan established and maintained by him are separated from employment.” In this event, the employer that maintains the single-employer pension plan is subject to certain reporting requirements and liability. The PBGC seeks to amend its regulations to provide guidance as to what constitutes a section 4062(e) event in the first instance, revise the reporting requirements of such an event to the PBGC, and explain the determination and satisfaction of liability as a result of such an event.

In essence, the proposed rule would create a new subpart B of PBGC’s regulations governing this issue that addresses the applicability and enforcement of section 4062(e). The proposed rule provides guidance on whether and when a “section 4062(e) event” occurs by defining each of the following key terms: “operation,” “facility,” “cease,” “separate,” and “result.” The proposed rule explains, for example, that a section 4062(e) event concerns itself with the cessation of one operation and the effect of that cessation on the employment of participants in the affected plan. Therefore, the section would apply to an employer’s termination of operations at a facility even if the operation is continued or resumed by another employer at the same or another facility.

With respect to the enforcement provisions of section 4062(e), the proposed rule explains the agency’s investigatory program, provides rules for notifying PBGC of section 4062(e) events, explains how section 4062(e) liability is calculated and how it is to be satisfied, and requires the preservation of records about events that may be section 4062(e) events. Additionally, the proposed rule describes how the new Subpart B would provide for waivers under certain circumstances.

Comments must be made no later than 60 days after the proposed rule’s publication in the Federal Register, which is slated for August 10, 2010. Additionally, all comments must include the Regulatory Identification Number (RIN) 1212-AB20. Written comments should be submitted to: Legislative and Regulatory Department, Pension Benefit Guaranty Corporation, 1200 K Street, NW., Washington, DC 20005-4026. In the alternative, comments may be faxed to: 202-326-4224, or submitted electronically to reg.comments@pbgc.gov or via the federal eRulemaking portal: www.regulations.gov.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.