Senate Committee Approves Bill Making ERISA Clarifications

On July 23, 2014, the Senate Committee on Health, Education, Labor and Pensions unanimously approved S. 2511, a measure that aims to clarify the definition of "substantial cessation of operations" under Section 4062(e) of ERISA.  According to a statement issued by the committee, "this legislation will bring clarity to the pension downsizing liability rules and will ensure that there is a workable mechanism to protect pension benefits when employers show symptoms of financial distress." 

Under Section 4062(e), if more than 20% of an employer's total employees who participant in an employer-maintained pension plan are laid off because the employer ceases operations at a facility, the employer must notify the Pension Benefit Guaranty Corporation (PBGC) and face certain withdrawal liability.  The committee-approved bill clarifies that "substantial cessation of operations" triggering liability occurs only when: 

(i) such cessation is reasonably expected to be permanent; (ii) no portion of such operations is moved to another facility at a different location; (iii) no portion of such operations is assumed by or otherwise transferred to another employer; and (iv) no other operations are reasonably expected to be maintained at such facility, and as a result of the cessation . . . more than 20 percent of the employees of the employer have a termination of employment that is reasonably expected to be permanent. 

The bill is expected to advance to the Senate floor for a vote. 

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.