PBGC Halts Employer Shutdown Cases

For six months, PBGC will stop collecting short-term bonds from firms that shut down under ERISA 4062(3)

PBGC says the halt will allow it to focus on pensions that are truly at risk. PBGC says the halt will allow it to focus on pensions that are truly at risk.

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After complaints, the Pension Benefit Guaranty Corp. announced Tuesday that it is placing a six-month moratorium on the enforcement of facility shutdown cases under Section 4062(e) of the Employee Retirement Income Security Act.

PBGC said in a release that the moratorium, to last until Dec. 31, will enable it to ensure that “its efforts are targeted to cases where pensions are genuinely at risk,” and allow PBGC to work with the business community, Department of Labor and other stakeholders.

Under Section 4062(e), if an employer with a pension plan shuts down operations at a facility, and as a result of that shutdown, more than 20% of the employer’s employees who are plan participants are separated from employment, the employer is required to provide the PBGC with short-term security in the form of a bond or escrow amount based on the plan’s unfunded termination liability.

Typically, PBGC asks companies that are on the brink of a shutdown to increase the plan’s funding, so it’s less likely to fail. In the past seven years, PBGC says that it has used 4062(e) to protect pensions covering 180,000 people in 35 states.

During the moratorium, PBGC says that it will cease enforcement efforts on open and new cases. “Companies should continue to report new 4062(e) events, but PBGC will take no action on those events during the moratorium,” PBGC said.

James Klein, president of the American Benefits Council, said in a statement that PBGC’s moratorium is “welcome news,” as the ABC has“repeatedly communicated our concern about PBGC’s enforcement of the law to the agency, itself, and to Congress.” This “temporary halt,” Klein said, “will ensure that future enforcement is applied as intended.”

In 2012, PBGC said that it began responding to business concerns by targeting its 4062(e) enforcement, focusing on those cases where there was “real risk of substantial plan failure.” PBGC decided at the time that companies that meet standard tests of financial soundness or have fewer than 100 participants would not be required to provide financial guarantees.

This 2012 change exempted more than 90% of plan sponsors from 4062(e) enforcement, PBGC said, and in FY 2013, only 63 companies were found to have taken actions within the law’s purview, and PBGC declined to enforce in 80% of those cases.

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