The American Benefits Council (ABC) is taking issue with a new enforcement policy issued by the Pension Benefit Guaranty Corp. (PBGC) that it says “challenges” the health of the defined benefit system and introduces “vast” new requirements not contemplated by Congress.
Lynn Dudley, senior vice president of policy for ABC, said Friday that while ABC appreciates PBGC’s attempts to “modernize” its enforcement policy for companies that cease their operations, “we continue to have serious concerns about the agency’s philosophy and approach.”
Under ERISA Section 4062(e), Dudley said, “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.”
The new policy targets enforcement requirements to plans that are at the most risk and aims to reduce requirements elsewhere by “using measures of financial soundness” such as credit rating, Dudley says.
“While this policy may provide relief to some creditworthy companies, the approach presents a number of fundamental challenges to the continued health of the defined benefit pension system,” she said.
The proposed regulations—and the new enforcement policy—“demonstrate a basic misinterpretation of the ERISA statute itself by radically redefining what is a ‘cessation of operations’ and introducing vast new requirements that were not contemplated by Congress,” Dudley said.
The PBGC’s enforcement policy is “flawed,” Dudley argues, “since it is being initiated under proposed regulations that have not yet been finalized or amended with the benefit of comments from the public.” The Council, Dudley said, urged withdrawal and reproposal of these regulations in an October 2010 comment letter.