The Pension Benefit Guaranty Corporation announced a new proposal that will reverse its 2009 proposal and thereby reform and reduce reporting requirements for more than 90% of companies and pension plans.
The move will exempt from many requirements all small plans and the more than 70% of pension plans whose sponsors are financially sound. Some reporting requirements like bankruptcy filings will be eliminated entirely because PBGC can get the information from other sources without burdening companies or plans.
"One way we encourage companies to keep their pensions is by cutting unnecessary red tape," said PBGC Director Josh Gotbaum. "That's what we're doing here. Not only is it better for businesses and plans, it will let us focus our efforts where they're really needed."
PBGC's change on reportable events is the latest in a continuing effort to preserve plans by making it easier for employers to offer them. Last fall, the agency announced similar changes in its enforcement policy for companies that downsized or engaged in other transactions that might affect plans. By reversing agreements already negotiated under ERISA's section 4062(e) and ceasing requiring financial contributions from companies unlikely to default on their pensions, almost $1 billion is now available for job creation and other needs.
These changes are in response to a directive from the President to review regulatory requirements. In response to earlier proposals, companies that sponsor plans said that PBGC imposed requirements even when there was little risk of defaulting on their pension obligations. After the review, PBGC agreed. The new proposal would eliminate roughly half of the reporting requirements for all financially sound companies. It also responds to many other plan sponsor proposals.
Plan Sponsors Support PBGC Reforms
The U.S. Chamber of Commerce praised the new proposal for addressing the needs of company sponsors.
"We appreciate the efforts of the PBGC in withdrawing the original proposal and working toward a rule that is less burdensome and more efficient," said Randy Johnson, the chamber's senior vice president of Labor, Immigration, and Employee Benefits. "Although we are still reviewing the proposed regulation in detail, we believe that it is a significant step in the right direction and an important indication from the PBGC that they are listening to plan sponsors."
And the American Society of Pension Professionals and Actuaries (ASPPA) embraced the initiative as a common-sense approach on reporting requirements.
"It is clear that PBGC gave serious consideration to the comments that we and others submitted," said Judy A. Miller, ASPPA's director of retirement policy. "The agency is to be commended for not just re-proposing this rule, but consciously taking a different approach, and focusing on minimizing the burdens placed on sponsors of low-risk plans while still achieving the goal of the rule."
Targeting Reporting Requirements to Pension Risks
Under ERISA's section 4043, companies are required to report to PBGC a wide variety of corporate and/or plan events such as mergers, extraordinary dividends, and unpaid plan contributions, among others. PBGC concluded that reporting requirements could be reduced for most companies and plans and is proposing revised regulations to do so.
PBGC found in its analysis that pension funding levels were a poor measure of actual default risk, and that the financial soundness of the company sponsoring the plan was much more important. Financially sound companies almost never defaulted on their pensions, even if their plans were underfunded. By comparison, companies that defaulted on their other obligations were much likelier also to default on their pensions, and pensions that had earlier been reported as fully funded turned out not to be when terminated.
Under the new proposal, many reporting requirements would be eliminated where:
- Either a company or a plan is financially sound. Some three-fourths of all companies and plans will be exempted on this basis.
- A plan is small. Since two-thirds of all plans are sponsored by small businesses, this effort will dramatically expand relief from reporting requirements.
- PBGC can get information from other sources. Through public SEC or bankruptcy filings or filings with other agencies, PBGC can learn about many events without requiring direct reports from the company.
By limiting reporting requirements to circumstances where plans are at risk and reporting is actually useful, PBGC will be able to focus its resources and avoid reports that don't call for PBGC action. The proposed financial soundness tests rely entirely on existing measures that are already widely used within the business community.
The agency also addressed other concerns raised by company sponsors, such as plan waivers, maintaining the same level of events, and reducing the burden of tracking whether an event has occurred.
PBGC, in its proposal, has asked for comments and suggestions to provide for more effective targeting and to avoid unnecessary reporting. Breaking with past practice, the agency will hold a public hearing on the proposal on June 18. For more information, see the full proposal in the Federal Register, and view the Reportable Events frequently asked questions at PBGC.gov.
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