PBGC final rule eases DC rollovers into pension plans

With its sights set on maintaining lifetime retirement income for the American workforce, a new final rule from the Pension Benefit Guaranty Corporation hopes to limit any obstacles participants face when rolling over their 401(k) money into traditional pension plans.

The final rule, set for publication in the Federal Register on Nov. 25, will “encourage people to get lifetime income by removing potential barriers” when they transition from a defined contribution plan into a defined benefit plan, according to a statement from the PBGC.

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“I think what they are trying to do is take away any hurdle in any of the regulatory schemes that would stop people from rolling or moving any of their voluntary money over from a DC plan into a DB plan in order to get that lifetime income benefit,” says Kathryn Ricard, senior vice president for retirement policy at ERISA Industry Committee.

Under the final rule, benefits accrued from a rollover would not be affected by PBGC's maximum guarantee limits. For instance, for plans that terminate in 2015, the maximum guaranteed benefit for a 65-year-old retiree will be just over $60,000 a year. Additionally, the PBGC states that rollover amounts will remain “untouched” by the pension agency’s five-year phase-in limits.

Meanwhile, David Certner, AARP’s legislative policy counsel, strongly believes that “retirees need meaningful access to lifetime income streams,” especially if their employer defaults on its pension obligations.

“Especially in today's world, where most benefits are paid in a lump sum amount, and the burden is on the retiree to wisely manage the funds, the PBGC's new rule can help retirees achieve a greater measure of retirement income security,” says Certner.

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The PBGC, the Internal Revenue Service and Treasury and Labor Departments, “definitely have a viewpoint of concern of the decline of traditional pension plans, and obviously they are watching the rise of the 401(k), DC plans,” explains Ricard.

“To me, the theme is this kind of clinging to, and a real need from the administration’s standpoint, for a vehicle to give people lifetime income,” says Ricard.

While past PBGC rules, including an increase in premiums to the tune of $25 billion over the next decade for companies that offer DB pension plans, have been contested by plan sponsors and plan administrators, she says this new guidance “is much more a participant driven rule.” It’s also a way for the retirement agency to remain relevant going forward.

“If you are going to be the recipient and take rollover money and not just IRAs [individual retirement accounts], that we as an organization [the PBGC] can do that too. That’s going to obviously extend their life,” says Ricard.