ASPPA Submits Suggestions on PBGC Business Cessation Proposal

October 13, 2010 (PLANSPONSOR.com) – The ASPPA College of Pension Actuaries (ACOPA) has asked the Pension Benefit Guaranty Corporation (PBGC) to exempt well-funded plans and plans with 20 or fewer workers from a law governing pension liabilities resulting from certain business closures.

ASPPA’s comments came in a letter to the private-sector pension insurer in response to the PBGC’s request for comment on its proposal on “substantial cessation of operations” under Section 4062(e) of the Employee Retirement Income Security Act (ERISA).

ASPPA’s suggestions included:

  • Small Plan Exception: Events affecting no more than 20 employees pose little or no risk to PBGC, and should be exempt from the reporting requirements. 
  • Well-funded Plan Exception: Well-funded plans pose little or no risk to PBGC, and should be exempt from the reporting requirements. 
  • “Cessation” Issues: The seven-day and 30-day time frames should operate as safe harbors. Furthermore, moving operations to a new location, seasonal changes in employment, and other cessation and resumption of employment in the ordinary course of business should be exempt under the final rule. 
  •  Active Participant Definition:  The definition of “active participant” should include employees who are in the plan’s eligibility group and who will be eligible to accrue benefits once they have completed the plan’s entry date requirements.
  • “Operation” and “Facility” Issues: The final regulation should provide clarification on how the 20% reduction is measured for businesses performing multiple operations at multiple locations.
  • Sale of Business: The sale of all or part of a business in which employment and operations continue seamlessly with the new employer should not be a section 4062(e) event.

ERISA section 4062(e) provides that “[i]f an employer ceases operations at a facility in any location and, as a result of such cessation of operations, more than 20 percent of the total number of his employees who are participants under a plan established and maintained by him are separated from employment, the employer shall be treated with respect to that plan as if he were a substantial employer under a plan under which more than one employer makes contributions and the provisions of [ERISA sections] 4063, 4064, and 4065 shall apply.”

The PBGC’s proposal includes guidance on the kinds of events section 4062(e) applies to, while the enforcement provisions describe PBGC’s section 4062(e) investigatory program, provide rules for notifying PBGC of section 4062(e) events, explain how section 4062(e) liability is calculated and how it is to be satisfied, and require the preservation of records about events that may be section 4062(e) events. 

The ASPPA letter is at http://www.asppa.org/document-vault/pdfs/ACOPA/2010-comments/comm1013.aspx.

The proposed PBGC rule is at http://www.pbgc.gov/docs/2010-19627.htm. 

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