PBGC Issues Final Rule for Shutdown Benefits

May 12, 2014 (PLANSPONSOR.com) – The Pension Benefit Guaranty Corporation (PBGC) has issued a final rule about the phase-in of guaranteed “unpredictable contingent event benefits” (UCEBs).

The final rule keeps in place provisions of the proposed rule issued by the PBGC in March 2011 (see “PBGC Proposes Guidance on Limitations on Guaranteed Benefits”). The agency explains that UCEBs are benefits or benefit increases that become payable solely by reason of the occurrence of a UCE such as a plant shutdown. UCEBs typically provide a full pension, without any reduction for age, starting well before an unreduced pension would otherwise be payable.

The events most commonly giving rise to UCEBs are events relating to full or partial plant shutdowns or other reductions in force. UCEBs, which are frequently provided in pension plans in various industries such as the steel and automobile industries, are payable with respect to full or partial plant shutdowns as well as shutdowns of different kinds of facilities, such as administrative offices, warehouses, retail operations, etc. UCEBs are also payable, in some cases, with respect to layoffs and other work force reductions.

The final regulation incorporates the definition of UCEB under Section 206(g)(1)(C) of the Employee Retirement Income Security Act (ERISA) and Treas. Reg. § 1.436–1(j)(9). It also provides that the guarantee of a UCEB is phased in from the latest of the date the benefit provision is adopted, the date the benefit is effective, or the date the UCE that makes the benefit payable occurs.

The final rule includes eight examples that show how the UCEB phase-in rules apply in the following situations:

  • Shutdown that occurs later than the announced shutdown date,
  • Sequential permanent layoffs,
  • Skeleton shutdown crews,
  • Permanent layoff benefit for which the participant qualifies shortly before the sponsor enters bankruptcy,
  • Employer declaration during a layoff that return to work is unlikely,
  • Shutdown benefit with age requirement that can be met after the shutdown,
  • Retroactive UCEB, and
  • Removal of IRC Section 436 restriction.


Because shutdowns and similar situations are fact-specific, PBGC says it continues to believe a facts-and-circumstances approach is the best way to implement the statute. However, PBGC agrees with the one commenter to its proposed regulation that determinations made by a plan, arbitrator, or court regarding the date when participants became entitled to the UCEB may be relevant. Accordingly, in response to the comment, § 4022.27(d) of the final regulation specifically includes determinations and statements by such parties as factors that will be considered, to the extent relevant, in establishing the UCE date.

PBGC said it will not, however, treat any such determinations or statements as controlling. This change does not alter the principle that PBGC is ultimately responsible for determining participants’ guaranteed benefits.

Text of the final rule is here.