The agency says it hopes to encourage people to get lifetime income by removing potential barriers to moving their benefits from DC plans to DB plans. The final rule, slated for publication in the Federal Register November 25, removes the fear that the amounts rolled over would suffer under guarantee limits should PBGC step in and pay benefits.
The Pension Benefit Guaranty Corporation (PBGC) issued a proposed rule in April. At the time, Lonie Hassel, principal at Groom Law Group in Washington, D.C., told PLANSPONSOR, “The rollover rules would only be relevant if the DB plan that DC assets were rolled into was later terminated, did not have enough assets to pay benefits, and was turned over to the PBGC.”
The proposed rules provide protections for the rollover amounts derived from employee contributions from PBGC maximum benefit limitation rules. First, explained Hassel, when a plan terminates, the PBGC has a maximum benefit above which it will not pay. For plans terminating in 2014, that’s about $59,000 per year for a single-life annuity for a participant at age 65. The rollover benefit derived from employee contributions is not subject to that maximum, she said.
In addition, there is a five-year phase-in rule that says generally, if DB benefits have been increased in the five years before termination, the increase will be phased in over five years after termination. That does not apply to the rollover benefit derived from employee contributions, said Hassel.
Text of the final rule is here.
« Illinois Pension Reform Found Unconstitutional