Employee Retirement Income Security Act (ERISA) Section 4062(e) requires companies with pension plans to report to the PBGC when they stop operations at a facility and employees lose their jobs. In such a case, 4062(e) calls for the company to provide financial security to protect the plan. The PBGC typically requires companies to make additional contributions or provide a financial guarantee.
The agency said the moratorium will enable PBGC to ensure that its efforts target cases where pensions are genuinely at risk.
In November 2012, the agency implemented a pilot program under which it generally took no action to enforce Section 4062(e) liability against creditworthy companies or small plans and targeted its 4062(e) enforcement efforts at companies where the risk remained substantial. However, industry groups expressed concern that the pilot program affected business transactions that weaker companies needed, to recover (see “Industry Groups Urge PBGC to Rethink Shutdown Enforcement”).
PBGC said it will use the moratorium to consider further targeting and to work with plan sponsors to minimize effects on necessary business activities.
“PBGC’s mission is to preserve pensions and jobs,” says PBGC Director Josh Gotbaum. “We have targeted our enforcement efforts to be mindful of both. This latest action will give PBGC time to be more thoughtful and more effective.”
During the moratorium, from this July 8 through December 31, the PBGC will cease enforcement efforts on open and new cases. Companies should continue to report new 4062(e) events, but PBGC will take no action on those events during the moratorium.
In a statement, the American Benefits Council said it has expressed serious concern that, for many years—even after the agency’s 2012 announcement—the PBGC has regularly used its power to require employers to substantially overfund plans or make other large financial commitments in situations outside the scope of Section 4062(e). “PBGC’s enforcement has disrupted normal business activities. That is not what Congress intended; so we commend PBGC for this helpful action today,” Council President James A. Klein said.
Kathryn Ricard, ERISA Industry Committee (ERIC) senior vice president for retirement policy, said, “In our previous comment letter, we urged the agency to proceed with a more rational approach—one that would balance the real risk to the PBGC against unnecessary and additional regulations to all companies regulated by the PBGC.
“We look forward to working with the agency to create workable rules that enable the PBGC to protect itself against the cost of terminating underfunded plans without imposing unnecessary burdens on employers.”