The new proposal exempts most companies and plans from many reports, and targets requirements to the minority of companies and plans that are at substantial risk of default (see “PBGC Proposes Reduced Reporting Obligations”). “We hope comments [on the proposal] will help us with other ways to achieve our goal of encouraging [defined benefit] plan sponsorship by reducing red tape,” PBGC Director Josh Gotbaum said during a press call.
The agency is backing off its 2009 proposal to increase reporting requirements by eliminating most reporting waivers. The Employee Retirement Income Security Act (ERISA) has from its inception required reporting to the PBGC of a variety of corporate or plan actions that might threaten pension plans, which Gotbaum said was a sensible notion. He explained that the 2009 proposal was, in part, due to activity in the previous decade during which more large plans were getting into trouble. PBGC proposed a regulation to define when plan sponsors have to report and when they do not.Gotbaum said the retirement community hated the proposal, and the agency received many comments, including that it was requiring reporting when the risk to plans was not very large. In addition, not long after Gotbaum took on the role of PBGC Director, President Obama issued a directive to agencies to make regulations less burdensome and more effective.
“We found the criticisms of the plan sponsor community were legitimate,” Gotbaum stated. “We began to look more carefully at when there is really a risk to plans and the agency, and also looked at where else we could get information.”
Gotbaum said the PBGC found it can get information allowing it to do its job without asking for information from companies. For example, a service that the agency subscribes to alerts it to when a company files for bankruptcy. “If we had had such resources during the last five years or so, we could have eliminated about 90% of unnecessary reports,” Gotbaum noted.
The question then was how to figure out when there is really a risk to a pension plan. The agency did an analysis of plans and companies that have failed, and found DB plan funding levels is not a very good predictor of plan failure, Gotbaum explained. “When times are bad, lots of plans are underfunded, and the vast majority do not terminate because plan sponsors do not go bankrupt when times are bad,” he said. “The critical test is whether or not a sponsor is likely to go bankrupt and default on other obligations.”The agency found there are very well established measures of when a company is at risk, so it “didn’t have to make anything up,” according to Gotbaum. “The business community has been judging businesses’ financial soundness since Dunn & Bradstreet was established in 1871.” Gotbaum said, noting that any company that does not have a credit score can call D&B and get one for free.
Under the new proposed rule, if a plan sponsor organization meets a widely accepted set of standards for financial soundness, it does not have to file many reports with the agency. In addition, for sponsors of small plans, that do not have the same resources as larger plan sponsors and are small enough that the PBGC is unlikely to follow up anyway, the agency wanted to direct reporting requirements to circumstances for which it is going to follow up, so it is proposing exemptions to many reporting requirements for small plans.
“This proposal satisfies both provisions of president’s proposal—reducing the regulatory burden for companies and making reporting more efficient,” Gotbaum said.
The proposed rule is in the Federal Register today. Gotbaum pointed out the PBGC is holding its first-ever hearing for comments about the rule on June 18 to allow interaction between commenters and the agency.In another effort to reduce hassle for defined benefit plan sponsors, the PBGC recently implemented to changes to its shutdown enforcement policy (see “PBGC Change Reduces Pension Obligations for Some”).