Senate Committee Advances ERISA Amendments Impacting PBGC

July 24, 2014 (PLANSPONSOR.com) – The Senate’s Health, Education, Labor and Pensions (HELP) Committee advanced a bill seeking to better define rules for protecting pension assets when companies downsize or close.

Congress may be deadlocked on any number of issues, but the HELP Committee was able to reach strong bipartisan consensus on seven bills in recent weeks—sending the would-be laws to Senate leadership for potential deliberation before by the full upper house. One of the pieces of legislation, known as S. 2511, would amend the Employee Retirement Income Security Act (ERISA)—specifically the sections pertaining to “pension downsizing liability rules.”

The goal of S. 2511, according to Senator Tom Harkin, D-Iowa, chairman of the HELP Committee, is to “ensure that there is a workable mechanism to protect pension benefits when employers show symptoms of financial distress.” The text of the bill is quite short by the way of employment and benefits law, stretching only onto three pages.  

In short, the bill would make technical amendments to Subsection (e) of Section 4062 of ERISA by inserting language to further define what constitutes a “substantial cessation of operations.” The bill would also clarify when the relevant regulatory bodies, namely the Pension Benefit Guaranty Corp. (PBGC), should step in to assist stressed pension funds. Committee members say the steps are necessary to prevent unnecessary intervention by the PBGC while also ensuring protections for participants will be available when truly needed.

Should the amendments be approved by Congress, an employer shall not be treated as having a cessation as described in Section 4062 unless “(A)(i) all operations at a facility in a location are ceased, and such cessation is reasonably expected to be permanent; (ii) no portion of such operations is moved to another facility at a different location; (iii) no portion of such operations is assumed by or otherwise transferred to another employer; and (iv) no other operations are reasonably expected to be maintained at such facility; and (B) as a result of the cessation … more than 20 percent of the employees of the employer have a termination of employment that is reasonably expected to be permanent.”

The bill also includes direction that the PBGC “shall not take any enforcement, administrative, or other action pursuant to Section 4062(e) of the Employee Retirement Income Security Act of 1974 that is inconsistent with Subparagraph (A) of Section 4062(e)(2) of such act, as added by Subsection (a), without regard to whether the action relates to a cessation or other event that occurs before or after the date of enactment of this act, unless such action is in connection with a settlement agreement in place before June 1, 2014.”

While the language itself does not necessarily sound like a big win for pension plan participants, committee members say further defining what a cessation is, and when the PBGC should step in, will bring more certainty and efficiency to the difficult process of managing pension funds at closing and struggling employers. Further, committee members say the PBGC has on occasion been forced to take action related to pension funds at employers that met the technical definition of cessation without actually being in a position of hardship.

In a statement issued shortly after S.2511’s approval by the HELP Committee, the American Benefits Council (ABC) applauded the move. James Klein, ABC president, said the bill includes a number of “common-sense measures to clarify the language of the longstanding statutory provisions.”

“This measure returns enforcement of the law to its original purpose,” he said. “In recent years, the PBGC’s enforcement policy has given rise to significant compliance challenges and large unexpected liabilities for many companies that have engaged in normal business transactions, such as the sale of a very small business unit or the consolidation of small operations at different facilities, where there is no actual cessation of operation. … We look forward to working with lawmakers who support retirement security as this measure is considered by the full Senate and, hopefully, its ultimate enactment.”

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