Industry Groups Urge PBGC to Rethink Shutdown Enforcement

In a letter to PBGC board members, the groups contend enforcement actions with respect to Employee Retirement Income Security Act (ERISA) Section 4062(e) is not consistent with the law, and that is adversely affecting critical business transactions needed for companies to recover. “The enforcement is costing businesses hundreds of millions of dollars, diverting assets from business investments and jobs. Even worse in some cases, the PBGC’s actions are preventing important business transactions from occurring at all, stopping companies from selling unneeded or unprofitable facilities and from achieving efficiencies by consolidating operations.

“The business transactions being stopped by the PBGC pose no meaningful risk to the PBGC and are essential to a functioning business world where such transactions can facilitate our economic recovery. In fact, by facilitating economic recovery, these transactions not only help the country generally, but also protect PBGC from incurring new liabilities, which can occur when a company fails,” the groups wrote in their letter.

The letter notes that in the summer of 2010, the PBGC issued proposed regulations under section 4062(e) under which pension liability can be triggered where just one of multiple operations of an employer is shut down with the facility remaining open and operational—or even where no operations are shut down, but rather operations are, for example, (1) transferred to another employer, (2) moved to another location, or (3) temporarily suspended for a few weeks to repair or improve a facility. The groups say the proposed regulations are not only inconsistent with the statute—which they say was clearly intended to apply to situations where all operations at a facility are shut down, but are also inconsistent with published PBGC guidance and many years of historical enforcement practices. In addition, they say under the PBGC’s current approach, the liability for employers can be vastly out of proportion with the transactions that give rise to the liability. For example, in many cases, a de minimis routine business transaction affecting far less than 1% of an employer’s employees can trigger hundreds of millions of dollars of liability, even in situations where a plan poses no meaningful risk to the PBGC.

The groups also argue PBGC’s decision to exempt “creditworthy” companies and small plans from its otherwise applicable enforcement position (see “PBGC Announces Shutdown Enforcement Changes”) does not adequately address companies’ concerns, regardless of whether they may be currently creditworthy. “For example, no company, even a company that is strong today, wants to face a future where if the company confronts financial challenges, it may suddenly have a large PBGC liability for a previous business transaction, or be severely limited in its ability to engage in helpful future business transactions. And ironically, for companies that fail to satisfy PBGC’s creditworthiness test, the application of section 4062(e) and the resulting new liabilities can severely harm the company’s recovery,” the groups wrote.

The letter was signed by the American Benefits Council, the American Society of Pension Professionals & Actuaries (ASPPA) College of Pension Actuaries, the Committee on Benefits Finance, Financial Executives International, and the Committee on Investment of Employee Benefit Assets (CIEBA). It may be downloaded from here.