Compliance November 2, 2012

PBGC Announces Shutdown Enforcement Changes

November 2, 2012 (PLANSPONSOR.com) – The Pension Benefit Guaranty Corporation (PBGC) is changing its enforcement approach with companies that have operations shut down.
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The 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) requires the company to provide financial security to protect the plan. The PBGC typically requires companies to make additional contributions or provide a financial guarantee.  

Until very recently, the PBGC enforced all 4062(e) cases without regard to the size of the plan or the financial health of the company sponsor.  The agency is implementing a pilot program under which, going forward, it will generally take no action to enforce section 4062(e) liability against creditworthy companies or small plans and target its 4062(e) enforcement efforts to companies where the risk remains substantial.   

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The decision to take no action will be based on the PBGC’s analysis of a company’s financial strength and the circumstances of the case. The agency may periodically request additional information from the company to confirm its continued qualification as creditworthy. If the company is no longer creditworthy during the five-year enforcement period, the PBGC will enforce the 4062(e) liability.

The agency said it realizes that enforcing 4062(e) on small businesses and small plans creates a burden, so under the new policy, it will not enforce against small plans with 100 participants or less.  

PBGC Director Joshua Gotbaum recently addressed agency changes regarding small businesses at the American Society of Pension Professionals & Actuaries (ASPPA) Annual Conference. He also urged more flexibility for retirement plans (see “Gotbaum Urges More Flexibility for Retirement Plans”).  

In a statement, the American Benefits Council expressed concern about the new pilot enforcement program, saying it aims to target enforcement requirements to plans that are at the most risk. “The final result will be a system that punishes the weakest companies, which will only reduce their ability to sustain the pension plan and recover their core business,” Council Senior Vice President of Policy Lynn Dudley said. “Since PBGC has committed to an open dialogue on this issue, we will continue urging them to withdraw this policy and the proposed regulations on which they are based, so we can start over with an enforcement system that works for plan sponsors, participants and the PBGC.”  

The new PBGC guidance, in FAQ format, is here.
Benefits November 2, 2012

The Impact of PPACA on Retirement Plans

November 2, 2012 (PLANSPONSOR.com) – Will the financial effects of health care reform cause employers to rethink spending on retirement plan benefits?
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This is a question Sheldon H. Smith, of Counsel to Bryan Cave, contemplates. Smith pointed out to attendees of the American Society of Pension Professionals & Actuaries (ASPPA) Annual Conference that health care is already the biggest benefit cost to employers.   

Smith cited a Willis Group study that found a majority (nearly 56%) of employers who have quantified the cost of compliance with the Patient Protection and Affordable Care Act (PPACA) said costs would increase. More than 15% noted that the cost increase was between 2% and 5%, and more than 15% said the cost increase was more than 5% (see “Reform Driving Up Costs for Employers”). “There’s only so much money to go around, so employers will start to prioritize and start to shift costs [for benefits],” Smith commented.  

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After reviewing some of the provisions of the PPACA, Smith noted that employers will not only incur costs for taxes and penalties under the law, but there will be more administrative costs for maintaining records and issuing disclosures.  

In response to already increasing health care costs, employers have been shifting more costs to employees, but the “minimum essential coverage” rules in the PPACA will limit employers’ ability to cost share with employees. Smith contended that the financial impact of health care reform could be severe enough to cause employers to look to reduction of contributions to, or elimination of, retirement plans.

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