Compliance October 2, 2017

PBGC Makes Proposals About Plan Terminations

The agency is proposing that termination forms may be filed electronically and that plan sponsors be offered a pre-filing consultation.

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The Pension Benefit Guaranty Corporation (PBGC) intends to request that the Office of Management and Budget (OMB) extend approval, under the Paperwork Reduction Act of 1995, of a collection of information program operating under its regulations on Termination of Single-Employer Plans and Missing Participants. 

The request also involves implementation forms and instructions. The agency notes that under section 4041 of the Employee Retirement Income Security Act (ERISA), as amended, a single-employer pension plan may terminate voluntarily only if it satisfies the requirements for either a standard or a distress termination. Under the PBGC’s termination regulation, a plan administrator wishing to terminate a plan is required to submit specified information to the PBGC in support of the proposed termination and to provide specified information regarding the proposed termination to third parties (participants, beneficiaries, alternate payees, and employee organizations).

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In the case of a plan with participants or beneficiaries who cannot be located when their benefits are to be distributed, the plan administrator is subject to the requirements of ERISA section 4050 and the PBGC’s regulation on missing participants. 

The collection of information under these regulations and the forms and instructions have been approved by the OMB until November 30, 2017. The PBGC is requesting that the OMB extend its approval for three years, with modifications.

The agency is proposing to provide that the plan administrator of a plan terminating in a standard or distress termination that closes out in the private sector, may submit termination forms electronically (scanned and emailed or faxed), rather than by mail or personal delivery only.

In addition, the PBGC is proposing to include an opportunity for plan sponsors to contact the agency for a pre-filing consultation to discuss the filing process and ensure the filing of a distress termination is appropriate given the sponsor’s specific circumstances.

The agency says this consultation will assist it and the plan sponsor in exploring whether a waiver of one or more filing obligations is appropriate, identifying potential issues preventing a distress termination of a particular plan, and may indicate that commencement of an agency-initiated termination of the pension plan is warranted. This consultation will be voluntary and will result in little or no added burden on the plan sponsor.

PBGC is soliciting public comments about its proposals. It’s notice is here.

Administration October 2, 2017

International Paper Offloads $1.3B in Pension Liabilities

Prudential will formally assume responsibility for pension benefits for approximately 45,000 former employees or their beneficiaries receiving less than $450 in monthly benefit payments from the plan.

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In a transaction designed to reduce its own risk related to long-term pension obligation, International Paper has transferred $1.3 billion in pension benefit liabilities to the Prudential Insurance Company of America.

According to both parties, the transaction will be funded directly with pension plan assets, and at the end of 2017, Prudential will formally assume responsibility for pension benefits and annuity administration for approximately 45,000 former employees or their beneficiaries receiving less than $450 in monthly benefit payments from the plan. The transaction is expected to close on October 3, 2017, subject to customary closing conditions.

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As the firms lay out, there will be “no change to the pension benefits for any plan participants as a result of the transaction.” In addition, retirees and beneficiaries who will be covered by this transaction will be receiving “individualized information packages” with further details and answers to frequently asked questions.

News of the sizable deal comes at a time that the attractiveness of risk transfers still seems to be increasing. In fact, recent research about the topic indicates that lowering the corporate tax rate in 2017 or 2018 would “very likely” motivate pension sponsoring companies to increase pension plan funding—often a precursor to purchasing a group annuity, according to Prudential—while fully 40% agreed that lower taxes would lead them to execute a full or partial pension liability transfer. In another important trend that has taken shape in recent years, the pace of annual pension risk transfer deals seems to have become less seasonal.

“First and foremost we are committed to ensuring our retirees’ benefits are secure and maintained,” observes Glenn Landau, senior vice president and chief financial officer. “This transaction achieves that goal, while at the same time enabling International Paper to better manage future costs associated with our pension plan.”

As a result of the transaction, the company expects to recognize a non-cash pension settlement charge of approximately $400 million before tax ($247 million after tax) in the fourth quarter of 2017.

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