PBGC guidance on how agency officials enforce pension
liability rules cannot come soon enough for some pension plan sponsors and
In a June 3 letter, several trade associations representing
corporate defined benefit plans asked the Pension Benefit Guaranty Corp.'s
board of directors to intervene and drastically curtail the PBGC's authority in
cases where companies experience major operational change.
PBGC officials are expected to release their guidance
sometime this summer.
At issue is Section 4062(e) of the Employee Retirement
Income Security Act. That section allows the agency to step in if 20% or more
of employees covered by a defined benefit plan will lose their jobs in the
event of an operational shutdown or other major event at a facility. In those
cases, the PBGC calculates pension liabilities that companies must either put
into their pension plans as if the plans were being terminated or provide
financial guarantees to cover.
Some members of Congress also are hearing plenty of
complaints, and have introduced legislation that would halt the Section 4062(e)
enforcement program, at least temporarily.
“The business community has expressed some very legitimate
concerns, and it is not clear to me that participants are seeing any real
benefit from the program,” said Sen. Tom Harkin, D-Iowa, chairman of the Senate
Health, Education, Labor and Pensions Committee, in an e-mail sent in response
to a request for comment. “I am concerned that PBGC's 4062(e) enforcement
program is doing more harm than good” by upsetting sponsors of defined benefit
Legislation Mr. Harkin introduced earlier this year to
create a universal retirement plan also calls for a two-year moratorium on
4062(e) enforcement while the Government Accountability Office studies its
Rep. Richard Neal, D-Mass., has introduced legislation that
would clarify retroactively for all open cases that only an actual facility
shutdown could trigger an event.
When PBGC officials first devised the liability formula in
2007, enforcement was aggressive. But under a pilot program launched in late
2012, the agency gives a pass to cases involving small plans or financially
sound corporate parents, which agency officials say removes 92% of plans from
scrutiny. To prove its good intentions, the agency last year suspended 4062(e)
negotiations with 17 companies where it initially sought $450 million in
financial guarantees, including Anheuser-Busch InBev North America, St. Louis; Whirlpool
Corp., Benton Harbor, Mich.; and Procter & Gamble Co., Cincinnati.
Agency officials also reviewed settlements reached between
2007 and 2010 that added up to $1.7 billion in pension funding demands, and
took plan sponsors off the hook for $1 billion of that, after criticism
“It is our job to look, but we are not applying it in the
majority of cases,” said PBGC Director Joshua Gotbaum in an interview last
week. “Since 2013, there have been thousands of transactions, but only 13 cases
where we demanded a settlement. In 52 cases, we decided there was no risk.” Of
those 13 settlements, 11 required sponsors to put a collective $160 million
into their plans, while the other two settlements asked for financial
“We have gotten smarter about how and when we use that
authority,” said Mr. Gotbaum, “but it is virtually the only tool that PBGC has
to protect workers' pensions before a plan is terminated.”
Mr. Gotbaum said he will continue to engage with company
executives, labor representatives and pension plan advocates and is hopeful the
new guidance the agency plans to publishthis summer will better explain how the
enforcement policy is implemented.
for the full article in Pensions & Investments.