26 July 2017

Execs Eagerly Await PBGC Guidance on Liability

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PBGC guidance on how agency officials enforce pension liability rules cannot come soon enough for some pension plan sponsors and their advocates.

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 plans.

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 impact.

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 increased.

“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 guarantees.

“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.

Click here for the full article in Pensions & Investments.

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