[Federal Register Volume 74, Number 144 (Wednesday, July 29, 2009)]
[Proposed Rules]
[Pages 37666-37669]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-18074]
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PENSION BENEFIT GUARANTY CORPORATION
29 CFR Parts 4001, 4022
RIN 1212-AB19
USERRA Benefits Under Title IV of ERISA
AGENCY: Pension Benefit Guaranty Corporation.
ACTION: Proposed rule.
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SUMMARY: The Uniformed Services Employment and Reemployment Rights Act
of 1994 (``USERRA'') provides that an individual who leaves his or her
job to serve in the uniformed services is generally entitled to
reemployment by his or her previous employer and, upon reemployment, to
receive credit for benefits, including employee pension plan benefits,
that would have accrued but for the employee's absence due to the
military service. This proposed rule would amend PBGC's regulation on
Benefits Payable in Terminated Single-Employer Plans (29 CFR part 4022)
to address a narrow but important issue regarding PBGC's guarantee of
benefits for participants who are serving in the uniformed services at
the time that their pension plan terminates. Under PBGC's existing
regulations, a benefit is guaranteed only if the participant satisfies
the conditions for entitlement to the benefit on or before the plan's
termination date. PBGC proposes to provide an exception to this rule in
the unique circumstances of persons serving in the uniformed services
as of the plan's termination date, consistent with USERRA's statutory
mandate to treat such persons, upon reemployment, as if they had never
left the employ of their former employer. This proposed rule would
provide that so long as a service member is reemployed within the time
limits set by USERRA, even if the reemployment occurs after the plan's
termination date, PBGC would treat the participant as having satisfied
the reemployment condition as of the termination date. This would
ensure that the pension benefits of reemployed service members, like
those of other employees, would generally be guaranteed for periods up
to the plan's termination date.
DATES: Comments must be received on or before September 28, 2009
ADDRESSES: Comments, identified by RIN 1212-AB19 may be submitted by
any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov. Follow the
Web site instructions for submitting comments.
E-mail: [email protected].
Fax: 202-326-4224.
Mail or Hand Delivery: Legislative and Regulatory
Department, Pension Benefit Guaranty Corporation, 1200 K Street, NW.,
Washington, DC 20005-4026.
All submissions must include the Regulatory Information Number for this
rulemaking (RIN 1212-AB19). Comments received, including personal
information provided, will be posted to http://www.pbgc.gov.
Copies of comments may also be obtained by writing to Disclosure
Division, Office of the General Counsel, Pension Benefit Guaranty
Corp., 1200 K Street, NW, Washington, DC 20005-4026 or calling 202-326-
4040 during normal business hours. (TTY and TDD users may call the
Federal relay service toll-free at 1-800-877-8339 and ask to be
connected to 202-326-4040.)
FOR FURTHER INFORMATION CONTACT: John H. Hanley, Director, or Constance
Markakis, Attorney, Legislative and Regulatory Department, Pension
Benefit Guaranty Corporation, Suite 12300, 1200 K Street, NW.,
Washington, DC 20005-4026, 202-326-4024. (TTY and TTD users may call
the Federal relay service toll-free at 1-800-877-8339 and ask to be
connected to 202-326-4024.)
SUPPLEMENTARY INFORMATION:
[[Page 37667]]
Background
Pension Benefit Guaranty Corporation (``PBGC'') administers the
single-employer pension plan termination insurance program under Title
IV of the Employee Retirement Income Security Act of 1974 (``ERISA'').
When a covered plan terminates in either a distress termination under
section 4041(c) of ERISA, or an involuntary termination (one initiated
by PBGC) under section 4042 of ERISA, PBGC typically becomes statutory
trustee of the plan with responsibility for paying benefits in
accordance with the provisions of Title IV.
The amount of benefits paid by PBGC under a terminated, trusteed
plan is generally determined as of the plan's termination date.\1\
Under section 4022(a) of ERISA, PBGC guarantees the payment of
nonforfeitable benefits under the plan, subject to the limitations of
section 4022(b), as of the date the plan terminates. Under Sec. 4022.3
of PBGC's regulation on Benefits Payable in Terminated Single-Employer
Plans, PBGC guarantees the amount, as of the termination date, of a
benefit provided under the plan (subject to certain limitations) if
``the benefit is, on the termination date, a nonforfeitable benefit.''
To be guaranteed, the benefit must also qualify as a pension benefit as
defined in Sec. 4022.2, and the participant must be entitled to the
benefit under Sec. 4022.4. The amount of any additional nonguaranteed
benefits payable from the plan's assets under section 4044 or PBGC's
recoveries under section 4022(c) of ERISA is also determined as of the
termination date.
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\1\ Section 404 of the Pension Protection Act of 2006 (``PPA
2006''), Public Law 109-280, added sections 4022(g) and 4044(e) of
ERISA, which provide that, when an underfunded plan terminates
during the bankruptcy of the plan sponsor, the date the sponsor's
bankruptcy petition was filed is treated as the termination date of
the plan for purposes of determining the amount of benefits PBGC
guarantees and the amount of benefits in priority category 3 in the
section 4044 asset allocation. These changes apply to plan
terminations that occur during the bankruptcy of the plan sponsor if
the bankruptcy filing date is on or after September 16, 2006. See
PBGC proposed rule on Bankruptcy Filing Date Treated as Plan
Termination Date for Certain Purposes, 73 FR 37390 (Jul. 1, 2008).
For convenience, this preamble generally will refer to the plan's
termination date, although in many cases this reference will instead
apply to the bankruptcy filing date.
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Section 4001(a)(8) of ERISA and Sec. 4001.2 define a
``nonforfeitable benefit'' with respect to a plan as:
a benefit for which a participant has satisfied the conditions for
entitlement under the plan or the requirements of this Act (other
than the submission of a formal application, retirement, completion
of a required waiting period, or death in the case of a benefit
which returns all or a portion of a participant's accumulated
mandatory employee contributions upon the participant's death),
whether or not the benefit may subsequently be reduced or suspended
by a plan amendment, an occurrence of any condition, or operation of
this Act or the Internal Revenue Code of 1986.
Guaranteed benefits under Title IV of ERISA are benefits with respect
to which a participant has satisfied the conditions for entitlement
under the plan as of the termination date. Therefore, plan benefits
such as an early retirement subsidy or disability retirement benefit
with respect to which a participant has not satisfied the conditions
for entitlement (e.g., a years-of-service requirement or the onset of
disability) as of the termination date are not guaranteed.\2\
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\2\ ERISA section 4022(e) provides that a qualified
preretirement survivor annuity under a single-employer plan is not
treated as forfeitable solely because the participant has not died
as of the termination date.
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This proposed rule addresses the interaction of Title IV's
requirement that benefits be nonforfeitable on the termination date in
order to be guaranteed with the rights of reemployed service members in
their employee pension benefit plans under the Uniformed Services
Employment and Reemployment Rights Act of 1994 (``USERRA''), Public Law
103-353 (October 13, 1994).
Congress enacted USERRA to protect certain rights and benefits of
employees who voluntarily or involuntarily leave civilian employment to
serve in the uniformed services.\3\ Under USERRA, returning service
members are generally entitled to reemployment in their pre-service
positions, with the status, pay, and benefits to which they would have
been entitled had they not served in the uniformed services. The stated
purposes of USERRA are--
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\3\ Terms used in this proposed rule, such as ``service in the
uniformed services,'' are intended to have the meaning provided
under USERRA and the Department of Labor regulations implementing
USERRA. For convenience, this preamble sometimes uses the term
``military service'' as shorthand for ``service in the uniformed
services.''
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To encourage noncareer service in the uniformed services
by eliminating or minimizing the disadvantages to civilian careers and
employment which can result from such service,
To minimize the disruption to the lives of persons
performing service in the uniformed services as well as to their
employers, their fellow employees, and their communities, by providing
for the prompt reemployment of such persons upon their completion of
such service under honorable conditions, and
To prohibit discrimination against persons because of
their service in the uniformed services.
38 U.S.C. 4301. The provisions of USERRA are generally effective with
respect to reemployments initiated on or after December 12, 1994.
The Department of Labor (``DOL'') issued a final rule on USERRA, 70
FR 75246 (Dec. 19, 2005). The preamble to that rule states that, in
construing USERRA and its implementing regulations, DOL intends to
``apply with full force and effect'' the interpretive maxim of the
Supreme Court in Fishgold v. Sullivan Drydock and Repair Corp., 328
U.S. 275, 285 (1946), that legislation on reemployment rights for
service members ``is to be liberally construed for the benefit of those
who left private life to serve their country in its hour of great need.
* * *'' 70 FR 75246.
DOL's final regulation on USERRA, codified at 20 CFR part 1002,
covers various types of military training and service. Section 1002.6
provides:
USERRA's definition of ``service in the uniformed services''
covers all categories of military training and service, including
duty performed on a voluntary or involuntary basis, in time of peace
or war. Although most often understood as applying to National Guard
and reserve military personnel, USERRA also applies to persons
serving in the active components of the Armed Forces. Certain types
of service specified in 42 U.S.C. 300hh-11 by members of the
National Disaster Medical System are covered by USERRA.
USERRA establishes specific rights for reemployed service members
in their employee pension benefit plans. Each period of service
performed by an individual in the uniformed services is deemed, upon
reemployment, to constitute service with the employer(s) maintaining
the plan for purposes of determining participation, vesting, and
accrual of benefits under the plan. 38 U.S.C. 4318(a)(2)(A) and (B); 20
CFR 1002.259. As explained in the preamble to DOL's final rule
implementing USERRA, the reemployed service member is treated for
pension purposes under the plan as though he or she had remained
continuously employed. 70 FR at 75280.\4\
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\4\ Consistent with this principle of treating a reemployed
service member as if his or her employment had not been interrupted
by military service, DOL's final rule requires that any preparation
time before entering military service or recuperation time (or
period of hospitalization or convalescence) after completing service
before reporting back to work, to the extent permitted by USERRA, be
treated as continuous service with the employer upon reemployment
for purposes of determining the employee's pension entitlement. 20
CFR 1002.259; see 70 FR at 75276.
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[[Page 37668]]
Entitlement to pension credit arises only where the returning
service member is reemployed by his or her pre-service employer.\5\
There is no entitlement to pension credit in cases in which an employee
permanently and lawfully loses reemployment rights--for example, where
an employee dies during the period of military service (however, see
recent changes to the Internal Revenue Code),\6\ where an employer is
excused from its reemployment obligations based on a statutory defense,
or where an employee elects not to seek reemployment within the
specified time frame.\7\ 38 U.S.C. 4312(d)(1); see 70 FR at 75280. Plan
termination, however, is not identified as a circumstance that results
in a permanent and lawful loss of reemployment rights for purposes of
computing an employee's pension entitlement.
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\5\ A service member who meets five eligibility criteria is
entitled to be reemployed: the employee is absent from employment by
reason of service in the uniformed services; the employee gives
advance notice of the service; the employee has five years or less
of cumulative service in the uniformed services with respect to the
employment relationship with the employer; the service member makes
a timely return to, or application for reinstatement in, his or her
employment after completing service; and the employee receives an
honorable discharge from service. 38 U.S.C. 4312(a)-(c). There are
three statutory defenses that an employer may assert against a claim
for USERRA benefits; the employer bears the burden of proving these
defenses. 38 U.S.C. 4312(d).
\6\ The Heroes Earnings Assistance and Relief Tax Act of 2008
(``HEART'') amended the Internal Revenue Code with respect to the
provision of certain benefits under an employee pension benefit plan
for participants who die or become disabled while performing
qualified military service. 26 U.S.C. 401(a)(37); 26 U.S.C.
414(u)(9). PBGC may provide additional guidance in the future
regarding HEART provisions under Title IV.
\7\ USERRA contains a broad prohibition against waivers of
statutory rights. The preamble provides that an employee cannot
waive USERRA's right to reemployment until that right has matured,
i.e., until the period of service is completed. 70 FR at 75257.
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In the case of a standard termination, under ERISA section
4041(b)(1)(D) and Sec. 4041.28(a) of PBGC's regulation on Termination
of Single-Employer Plans, plan assets must satisfy all plan benefits
through priority category 6 under section 4044 of ERISA. Priority
category 6 includes benefits that, as of the termination date, are
conditioned on a future event. Accordingly, even without the proposed
rule, a plan terminating in a standard termination must provide
benefits relating to periods of military service through the
termination date for participants who become reemployed in accordance
with USERRA provisions, even if such reemployment occurs after the
plan's termination date.\8\
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\8\ Under the proposed rule, as explained below, such benefits
would be in priority category 4 (covering guaranteed benefits) if
the reemployment occurs after the plan's termination date and if all
other conditions are met. These benefits thus would continue to be
part of benefit liabilities that would have to be provided in a
standard termination.
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Section 4312(f) of USERRA describes the information that a service
member must submit to an employer in order to establish that the
individual meets the statutory requirement for reemployment, including
information establishing that the individual's application for
reemployment is timely; that he or she has not exceeded the five-year
military service limitation; and that the type of separation from
military service does not disqualify the individual from reemployment.
Proposed Regulatory Changes
Under USERRA, an individual who is reemployed following military
service is entitled to the pension benefits that he or she would have
earned if he or she had remained continuously employed. As noted above,
Title IV of ERISA provides that, for a benefit to be nonforfeitable,
the conditions for entitlement to the benefit must be satisfied on or
before the plan's termination date. In order to harmonize the
significant federal mandate to protect service members' rights and
benefits under USERRA with Title IV's rules on nonforfeitable benefits,
PBGC is proposing to amend its regulation on Benefits Payable in
Terminated Single-Employer Plans. This amendment would provide that a
participant would be deemed to have satisfied the reemployment
condition for entitlement to the benefit as of the plan's termination
date, for purposes of PBGC's guarantee, if PBGC determines, based on a
demonstration by the participant or otherwise, that he or she became
reemployed and entitled to the restoration of the pension benefit
pursuant to USERRA, even if the reemployment occurred after the plan's
termination date. Thus, for example, if a participant had 14 years of
pension service at the time he or she entered military service, and had
spent one year in the military as of the plan's termination date, the
participant would be considered to have 15 years of service, for
guarantee purposes, so long as he or she returns to his or her former
employment within the bounds set by USERRA.
When a plan termination occurs during the bankruptcy of the plan
sponsor, PBGC treats the bankruptcy filing date as the plan's
termination date for certain purposes (see note 1). Proposed new Sec.
4022.11 includes a provision that applies this concept to USERRA
benefits. For example, if a participant is performing military service
as of the bankruptcy filing date, any benefit relating to the period of
military service that is accrued and vested through the bankruptcy
filing date would be considered nonforfeitable if the participant
becomes reemployed pursuant to USERRA after the bankruptcy filing date.
PBGC will provide guidance on how individuals can establish, for
purposes of their Title IV benefit, their entitlement to benefits under
USERRA. Persons with questions about these benefits should contact
PBGC's Benefits Administration and Payment Department.
PBGC emphasizes that the changes that would be made by this
amendment to PBGC's regulations are very narrow, applying only to the
unique circumstances presented by federal statutes affording special
protection to the men and women serving the nation in the uniformed
services. Except as would be provided in this amendment, a benefit will
be treated as nonforfeitable only if all conditions for entitlement to
the benefit have been satisfied on or before the termination date. This
includes benefits such as disability benefits, subsidized early
retirement benefits (e.g., ``30 and out'' benefits), and benefits that
may be similar in certain respects to the benefits covered by this
amendment, such as a benefit conditioned on an employee's being
reemployed after a period of layoff.
Applicability
The amendments made by this proposed rule would apply to
reemployments under USERRA initiated on or after December 12, 1994.
Compliance With Rulemaking Guidelines
PBGC has determined, in consultation with the Office of Management
and Budget, that this proposed rule is not a ``significant regulatory
action'' under Executive Order 12866.
Regulatory Flexibility Act
PBGC certifies under section 605(b) of the Regulatory Flexibility
Act (5 U.S.C. 601 et seq.) that the amendments in this proposed rule
would not have a significant economic impact on a substantial number of
small entities. The amendments harmonize the requirements of USERRA
with the nonforfeitable benefits requirements of Title IV of ERISA.
Virtually all of the amendments affect only PBGC and persons who
receive benefits from PBGC. Accordingly, as provided in
[[Page 37669]]
section 605 of the Regulatory Flexibility Act, sections 603 and 604 do
not apply.
List of Subjects
29 CFR Part 4001
Pensions.
29 CFR Part 4022
Pension insurance, Pensions.
For the reasons given above, PBGC proposes to amend 29 CFR parts
4001 and 4022 as follows.
PART 4001--TERMINOLOGY
1. The authority citation for part 4001 continues to read as
follows:
Authority: 29 U.S.C. 1301, 1302(b)(3).
2. In Sec. 4001.2, add a new definition in alphabetical order to
read as follows:
Sec. 4001.2 Definitions
* * * * *
PPA 2006 bankruptcy termination means a plan termination to which
section 404 of the Pension Protection Act of 2006 applies. Section 404
of the Pension Protection Act of 2006 applies to any plan termination
in which the termination date occurs while bankruptcy proceedings are
pending with respect to the contributing sponsor of the plan, if the
bankruptcy proceedings were initiated on or after September 16, 2006.
Bankruptcy proceedings are pending, for this purpose, if a contributing
sponsor has filed or has had filed against it a petition seeking
liquidation or reorganization in a case under title 11, United States
Code, or under any similar Federal law or law of a State or political
subdivision, and the case has not been dismissed as of the termination
date of the plan.
* * * * *
PART 4022--BENEFITS PAYABLE IN TERMINATED SINGLE-EMPLOYER PLANS
3. The authority citation for part 4022 continues to read as
follows:
Authority: 29 U.S.C. 1302, 1322, 1322b, 1341(c)(3)(D), and
1344.
4. In Sec. 4022.2, amend the first paragraph by removing the words
``plan year, proposed termination date, substantial owner'' and adding
in their place ``plan year, PPA 2006 bankruptcy termination, proposed
termination date, statutory hybrid plan, substantial owner.''
5. Add new Sec. 4022.11 to subpart A to read as follows:
Sec. 4022.11 Guarantee of benefits relating to uniformed service.
This section applies to a benefit of a participant who becomes
reemployed after service in the uniformed services that is covered by
the Uniformed Services Employment and Reemployment Rights Act of 1994
(USERRA).
(a) A benefit described in paragraph (b) of this section that would
satisfy the requirements of Sec. 4022.3(a) and (c) (together with any
benefit earned for the period preceding military service) except for
the fact that the participant was not reemployed on or before the
termination date will be deemed to satisfy those requirements if PBGC
determines, based upon a demonstration by the participant or otherwise,
that he or she became reemployed after the termination date and
entitled to the benefit under USERRA.
(b) A benefit described in this paragraph (b) is a benefit
attributable to a period of service commencing before the termination
date and ending on the termination date during which the participant
was serving in the uniformed services as defined in 38 U.S.C. 4303(13)
(or was in a subsequent reemployment eligibility period) and to which
the participant is entitled under USERRA.
(c) Example: A plan's vesting requirement is 5 years of service
with the employer. A participant has completed 4 years of service when
he leaves employment for uniformed service. The plan terminates while
the participant is in military service. As of the termination date, the
participant would have had 5 years of service and 5 years of benefit
accruals if he had remained continuously employed. Upon reemployment
after the termination date but within the time limits set by USERRA,
the participant would have had 6 years of service under the plan for
vesting and benefit accrual purposes, if the plan had not terminated.
PBGC would treat the participant as having a vested, nonforfeitable
plan benefit with 5 years of vesting service and benefit accruals as of
the termination date.
(d) In the case of a PPA 2006 bankruptcy termination, ``bankruptcy
filing date'' is substituted for ``termination date'' each place that
``termination date'' appears in this section.
Issued in Washington, DC, this 24th day of July 2009.
Vincent K. Snowbarger,
Acting Director, Pension Benefit Guaranty Corporation.
[FR Doc. E9-18074 Filed 7-28-09; 8:45 am]
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