[Federal Register Volume 75, Number 153 (Tuesday, August 10, 2010)]
[Proposed Rules]
[Pages 48283-48294]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-19627]
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PENSION BENEFIT GUARANTY CORPORATION
29 CFR Parts 4062 and 4063
RIN 1212-AB20
Liability for Termination of Single-Employer Plans; Treatment of
Substantial Cessation of Operations
AGENCY: Pension Benefit Guaranty Corporation.
ACTION: Proposed rule.
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SUMMARY: ERISA section 4062(e) provides for reporting of and liability
for certain substantial cessations of operations by employers that
maintain single-employer plans. PBGC proposes to amend its current
regulation on Liability for Termination of Single-Employer Plans to
provide guidance on the applicability and enforcement of ERISA section
4062(e).
DATES: Comments must be submitted on or before October 12, 2010.
ADDRESSES: Comments, identified by Regulation Identifier Number (RIN)
1212-AB20, 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 Regulation Identifier Number for
this rulemaking (RIN 1212-AB20). 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 Corporation, 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: Catherine B. Klion, Manager, or
Deborah C. Murphy, Attorney, Regulatory and Policy Division,
Legislative and Regulatory Department, Pension Benefit Guaranty
Corporation, 1200 K Street, NW., Washington, DC 20005-4026; 202-326-
4024. (TTY/TDD 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:
Introduction
Pension Benefit Guaranty Corporation (PBGC) administers the pension
plan termination insurance program under title IV of the Employee
Retirement Income Security Act of 1974 (ERISA). Under ERISA section
4002(b)(3), PBGC has authority to adopt, amend, and repeal regulations
to carry out the purposes of title IV.
Background of Proposed Rule
ERISA section 4062(e) provides that ``[i]f an employer ceases
operations at a facility in any location and, as a result of such
cessation of operations, more than 20 percent of the total number of
his employees who are participants under a plan established and
maintained by him are separated from employment, the employer shall be
treated with respect to that plan as if he were a substantial employer
under a plan under which more than one employer makes contributions and
the provisions of [ERISA sections] 4063, 4064, and 4065 shall apply.''
ERISA section 4063(a) requires the plan administrator of a multiple
employer plan (that is, a single-employer plan with at least two
contributing sponsors that are not under common control) to notify PBGC
within 60 days after a substantial employer withdraws from the plan,
and section 4063(b) and (c) makes the withdrawn employer liable to
provide a bond or escrow in a specified amount for five years from the
date of withdrawal, to be applied--if the plan terminates within that
period--against the plan's underfunding. Section 4063(e) allows PBGC to
waive this liability if there is an appropriate indemnity agreement
among contributing sponsors of the plan, and ERISA section 4067
authorizes PBGC to make alternative arrangements for satisfaction of
liability under sections 4062 and 4063. (ERISA sections 4064 and 4065
deal with plan termination liability and annual reports by plan
administrators.)
The method described in section 4063(b) for computing the amount of
liability focuses on relative amounts of contributions by more than one
employer and is thus impracticable for calculating liability triggered
by an event involving a plan of a single employer under section
4062(e). However, section 4063(b) provides that PBGC ``may also
determine the liability on any other equitable basis prescribed by
[PBGC] in regulations.'' Pursuant to that authority, on June 16, 2006
(at 71 FR 34819), PBGC published a final rule providing a formula for
computing liability under section 4063(b) when there is an event
described in section 4062(e). The formula provided by the 2006 rule
apportions to an employer affected by an event under section 4062(e) a
fraction of plan termination liability based on the number of
participants affected by the event. Over the next three-and-a-half
years, PBGC resolved 37 cases under section 4062(e) through negotiated
settlements valued at nearly $600 million, providing protection to over
65,000 participants.
[[Page 48284]]
Overview of Proposed Regulation
The proposed rule would create a new subpart B of PBGC's regulation
on Liability for Termination of Single-Employer Plans (29 CFR part
4062) that would focus on section 4062(e). The liability computation
rules that were added to part 4062 by PBGC's 2006 final rule (now in
Sec. 4062.8) would be moved to this new subpart B. The purpose and
scope section of part 4062 and the cross-references section of part
4063 (Withdrawal Liability; Plans Under Multiple Controlled Groups)
would be revised to reflect the proposed regulation, and the references
to the applicability date of part 4062 (now over 20 years in the past)
would be removed.
Proposed subpart B addresses two general topics: The applicability
and enforcement of section 4062(e). The provisions on applicability
provide guidance on the kinds of events section 4062(e) applies to
(i.e., on what a ``section 4062(e) event'' is). The enforcement
provisions describe PBGC's section 4062(e) investigatory program,
provide rules for notifying PBGC of section 4062(e) events, explain how
section 4062(e) liability is calculated and how it is to be satisfied,
and require the preservation of records about events that may be
section 4062(e) events. Subpart B would also provide for waivers in
appropriate circumstances.
Adoption of the regulatory provisions in this proposed rule will
reduce uncertainty about PBGC's interpretation of the statute, thereby
permitting more rapid resolution of cases. Clearer rules, together with
specific, detailed reporting provisions, should encourage self-
reporting of events that PBGC now learns of only through its own
investigations and may enable PBGC to process section 4062(e) cases
more quickly, thereby protecting more participants.
Further clarification of section 4062(e) is also warranted by
requests from the public. Although PBGC's 2006 rule on section 4062(e)
was limited to the issue of the liability formula, several commenters
asked for additional guidance to clarify the meaning of statutory terms
used to describe when an event covered by section 4062(e) occurs. PBGC
also regularly receives requests from pension professionals for
interpretive guidance on section 4062(e). This proposed rule provides
such guidance.
Applicability of Section 4062(e)
PBGC proposes to provide guidance on whether and when a ``section
4062(e) event'' occurs by explaining each of the key terms that appear
in the statute and in the proposed regulation: ``operation,''
``facility,'' ``cease,'' ``separate,'' and ``result.'' The term
``active participant base'' would be introduced to describe the
baseline number of active participants against which the statutorily
required decline in active participants would be measured and to serve
as the denominator of the apportionment fraction used in calculating
liability for a section 4062(e) event. Discussions of the subpart B
explanations of these terms follow.
``Section 4062(e) Event''
New subpart B would use the term ``section 4062(e) event'' to refer
to an event to which section 4062(e) applies.
The proposed regulation would apply only to events involving
single-employer plans that are not multiple employer plans. ERISA
section 4062(e) provides that if a section 4062(e) event occurs, the
affected employer ``shall be treated with respect to [the affected]
plan as if he were a substantial employer under a plan under which more
than one employer makes contributions.'' The phrase ``as if'' implies
that section 4062(e) does not itself apply to events involving plans
under which more than one employer makes contributions. From the
context and language of section 4062(e), therefore, PBGC concludes that
the term ``plan'' in section 4062(e) means a single-employer plan that
is not a multiple employer plan. Furthermore, the liability formula
adopted by PBGC in 2006 would produce anomalous results if applied to
an event involving a multiple employer plan.
The proposed regulation would require only that a plan be
maintained by an employer--not both established and maintained--to come
within the provisions of section 4062(e). In Rose v. Long Island R.R.
Pension Plan, 828 F.2d 910 (2nd Cir. 1987), the Second Circuit reasoned
that a plan whose sponsorship has changed may be considered
``established'' (or ``re-established'') by the new sponsor,
notwithstanding that it has not first been formally ``terminated.'' In
addition, in PBGC Opinion Letter 90-6, PBGC noted that it had
``declined to interpret the conjunction of the terms `established and
maintained' strictly in the context of the exemption from Title IV
coverage for governmental plans [under] ERISA section 4021(b)(2) * * *
because doing so would frustrate the intent of Congress in providing
the exemption.'' The opinion letter quoted from the Rose case,
sanctioning that approach on the basis that ``the status of the entity
which currently maintains a particular pension plan bears more relation
to Congress' goals in enacting ERISA and its various exemptions than
does the status of the entity which established the plan.'' \1\ The
opinion letter applied the same principle to the exemption for
substantial owner plans under ERISA section 4021(b)(9).
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\1\ A contrary case is Hightower v. Texas Hospital Association,
65 F.3d 443 (5th Cir. 1995). The Hightower case does not discuss the
actions an employer assuming sponsorship of an existing plan might
take to be treated as having ``established'' (or ``re-established'')
the plan.
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PBGC believes that similar reasoning applies to ERISA section
4062(e), which also uses the phrase ``established and maintained.''
PBGC believes the textual analysis in the Rose case would be
appropriate in interpreting this phrase in ERISA section 4062(e). In
addition, Congress's goal in enacting section 4062(e) would appear to
be frustrated, rather than promoted, by excluding from the ambit of
that provision any case involving a plan established by a different
employer from the employer maintaining the plan when the event
occurred. Indeed, such an interpretation would seem to open a
formalistic loophole that could be exploited where, by chance or
foresight, a plan's sponsorship changed.
The proposed regulation would provide explicitly that evaluation of
risk is not an element in deciding whether a section 4062(e) event has
occurred. Sections 4062(e) and 4063 call for self-reporting by plan
administrators. Each section describes a class of events that is to be
reported. Neither section provides or even suggests that a plan
administrator is to make a risk assessment and report an event to PBGC
only if it creates risk for the plan or its participants or for PBGC.
PBGC believes that section 4062(e) reflects a judgment that as a class,
events described therein are indicative of increased risk of
underfunded plan termination within five years--whether or not any
particular risk factors appear to be present in particular cases.
PBGC's experience bears out this view. For example, in a recent section
4062(e) case, an employer opposed the assessment of liability under
section 4062(e) on the ground that its financial resources eliminated
any risk to the termination insurance program. But shortly after
reaching accord with PBGC, the employer entered bankruptcy with its
plan underfunded because of an economic downturn in the industry.
Thus PBGC believes that risk is not relevant in deciding whether a
section 4062(e) event has occurred, and the proposed regulation would
provide that such decisions be made without regard to whether there
might in a particular
[[Page 48285]]
case be (or appear to be) no risk to the plan, participants, or PBGC.
However, as discussed below under Liability for section 4062(e) events,
in making arrangements for the satisfaction of liability arising from
section 4062(e) events, PBGC may take account of such circumstances as
employer financial strength.
The proposed regulation would also note that if an employer has two
or more plans, section 4062(e) is applied separately to each plan, not
on an aggregate basis. This principle is clear from section 4062(e)'s
references to ``a plan'' and ``that plan.''
``Operation''
The proposed regulation uses the term ``operation'' (singular
rather than plural) to refer to a set of activities that constitutes an
organizationally, operationally, or functionally distinct unit of an
employer. PBGC proposes that section 4062(e) apply to cessation of an
operation in this sense. This approach is consistent with PBGC's
practice and experience in its current enforcement activities under
section 4062(e). The regulation would also suggest some criteria that
might be considered in identifying a set of activities as an operation,
such as whether it is so treated by the employer or its employees or
customers, by the public, or within the relevant industry.
``Facility''
Section 4062(e) applies to cessation of an operation ``at a
facility in any location.'' PBGC thinks that section 4062(e) should be
read as applying to an employer's cessation of an operation at a
``facility in any location,'' even if the employer continues or resumes
the operation at another ``facility in any location.'' Accordingly,
under the proposed rule, the facility (or facility in any location)
associated with an operation would simply be the place or places where
the operation is performed. This would typically be a building or
buildings, but could be or include any one or more enclosed or open
areas or structures where one or more employees were engaged in the
performance of the operation.
PBGC's view of ``operation'' and ``facility'' means that a facility
(a building, for example) may be the site of more than one operation.
Under the proposed regulation, therefore, section 4062(e) might apply
where some but not all activity at a facility ceased, if the activity
that ceased constituted an operation distinct from other activities in
the facility.\2\
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\2\ For example, an employer might conduct a manufacturing
operation under the same roof with shipping and administrative
functions--or with another, distinct manufacturing operation. If the
employer ceased the manufacturing operation (or one of the two
manufacturing operations) at the facility, the cessation might come
within the scope of section 4062(e), even though the employer
continued its other activity at the facility.
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``Cessation''
PBGC proposes that where an employer discontinues activity that
constitutes an operation at a facility, deciding whether a cessation
has occurred for purposes of section 4062(e) should involve assessment
of whether the discontinuance represents a mere cutback or contraction,
or is so thorough that the employer's conduct of the operation at the
facility can no longer be considered on-going. The proposed regulation
would address this issue for both voluntary and involuntary
discontinuances.
PBGC believes that whether an employer's conduct of an operation at
a facility ceases or remains on-going (though perhaps curtailed)
depends on the degree to which the purpose of the operation continues
to be fulfilled by the employer's activity at the facility. PBGC thus
proposes that an employer's cessation of an operation at a facility be
considered to occur only if the employer discontinues all significant
activity at the facility in furtherance of the purpose of the
operation.
Thus, an employer might cease an operation at a facility even
though insignificant activity at the facility in furtherance of the
purpose of the operation continued. For example, while continued
processing of materials on hand would typically constitute significant
activity in furtherance of the purpose of an operation, desultory sales
of left-over inventory would typically not. Continuing activity that
does not further an operation's purpose would be disregarded. For
example, although maintenance and security activities may be important
to a manufacturing operation, they do not further the purpose of the
operation. Thus, a cessation of such an operation could occur even
though there was a continuance of maintenance and guard services.
While this approach is apt for ``voluntary'' discontinuances
pursuant to employer decision,\3\ it is less suitable for
``involuntary'' discontinuances caused by events outside the employer's
control. Where a discontinuance of activity is thrust upon an employer,
rather than stemming from the employer's will, PBGC believes that the
employer should have an opportunity to react--to resume or to decide
not to resume the activity--before the discontinuance is characterized
as a cessation under section 4062(e).
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\3\ ``Voluntary'' as used here does not connote something
desirable or preferable, but merely refers to a discontinuance of
activity that is not involuntary as described below. Thus, for
example, a discontinuance of activity in response to an economic
downturn is considered ``voluntary'' because it does not fall within
the description of an involuntary discontinuance.
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PBGC proposes to provide two rules for involuntary discontinuances.
In each situation, cessation would occur not when all significant
activity stopped, but at a later date--unless the employer in the
meantime resumed the operation at the facility (in which case there
would be no cessation) or decided not to resume it (in which case the
cessation would occur when the decision was made). One situation would
be where the discontinuance of activity was caused by employee action,
such as a strike or sickout. In this case, the cessation date would be
put off until the employee action ended (and the employer would have a
week in which to resume activity). The other situation would be where
the discontinuance was caused by a sudden and unanticipated event
(other than an employee action) such as a natural disaster. In this
case, the cessation date would be deferred for 30 days--time enough to
resume work if the event causing the discontinuance left the operation
viable.
As indicated in the discussion of ``facility'' above, PBGC believes
that section 4062(e) may apply to an employer's cessation of an
operation at one facility even if the employer continues or resumes the
operation at another facility. For example, where an employer has been
performing manufacturing, shipping, and administrative functions under
a single roof, section 4062(e) could apply where the employer moves the
manufacturing operation outside the United States and has manufactured
goods shipped in bulk to the original U.S. facility for distribution
using the employer's own existing shipping operation.
Similarly, PBGC believes that section 4062(e) applies to an
employer's cessation of an operation at a facility even if the
operation is continued or resumed by another employer at the same or
another facility. One example of this would be the not uncommon
situation where one employer sells the assets used in an operation to
another employer that continues or resumes the operation.
[[Page 48286]]
The proposed regulation would thus provide that continuance or
resumption of an operation at another facility or by another employer
is to be disregarded in deciding whether a cessation has occurred.
The proposed regulation would also reflect PBGC's view that it is
irrelevant whether an employer begins a new operation contemporaneously
with its discontinuance of an existing operation, either at the same or
another facility. A section 4062(e) event concerns itself with the
cessation of one operation and the effect of that cessation on the
employment of participants in the affected plan. Undertaking a second
operation does not nullify the discontinuance of the first or the
impact of that discontinuance on those participants. Of course, if
enough of those participants were retained by the employer in
connection with the new operation to avoid a drop of more than 20
percent in the active participant-count, there would be no section
4062(e) event.
Under the proposed regulation, any hope or expectation the employer
may have that the discontinued work will be resumed would be irrelevant
to whether the discontinuance is a cessation. A cessation does not
ripen into a section 4062(e) event unless it results in a decline of
more than 20 percent in the number of active participants in the
affected plan. Where such a decline occurs because an employer
discontinues activities constituting an operation at a facility, PBGC
believes that the event should not fail to be covered by section
4062(e) because the activity may resume.
The proposed regulation would use the term ``cessation date'' for
the date when a cessation occurs as discussed above. Since an
employer's cessation of an operation at a facility is only part of what
constitutes a section 4062(e) event (the other part being a resultant
drop of more than 20 percent in the active participant-count), the date
of a section 4062(e) event might be later than the associated cessation
date.\4\
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\4\ For example, assume that the workers in an operation
represent 21 percent of active participants in a plan and that when
all activity in furtherance of the purpose of the operation stops,
19 percent (out of the 21 percent) lose their jobs but the remaining
2 percent keep working until the machinery used in the operation has
been crated for disposal. A section 4062(e) event would not occur on
the cessation date, but only when the over-20-percent active
participant reduction requirement was satisfied.
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``Separation''
The fact that an employer ceases an operation at a facility does
not in itself constitute a section 4062(e) event. Under section
4062(e), it must also be true that ``as a result of such cessation of
operations, more than 20 percent of the total number of [the
employer's] employees who are participants under [the affected plan]
are separated from employment.'' PBGC believes that ``separation'' as
used here logically and naturally refers to separation from employment
with the employer, rather than separation from employment in the
operation.
Thus, PBGC believes that the requirement of separation is not
satisfied if an employee is merely transferred within the employer's
organization--for example, from work in the ceasing operation to work
outside it--even if the transfer takes the employee out of the category
of employees covered by the plan.\5\ By the same token, PBGC believes
that if an employer ceases an operation, but the operation is continued
or resumed by a new employer, the fact that a person previously
employed by the original employer continues to work in the operation as
an employee of the new employer does not mean that the person has not
separated from employment (with the original employer). Accordingly,
the proposed regulation's discussion of separation would be couched in
terms of the employment relationship between the employer and the
employee.
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\5\ In general, such a transfer would not terminate the
transferred employee's participation in the plan, although it would
typically mean that the employee would accrue no further benefits
under the plan.
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The 60-day period within which notice of a section 4062(e) event
must be given does not begin to run until a section 4062(e) event has
occurred--that is, until there has been both a cessation by an employer
of an operation at a facility and a separation from employment of more
than 20 percent of the active participants in the affected plan. To
know the reporting deadline, therefore, it is as important for the plan
administrator to fix promptly the dates when participants separate from
employment as it is to fix the cessation date promptly. In some cases
(e.g., discharges and quits), fixing the separation date is relatively
straightforward. Other cases (e.g., layoffs) may raise doubt about
whether or when a separation has occurred. It is important to avoid
having doubt of this kind delay decisions about whether the 20-percent
threshold has been exceeded and a section 4062(e) event has thus
occurred.
The proposed regulation would provide that an employee separates
from employment when the employee discontinues the active performance,
pursuant to the employee's employment relationship with the employer,
of activities in furtherance of any of the employer's operations,
unless, when the discontinuance occurs, it is reasonably certain that
the employee will resume such active work within 30 days--for example,
after a two-week holiday shutdown. This standard would allow a plan
administrator to decide immediately whether a separation occurred when
an employee discontinued active work. If, however, the 30 days pass
without the employee's having returned, the employee would be
considered to have separated from employment when active work stopped.
The focus on active performance of activities pursuant to the
employment relationship would mean that continued provision of benefits
to an employee, such as the continued granting of credited service for
pension purposes, would be disregarded in deciding whether a separation
from employment occurred.
The proposed regulation would also include a special rule under
which an employee's separation before a cessation was complete would be
ignored if, by the cessation date, (1) the employee was rehired or a
replacement was hired, and (2) the rehired or replacement employee was
a participant in the plan.
``Result''
The proposed regulation would provide that a separation from
employment results from the cessation of an operation if the separation
would not have occurred when it did had the cessation not occurred.
Thus, for example, if an employee had been planning to retire in a year
or two but chose to retire sooner upon learning of a shutdown that
would eliminate her job, the separation would be the result of the
shutdown; whereas if (before learning of the shutdown) she had been
planning to retire immediately and retired as planned after she learned
of the shutdown, the separation would not be a result of the shutdown.
The proposed regulation would provide that whether a separation
occurs before, on, or after the cessation date is not considered
decisive of whether the separation is the result of the cessation. An
operation may not cease instantaneously, and some employees may leave
before the cessation date because the operation in which they are
employed is in the process of shutting down, although significant
activity in furtherance of the purpose of the operation is still
ongoing. Yet other employees may continue to work after the cessation
date--for
[[Page 48287]]
example, disassembling machinery and guarding the premises until the
plant and equipment can be sold--before they finally leave.
The proposed regulation would also provide that an employee's
separation may result from the cessation of an operation at a facility
even if the employee's employment has been in another operation or even
at another facility. Ceasing one operation can have an impact on other
operations, whether or not they also cease. For example, an employer
might have one operation to assemble widgets from pre-fabricated parts,
and another operation to fabricate widget parts for use in the
employer's own widget manufactory or for sale to other widget
manufacturers. If the employer shut down the widget assembly operation,
there would be reduced demand for widget parts, the fabrication
operation would cut back, and some fabrication employees would lose
their jobs--as a result of the shutdown of the widget assembly
operation. And if there was reduced demand for widget parts in the
industry generally, the shutdown of the employer's widget assembly
operation might even cause the shutdown of its fabrication operation,
and thus all of the fabrication employees might be separated as a
result of the shutdown of the assembly operation.
To supplement the general rule on when separation from employment
results from an employer's cessation of an operation at a facility,
PBGC is proposing four presumptions based on the relationship between
the timing of a separation and the timing of events involved in a
cessation.
The first presumption (applicable to a voluntary cessation) would
be that if an employee is employed in an operation at a facility and
involuntarily separates from employment on or after the date when the
employer decides to cease the operation at the facility, the employee
has separated from employment as a result of the cessation.
The second presumption (also applicable to a voluntary cessation)
would be that if an employee in an operation at a facility voluntarily
separates from employment after the employer decision to cease the
operation at the facility becomes known (to the employee, to employees
generally, or to the public), the separation results from the
cessation.
The third presumption would be that if a cessation is involuntary,
and an employee in the operation voluntarily or involuntarily separates
from employment on or after the date of the event that caused the
cessation, the separation results from the cessation.
The fourth presumption would be that if an employee employed in an
operation becomes employed by a new employer that continues or resumes
the operation, the employee has separated from employment with the
original employer as a result of the cessation.
PBGC believes that these four presumptions reflect reasonable
inferences and will simplify application of the proposed regulation;
nonetheless, any of the presumptions could be rebutted by appropriate
evidence.
``Active Participant Base''
A section 4062(e) event occurs only if ``as a result of [a]
cessation of operations, more than 20 percent of the total number of
[the employer's] employees who are participants under [the affected
plan] are separated from employment.'' To apply the 20-percent test,
one must know the base number against which the 20 percent is measured.
The statute provides that this base number is ``the total number of
[the employer's] employees who are participants under [the affected
plan],'' but it does not say as of what point in time the number is to
be fixed, although one may infer that it is to be a pre-cessation
number.
The formula for calculating liability for a section 4062(e) event
that PBGC added to the termination liability regulation in 2006 also
refers to a base number--the denominator of a fraction that is applied
to total termination liability to find the liability for a section
4062(e) event. Section 4062.8(a)(2) of the current regulation describes
this base number as ``the total number of the employer's current
employees, as determined immediately before the cessation of
operations, who are participants under the plan.'' This description is
consistent with the description of a base number in section 4062(e),
and administrative convenience is clearly served by using the same
number for the statutory 20-percent threshold test and for the
apportionment fraction in the regulatory formula for liability.
However, the existing regulatory language--``immediately before the
cessation''--does not provide as much specificity about timing as PBGC
thinks desirable. PBGC thus proposes to prescribe rules that are
consistent with, but more specific than, the existing statutory and
regulatory language, describing when to count active participants for
purposes of fixing a single base number for both the 20-percent test
and the liability formula. PBGC proposes to call this number the
``active participant base.''
The key to PBGC's proposal is to identify when a cessation begins,
and employment starts to be affected by the cessation process, so that
active participants can be counted just before then. For a voluntary
cessation, carried out pursuant to an employer decision, that decision
marks the beginning of the cessation process, and the active
participant base would be measured immediately before that decision.
For an involuntary cessation, the active participant base would be
measured immediately before the event that causes the cessation
(strike, natural disaster, etc.).
In counting active participants, the proposed regulation would use
the same formulation for describing active employment as in the
provision on separation from employment: Active performance, pursuant
to the employment relationship with the employer, of activities in
furtherance of the employer's operations (or reasonable certainty of
resuming such active work within 30 days, with a ``reality check'' if
30 days have passed). Thus, the active participant base would be
measured on a basis consistent with the rules about measuring the
number of participants who separate from employment.
In response to a public comment, PBGC's 2006 final rule prescribing
the section 4062(e) liability computation formula clarified that, in
calculating the denominator of the fraction in the formula (the number
of employee participants immediately before the cessation), only
current employees are included. The proposed formulation of the active
participant base would make this point more clearly.
The proposal would also clarify that an employee need not be
accruing benefits under a plan to be a participant in the plan.\6\
Freezing a plan should not make the employer immune from section
4062(e).
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\6\ See the definition of ``active participant'' in Sec.
4043.23 of PBGC's regulation on Reportable Events and Certain Other
Notification Requirements (29 CFR part 4043).
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Enforcement of Section 4062(e)
Proposed subpart B would describe two processes for PBGC to learn
about section 4062(e) events: PBGC investigations and reports to PBGC
by plan administrators. It would also describe the liability that
arises when a section 4062(e) event occurs and how the liability is
satisfied and would prescribe recordkeeping requirements. Provision
would also be made for waivers in appropriate circumstances.
PBGC Investigations
Under ERISA section 4003(a), PBGC has authority to make such
investigations as it deems necessary to
[[Page 48288]]
enforce title IV and regulations thereunder (such as the regulation
under section 4062(e) that PBGC is here proposing). PBGC's section
4062(e) enforcement has been strongly supported by investigations, and
PBGC expects its section 4062(e) investigatory activity to continue,
notwithstanding the inclusion in the proposed regulation of detailed
reporting requirements.
The investigation provision in proposed subpart B would include a
deadline for responding to PBGC information requests, and failure to
respond by the deadline could result in the assessment of penalties
under ERISA section 4071 (see Late filing penalties below). There would
also be a requirement to correct or update information submitted to
PBGC that was or became materially wrong or outdated.
Notice Requirement
Under ERISA section 4063(a), the plan administrator of a multiple
employer plan must report the withdrawal of a substantial employer from
the plan to PBGC within 60 days after the withdrawal. Since section
4062(e) refers to section 4063 for the procedures to be followed for
section 4062(e) events, the proposed rule would provide, consistent
with the statute, that notice of a section 4062(e) event must be filed
with PBGC by the plan administrator of the affected plan within 60
days. The 60 days would run from the later of the cessation date or the
date when the number of active participant separations resulting from
the cessation exceeds 20 percent of the active participant base.
Filing forms and instructions, including filing methods, filing
addresses, required data, etc., would be posted on PBGC's Web site.\7\
The proposed regulation would also provide cross-references to filing
rules in PBGC's regulation on Filing, Issuance, Computation of Time,
and Record Retention (29 CFR part 4000). PBGC could require submission
of supplementary information, ordinarily with a 45-day response period,
which could be shortened if necessary to avoid prejudice to PBGC, the
plan, or participants. The affected employer would be required to
furnish necessary information to the plan administrator of the affected
plan. Any filed information that a filer discovered to be materially
wrong or outdated would have to be promptly corrected. Thus, for
example, if more employees separated from employment as a result of a
cessation after the cessation had been reported to PBGC, and the number
of additional separations would materially affect liability, the
additional separations would have to be reported to PBGC.
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\7\ The absence heretofore of a section 4062(e) event reporting
form made it possible to combine a section 4062(e) event notice with
a reportable event notice under Sec. 4043.23 of PBGC's reportable
events regulation. PBGC's proposal to require the use of prescribed
forms to file notice of section 4062(e) events would make this
unworkable. However, information already submitted to PBGC in a
reportable event notice would not need to be resubmitted in a
section 4062(e) event notice.
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To simplify section 4062(e) reporting, PBGC proposes to permit a
plan administrator to disregard affected participants who were not
employed at the facility where the affected operation was carried out.
PBGC's experience suggests that effective and efficient enforcement of
section 4062(e) is not usually best served by focusing the
administrative resources of PBGC and plan administrators on tracing the
effects of a cessation on employment at facilities beyond the one
associated with the ceased operation. Accordingly, the proposed
regulation would permit a plan administrator to ignore separations at
other facilities in deciding whether a section 4062(e) event had
occurred, when to file notice of an event, and how many affected
participants to report in the notice. Only if PBGC specifically
requested information about separations at other facilities would they
need to be reported. In that case, however, or if identified in a PBGC
investigation, separations at other facilities that were caused by a
cessation would be counted in both the 20-percent threshold test and
the liability calculation for the cessation.
Information submitted to PBGC under the proposed regulation would
be protected from disclosure to the extent provided in the Freedom of
Information Act and 18 U.S.C. 1905 (dealing with commercial and
financial information).
Late Filing Penalties
ERISA section 4071 authorizes PBGC to assess a penalty against any
person that fails to timely provide any notice or other material
information required under section 4062(e) or 4063 or regulations
thereunder (which would include the proposed regulation).\8\ Under
section 4071 and the Federal Civil Monetary Penalty Inflation
Adjustment Act of 1990, as amended by the Debt Collection Improvement
Act of 1996, the maximum penalty is currently $1,100 per day. See
PBGC's regulation on Penalties for Failure To Provide Certain Notices
or Other Material Information (29 CFR part 4071).
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\8\ Section 4071 penalties are not the only applicable
enforcement mechanism.
---------------------------------------------------------------------------
On July 18, 1995 (at 60 FR 36837), PBGC issued a statement of
policy on penalties for failure to provide required information in a
timely manner. The statement said that PBGC would--
consider the facts and circumstances of each case to assure that the
penalty fits the violation. Among the factors the PBGC will consider
are the importance and time-sensitivity of the required information,
the extent of the omission of information, the willfulness of the
failure to provide the required information, the length of delay in
providing the information, and the size of the plan.
In general, the policy statement said that PBGC would assess penalties
much lower than $1,100 per day--$25 per day for the first 90 days of
delinquency and $50 per day thereafter, with limitations based on plan
size. However, it also said that PBGC may assess larger penalties if
circumstances warrant, such as ``if the harm to participants or the
PBGC resulting from a failure to timely provide material information is
substantial.'' Such ``larger penalties'' would of course be subject to
the $1,100-per-day limitation. (The policy statement noted in
particular that penalties for violations under subparts C and D of
PBGC's reportable events regulation would generally be at the $1,100-
per-day level.) PBGC believes similarly that violations of the notice
requirement under sections 4062(e) and 4063 may well result in
substantial harm to participants and PBGC, especially because of the
five-year limitation on maintaining a bond or escrow under ERISA
section 4063(c)(2). Thus, such violations may well warrant section 4071
penalties larger than the ``general'' ($25/$50-per-day) penalty,
subject to the $1,100-per-day limitation.
Liability for Section 4062(e) Events
The liability formula for section 4062(e) events that PBGC added to
the termination liability regulation in 2006 would be preserved under
this proposed rule,\9\ with clarification about how the calculation is
done and some editorial changes (including rewording for consistency
with terminology used in the rest of subpart B).
---------------------------------------------------------------------------
\9\ In particular, no change would be made to the requirement to
measure termination liability (on which section 4062(e) liability is
based) as of the cessation date rather than as of the section
4062(e) event date.
---------------------------------------------------------------------------
The proposed clarification relates to the provision (in both the
existing and proposed regulation) that liability for a section 4062(e)
event is based on a computation of termination liability performed as
if the plan had been terminated by PBGC immediately after the cessation
date. PBGC believes that termination liability for this purpose should
be fixed and determinable as of
[[Page 48289]]
the cessation date and should not take account of changes in assets or
liabilities after the cessation date, such as from the receipt of
contributions or the accrual of additional benefits. Ignoring post-
cessation-date changes will promote simplicity and avoid the
possibility that the liability calculation might differ depending on
how long after the cessation date it was actually performed. This
provision reflects PBGC's current practice.
PBGC proposes to remove the example in the current regulation that
illustrates the computation of the fraction that is applied to
termination liability to arrive at the liability that arises from a
section 4062(e) event. The example was intended to make clear that the
number of pre-event active participants does not include participants
who are not currently working for the employer when the pre-event
participant-count is measured. PBGC believes that its proposed
formulation of the active participant base makes this point clear
without the need for an example.
In general, PBGC proposes that it would prescribe one of the
statutory methods (described in ERISA section 4063(b) and (c)(1)) for
satisfying liability arising from a section 4062(e) event. However, the
proposed regulation would permit the continuation of PBGC's practice,
as authorized by ERISA section 4067, of negotiating with affected
employers in appropriate cases on the manner in which the liability is
to be satisfied, with a view to accommodating employer interests to the
extent consistent with protecting the plan, participants, and PBGC as
contemplated by the statute. For example, in some cases section 4062(e)
liability might be satisfied through additional plan funding
contributions that would not be added to the plan's prefunding balance.
Or, in appropriate cases, where a new, financially sound employer
continues or resumes an operation, and the original employer's workers
are employed by the new employer, the proposed regulation would enable
PBGC to consider the original employer's liability satisfied through
the new employer's adoption of the original employer's plan (or the
portion of the plan covering the affected operation).
Recordkeeping and Waivers
PBGC proposes to require that employers and plan administrators
preserve records about potential section 4062(e) events that tend to
show whether a section 4062(e) event in fact occurred and if so how
much the resultant liability is. The recordkeeping provision would also
permit PBGC to proceed on the basis of reasonable assumptions if
employer or plan records were insufficient. The proposed record
retention period would be five years, which matches the period for
which the security provided by an employer with respect to a section
4062(e) event can be held--and thus PBGC's window for enforcing section
4062(e).
New subpart B would also include a provision explicitly authorizing
PBGC to grant waivers where warranted by the circumstances. PBGC's
experience with section 4062(e) enforcement suggests that PBGC may
encounter situations it does not now foresee, and this waiver provision
is meant to provide a measure of flexibility in interpreting and
applying the law.
Provisions Not in the Rule
The proposal does not include an exemption for small plans. Such an
exemption was suggested by a commenter on PBGC's 2006 rulemaking that
codified the section 4062(e) liability formula. PBGC believes that the
protection afforded by section 4062(e) is appropriate for small plans
(and their participants) as well as for large plans. Furthermore, to
the extent that small plans present less underfunding potential than
large plans (and thus less potential exposure for the pension insurance
system), the liability under section 4062(e) will also be less, and
thus the burden of satisfying it should not be disproportionate.
Finally, PBGC believes that the guidance in this proposed rule should
make compliance relatively easy for small and large plans alike. These
considerations militate against an exemption for small plans.
The proposal also includes no exemption for well-funded plans. As
noted above for small plans, the better a plan is funded, the lower
(other things being equal) would be its liability for a section 4062(e)
event under the formula provided in the regulation. If a plan were so
well funded that it had no termination liability under ERISA section
4062, its liability for a section 4062(e) event would be zero. But
termination liability computations are complex, and PBGC would not
expect plans to make such computations simply to claim exemption from
the section 4062(e) event reporting requirement.
The fact that a plan is undergoing a standard termination would
likewise be ignored under the proposed rule. Until distributions
pursuant to a standard termination are complete, there is the
possibility that plan assets will be found insufficient to complete the
standard termination process and that the plan will remain ongoing.
However, PBGC might forbear to pursue section 4062(e) liability where a
standard termination was in process. And if distributions under a
standard termination are complete by the deadline for giving notice of
a section 4062(e) event, PBGC generally would not enforce the notice
requirement.
Effect on Prior Opinions
PBGC has in the past issued a number of opinion letters dealing
with ERISA section 4062(e).\10\ While this proposed regulation does not
explicitly address all details relating to section 4062(e), PBGC's
intent in issuing the regulation is to set forth all of its current
section 4062(e) guidance, supported by the discussion in this preamble.
Accordingly, the regulation would displace and supersede all of PBGC's
prior opinion letter pronouncements addressing section 4062(e).
---------------------------------------------------------------------------
\10\ See for example PBGC Opinion Letters 76-8, 76-52, 77-123,
77-134, 77-147, 78-29, 82-29, 85-8, and 86-13.
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Applicability
PBGC proposes that the amendments made by this rule apply to
section 4062(e) events with cessation dates on or after the effective
date of the amendments.
Compliance With Rulemaking Guidelines
E.O. 12866
The PBGC has determined, in consultation with the Office of
Management and Budget, that this proposed rule is a ``significant
regulatory action'' under Executive Order 12866. The Office of
Management and Budget has therefore reviewed this proposed rule under
E.O. 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 rule will not
have a significant economic impact on a substantial number of small
entities. Accordingly, as provided in section 605 of the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.), sections 603 and 604 do not
apply. This certification is based on the fact that the proposed
regulatory amendments require only the filing of notices and that the
economic impact of filing is not significant. Furthermore, section
4062(e) is generally not relevant for small employers. Small employers
tend not to have multiple operations. For a small employer with a
defined benefit pension plan, the cessation of an operation almost
always would be
[[Page 48290]]
accompanied by plan termination. Section 4062(e) protection is only
relevant when the plan is ongoing after the cessation of operations.
Since publication of PBGC's 2006 final rule on calculation of liability
under section 4062(e), only a handful of the potential section 4062(e)
cases reviewed by PBGC involved plans with 100 or fewer participants.
Paperwork Reduction Act
PBGC is submitting the information requirements under this proposed
rule to the Office of Management and Budget for review and approval
under the Paperwork Reduction Act. Copies of PBGC's request may be
obtained free of charge by contacting the Disclosure Division of the
Office of the General Counsel of PBGC, 1200 K Street, NW., Washington,
DC 20005, 202-326-4040. The proposed information collection will also
be available on PBGC's Web site.
PBGC is proposing to require that notices of section 4062(e) events
be filed using a PBGC form and include the following information:
Identifying and contact information for the affected plan,
the plan administrator, other plans covering affected participants, the
contributing sponsor, and members of the contributing sponsor's
controlled group.
A description of current and proposed plan provisions
dealing with lump sum options, shutdowns, and early retirement
benefits.
A description of any current or proposed plan termination
proceedings, plan mergers, or changes in contributing sponsor or
controlled group.
A description of the affected operation and associated
facility.
A general description of the section 4062(e) event,
including whether the affected operation is to be continued or resumed
by the affected employer or a new employer at the same or another
facility.
The date used to calculate the active participant base,
the date of any employer decision to cease the affected operation, the
date (and nature) of any event that caused the cessation (other than an
employer decision), the cessation date, and the date when the number of
affected participants exceeded 20 percent of the active participant
base.
A copy of any press release or other announcement of the
employer's cessation decision (including any notice issued pursuant to
the Worker Adjustment and Retraining Notification (WARN) Act) and the
date when it was issued.
A description of any severance or retirement incentives
offered since the date one year before the date of the employer
decision to cease the operation.
The active participant base.
The number of affected participants as of the date when
the filing was prepared.
The number of participants in the affected plan who have
not separated from employment as of the date when the filing was
prepared but who the employer believes will separate from employment as
a result of the section 4062(e) event.
The number of active participants in the affected plan who
had separated from employment as of the date when the filing was
prepared but who were not counted as affected participants.
The name and address of each union representing affected
participants.
A copy of each collective bargaining agreement covering
affected participants.
The affected plan's most recent adjusted funding target
attainment percentage (AFTAP) certification and most recent actuarial
valuation report, including or supplemented by all of the information
described in Sec. 4010.8(a)(11) of PBGC's regulation on Annual
Financial and Actuarial Information Reporting (29 CFR part 4010).
A summary of plan amendments, significant changes in plan
population, changes in plan assumptions, and amounts and dates of lump
sums paid that are not reflected in the most recent actuarial valuation
report.
The market value of plan assets as of, or as close as
possible to, the cessation date.
PBGC needs this information to calculate the liability arising from
a section 4062(e) event and decide how that liability should be
satisfied. PBGC estimates that it will receive filings from about 200
respondents each year and that the total annual burden of the
collection of information will be about 1,000 hours and $350,000.
Comments on the paperwork provisions under this proposed rule
should be sent to the Office of Information and Regulatory Affairs,
Office of Management and Budget, Attention: Desk Officer for Pension
Benefit Guaranty Corporation, via electronic mail at [email protected] or by fax to (202) 395-6974. Although comments may
be submitted through October 12, 2010, the Office of Management and
Budget requests that comments be received on or before September 9,
2010 to ensure their consideration. Comments may address (among other
things)--
Whether the proposed collection of information is needed
for the proper performance of PBGC's functions and will have practical
utility;
The accuracy of PBGC's estimate of the burden of the
proposed collection of information, including the validity of the
methodology and assumptions used;
Enhancement of the quality, utility, and clarity of the
information to be collected; and
Minimizing the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., permitting
electronic submission of responses.
List of Subjects
29 CFR Part 4062
Employee benefit plans, Pension insurance, Reporting and
recordkeeping requirements.
29 CFR Part 4063
Employee benefit plans, Pension insurance.
For the reasons given above, PBGC proposes to amend 29 CFR parts
4062 and 4063 as follows.
PART 4062--LIABILITY FOR TERMINATION OF SINGLE-EMPLOYER PLANS
1. The authority citation for part 4062 is revised to read as
follows:
Authority: 29 U.S.C. 1302(b)(3), 1303(a), 1362-1364, 1367, 1368.
2. Section 4062.1 is revised to read as follows:
Sec. 4062.1 Purpose and scope.
Subpart A of this part sets forth rules for calculation and payment
of the liability incurred, under section 4062(b) of ERISA, upon
termination of any single-employer plan and, to the extent appropriate,
calculation of the liability incurred with respect to multiple employer
plans under sections 4063 and 4064 of ERISA. Subpart B of this part
sets forth rules under section 4062(e) of ERISA, including rules for
reporting section 4062(e) events and for calculating and satisfying
liability arising from such events.
Sec. 4062.3 [Amended]
3. In Sec. 4062.3, paragraph (b) is amended by removing the
reference ``Sec. 4062.9(c)'' and adding in its place the reference
``Sec. 4062.8(c)''; and by removing the reference ``Sec. 4062.9(b)''
and adding in its place the reference ``Sec. 4062.8(b)''.
[[Page 48291]]
Sec. 4062.7 [Amended]
4. In Sec. 4062.7, paragraph (a) is amended by removing the
reference ``Sec. 4062.9'' and adding in its place the reference
``Sec. 4062.8''.
Sec. 4062.8 [Removed]
5. Section 4062.8 is removed.
Sec. Sec. 4062.9, 4062.10, and 4062.11 [Redesignated as Sec. Sec.
4062.8, 4062.9, and 4062.10]
6. Sections 4062.9, 4062.10, and 4062.11 are redesignated as
Sec. Sec. 4062.8, 4062.9, and 4062.10 respectively.
Sec. 4062.1 through Sec. 4062.10 [Designated]
7. Newly redesignated Sec. Sec. 4062.1 through 4062.10 are
designated as subpart A with the heading ``Subpart A-- General
Termination Liability Rules''.
8. A new subpart B is added to read as follows:
Subpart B--Treatment of Substantial Cessation of Operations
Sec.
4062.21 Purpose and scope.
4062.22 Definitions.
4062.23 ``Section 4062(e) event.''
4062.24 ``Operation.''
4062.25 ``Facility'' or ``facility in any location.''
4062.26 ``Cease'' and ``cessation.''
4062.27 ``Separate'' and ``separation.''
4062.28 ``Result.''
4062.29 ``Active participant base.''
4062.30 PBGC investigations.
4062.31 Reporting requirement.
4062.32 Amount of liability.
4062.33 Manner of satisfying liability.
4062.34 Recordkeeping.
4062.35 Waivers.
Subpart B--Treatment of Substantial Cessation of Operations
Sec. 4062.21 Purpose and scope.
This subpart B provides guidance about the applicability and
enforcement of ERISA section 4062(e).
Sec. 4062.22 Definitions.
For purposes of this subpart B:
Active participant base has the meaning described in Sec. 4062.29.
Affected employer means an employer that ceases an operation at a
facility.
Affected operation means the operation that an affected employer
ceases.
Affected participant means an employee of an affected employer who
is a participant in an affected plan and who separates from employment
with the affected employer as a result of the affected employer's
ceasing the affected operation.
Affected plan means a single-employer plan that is maintained by an
affected employer, that is not a multiple employer plan, and that
includes as participants employees of the affected employer who
separate from employment as a result of the affected employer's ceasing
the affected operation.
Cease and cessation have the meaning described in Sec. 4062.26.
Cessation date means the date when an employer ceases an operation
at a facility as described in Sec. 4062.26.
Employer has the meaning described in Sec. 4001.2 of this chapter.
Facility and facility in any location have the meaning described in
Sec. 4062.25.
Operation has the meaning described in Sec. 4062.24.
Result has the meaning described in Sec. 4062.28.
Section 4062(e) event has the meaning described in Sec. 4062.23.
Separate and separation have the meaning described in Sec.
4062.27.
Sec. 4062.23 ``Section 4062(e) event.''
(a) In general. A section 4062(e) event occurs if--
(1) An employer maintains a single-employer plan that is not a
multiple employer plan;
(2) The employer ceases an operation at a facility in any location;
(3) As a result of the cessation, one or more persons who are
employees of the employer and participants in the plan are separated
from employment; and
(4) The number of such persons who are so separated is more than 20
percent of the active participant base associated with the cessation.
(b) Risk disregarded. Whether a section 4062(e) event has occurred
is decided without regard to the existence or non-existence, when the
event occurs or when the decision is made, of risk or apparent risk to
a plan, its participants, or PBGC. However, PBGC may assess risk in
making arrangements for satisfaction of liability for a section 4062(e)
event.
(c) Plan-by-plan application. This subpart B applies separately to
each plan of an affected employer.
Sec. 4062.24 ``Operation.''
An operation is a set of activities that constitutes an
organizationally, operationally, or functionally distinct unit of an
employer. Whether a set of activities is an operation may depend on
whether it is (or similar sets of activities are) so considered or
treated in the relevant industry, in the employer's organizational
structure or accounts, in relevant collective bargaining agreements, by
the employer's employees or customers, or by the public.
Sec. 4062.25 ``Facility'' or ``facility in any location.''
The facility (or facility in any location) associated with an
operation is the place or places where the operation is performed. A
facility is typically a building or buildings. However, a facility may
be or include any one or more enclosed or open areas or structures. The
same facility may be associated with more than one operation.
Sec. 4062.26 ``Cease'' and ``cessation.''
(a) Voluntary cessation. Unless paragraph (b) of this section
applies, an employer is considered to cease an operation at a facility
when the employer discontinues all significant activity at the facility
in furtherance of the purpose of the operation.
(b) Involuntary cessation.
(1) Cessation caused by employee action. If a discontinuance of
activity described in paragraph (a) of this section is caused by
employee action such as a strike or sickout, then the employer is
considered to cease the operation at the facility on the earlier of--
(i) The date when the employee action ends, unless within one week
after that date the employer has resumed significant activity at the
facility in furtherance of the purpose of the operation, or
(ii) The date when the employer decides not to resume significant
activity at the facility in furtherance of the purpose of the
operation.
(2) Other involuntary cessation. If a discontinuance of activity
described in paragraph (a) of this section is caused by a sudden and
unanticipated event (other than an employee action) such as a natural
disaster, then the employer is considered to cease the operation at the
facility on the earlier of--
(i) The date that is 30 days after the discontinuance, unless on
that date the employer has resumed significant activity at the facility
in furtherance of the purpose of the operation, or
(ii) The date when the employer decides not to resume significant
activity at the facility in furtherance of the purpose of the
operation.
(c) Follow-on operations disregarded. Whether an employer ceases an
operation at a facility is decided without regard to whether--
(1) The operation is continued or resumed--
(i) At another facility, or
(ii) By another employer; or
(2) When the operation is discontinued, a different operation is
undertaken.
[[Page 48292]]
Sec. 4062.27 ``Separate'' and ``separation.''
(a) In general. An employee of an employer separates from
employment when the employee discontinues the active performance,
pursuant to the employee's employment relationship with the employer,
of activities in furtherance of any of the employer's operations,
unless, when the discontinuance occurs, it is reasonably certain that
the employee will resume such active work for the employer within 30
days. However, if the 30-day period passes and the employee has not
resumed active work for the employer, the employee will be considered
to have separated from employment when the discontinuance occurred.
(b) Employees rehired or replaced. If an employer ceases an
operation at a facility, the separation from employment of an employee
who is a participant in the affected plan is disregarded in computing
the number of affected participants if the separation is before the
cessation date and, as of the cessation date, either--
(1) The employee has been rehired and is an employee of the
employer and a participant in the affected plan, or
(2) The employee has been replaced and the replacement is an
employee of the employer and a participant in the affected plan.
Sec. 4062.28 ``Result.''
(a) In general. An employee separates from employment as a result
of an employer's cessation of an operation at a facility if--
(1) The employee separates from employment with the employer, and
(2) The separation would not have occurred when it did if the
employer's cessation of the operation at the facility had not occurred.
(b) Circumstances not decisive. An employee's separation from
employment may result from an employer's cessation of an operation at a
facility--
(1) Whether separation occurs before, on, or after the cessation
date,
(2) Whether or not the employee is employed in the operation that
ceases, and
(3) Whether or not the employee is employed at the facility
associated with the operation that ceases.
(c) Presumption; voluntary cessation; involuntary separation. An
employee's separation from employment with an employer is presumed to
be a result of the employer's cessation of an operation at a facility
if--
(1) The employee is employed by the employer in the operation,
(2) The cessation is described in Sec. 4062.26(a) and not in Sec.
4062.26(b), and
(3) The employee involuntarily separates from employment with the
employer on or after the date of the employer decision pursuant to
which the cessation occurred.
(d) Presumption; voluntary cessation; voluntary separation. An
employee's separation from employment with an employer is presumed to
be a result of the employer's cessation of an operation at a facility
if--
(1) The employee is employed by the employer in the operation,
(2) The cessation is described in Sec. 4062.26(a) and not in Sec.
4062.26(b), and
(3) The employee voluntarily separates from employment with the
employer on or after the earliest date when the employer decision
pursuant to which the cessation occurred becomes known to the employee,
to employees generally, or to the public.
(e) Presumption; involuntary cessation. An employee's separation
from employment with an employer is presumed to be a result of the
employer's cessation of an operation at a facility if--
(1) The employee is employed by the employer in the operation,
(2) The cessation is described in Sec. 4062.26(b), and
(3) The employee voluntarily or involuntarily separates from
employment with the employer on or after the date of the event that
causes the cessation.
(f) Presumption; employment by new employer. An employee's
separation from employment with an employer is presumed to be a result
of the employer's cessation of an operation at a facility if--
(1) The employee is employed by the employer in the operation,
(2) Another employer (the ``new employer'') continues or resumes
the operation at the same or another facility, and
(3) The employee becomes employed by the new employer.
Sec. 4062.29 ``Active participant base.''
(a) In general. The active participant base associated with a
cessation is the total number of persons who, immediately before the
applicable date in paragraph (b) of this section, were--
(1) Participants in the affected plan, and
(2) Employees of the affected employer either--
(i) Engaged in the active performance, pursuant to their employment
relationship with the employer, of activities in furtherance of the
employer's operations, or
(ii) Reasonably certain to resume such active work for the employer
within 30 days, but a person is not counted in the active participant
base under this paragraph (a)(2)(ii) if the 30-day period passes and
the employee has not resumed active work for the employer.
(b) Applicable date. For purposes of paragraph (a) of this section,
the applicable date is--
(1) For a cessation described in Sec. 4062.26(a) and not in Sec.
4062.26(b), the date of the employer decision pursuant to which the
cessation occurred, and
(2) For a cessation described in Sec. 4062.26(b), the date of the
event that caused the cessation.
(c) ``Participant.'' For purposes of this subpart B, whether an
individual is a participant in a plan at a particular time is decided
without regard to whether the individual is accruing benefits under the
plan at that time.
Sec. 4062.30 PBGC investigations.
(a) In general. PBGC may make such investigations as it considers
necessary to enforce section 4062(e) and this subpart B and in
particular to discover whether section 4062(e) events have occurred and
whether notices required under Sec. 4062.31 have been timely filed.
(b) PBGC information requests. If PBGC requests from any person
information about any event that may be a section 4062(e) event, the
person must file the requested information within 45 days after PBGC's
request or within a different time specified in the request. PBGC may
specify a shorter time where it finds that the interests of PBGC,
participants, or the pension insurance system may be prejudiced by a
delay in the receipt of the information (for example, where timely
enforcement of section 4062(e) of ERISA may be jeopardized).
(c) Duty to update or correct. If a person that has filed
information with PBGC pursuant to a request under paragraph (b) of this
section discovers that any information so filed (including the number
of affected participants) is materially erroneous or has become
materially outdated, the person must promptly file with PBGC the
correct or updated information.
(d) PBGC determinations. On the basis of information gleaned from
an investigation or otherwise obtained, PBGC may determine that a
section 4062(e) event has occurred and determine the amount of
liability arising from the event.
Sec. 4062.31 Reporting requirement.
(a) Notice required; who must file. If a section 4062(e) event
occurs, the plan administrator of the affected plan must file a notice
of the event with PBGC. The filing of the notice constitutes a
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request that PBGC determine the liability with respect to the event.
(b) When to file.
(1) In general. Notice of a section 4062(e) event must be filed
with PBGC within 60 days after the later of--
(i) The cessation date, or
(ii) The date when the number of affected participants is more than
20 percent of the active participant base.
(2) Filing date; computation of time. See subparts C and D of part
4000 of this chapter for information on ascertaining filing dates and
computing periods of time.
(c) How to file. See Sec. Sec. 4000.3 and 4000.4 of this chapter
for information on how and where to file. Notice of a section 4062(e)
event must be filed in accordance with PBGC's instructions for filing
section 4062(e) event notices, posted on PBGC's Web site (http://www.pbgc.gov).
(d) Additional information. If PBGC requests additional information
from the plan administrator of an affected plan about a section 4062(e)
event of which the plan administrator has given notice, the plan
administrator must file the requested information within 45 days after
PBGC's request or within a different time specified in the request.
PBGC may specify a shorter time where it finds that the interests of
PBGC, participants, or the pension insurance system may be prejudiced
by a delay in the receipt of the information (for example, where timely
enforcement of section 4062(e) of ERISA may be jeopardized).
(e) Requirement for employer to provide information. An employer
that may be an affected employer must timely provide to the plan
administrator of any plan that may be an affected plan any information
that the plan administrator needs--
(1) To decide whether and when a section 4062(e) event has
occurred, and
(2) To file under this section.
(f) Duty to update or correct. If the plan administrator of an
affected plan discovers or is notified by the affected employer that
any information filed with PBGC under this section (including the
number of affected participants) is materially erroneous or has become
materially outdated, the plan administrator must promptly file with
PBGC the correct or updated information.
(g) Disregarding certain affected participants for notice purposes.
In deciding whether notice of a section 4062(e) event is required, the
due date of the notice, and the number of affected participants to be
reported in the notice (and any update or correction of the notice
under paragraph (f) of this section), a plan administrator may
disregard affected participants who were not employed at the facility
associated with the affected operation. This provision does not apply
to--
(1) PBGC investigations under Sec. 4062.30, or
(2) A request under paragraph (d) of this section for information
about affected participants who were not employed at the facility
associated with the affected operation (or any update or correction
under paragraph (f) of this section of information provided in response
to such a request).
Sec. 4062.32 Amount of liability.
(a) Determination of liability. PBGC will determine the amount of
liability with respect to a section 4062(e) event in accordance with
this section.
(b) Amount of liability. The amount of liability for a section
4062(e) event is the amount that PBGC determines to be the amount
described in section 4062 of ERISA for the entire affected plan,
computed as if the plan had been terminated by PBGC immediately after
the cessation date, multiplied by a fraction--
(1) The numerator of which is the number of affected participants,
and
(2) The denominator of which is the active participant base.
(c) Post-cessation changes disregarded. For purposes of paragraph
(b) of this section, the amount described in section 4062 of ERISA for
the entire affected plan is calculated without regard to any change in
the affected plan's assets or benefit liabilities after the cessation
date, such as an increase in assets due to receipt of contributions
after the cessation date or an increase in liabilities due to accruals
after that date.
Sec. 4062.33 Manner of satisfying liability.
(a) In general. PBGC will decide in accordance with ERISA how the
liability for a section 4062(e) event is to be satisfied. In general,
PBGC will require that liability for a section 4062(e) event be
satisfied either--
(1) By paying the amount of the liability to PBGC to be held in
escrow under section 4063(b) of ERISA, or
(2) By furnishing a bond in an amount not exceeding 150 percent of
the amount of the liability under section 4063(c)(1) of ERISA.
(b) Other arrangements. PBGC may make arrangements for satisfaction
of liability for a section 4062(e) event other than those in paragraph
(a) of this section. For example, in appropriate cases:
(1) PBGC may permit liability for a section 4062(e) event to be
satisfied through one or more additional plan funding contributions
that would not be added to the plan's prefunding balance.
(2) If an affected operation is continued or resumed by another
employer (the ``new employer''), and the new employer employs in the
operation persons who were employed by the affected employer in the
operation, PBGC may permit the liability for the section 4062(e) event
to be satisfied by the new employer's adoption or maintenance of the
affected plan or of a plan that holds substantially all of the
liabilities and assets of the affected plan attributable to employees
employed in the affected operation.
Sec. 4062.34 Recordkeeping.
(a) Each employer that maintains a single-employer plan that is not
a multiple employer plan, and the plan administrator of each such plan,
must keep for five years, with respect to any discontinuance of all
significant activity in furtherance of the purpose of an operation of
the employer at a facility, all records that bear on whether there was
a section 4062(e) event and on the calculation of liability with
respect to the event.
(b) If PBGC finds that an employer or plan administrator referred
to in paragraph (a) of this section has failed to keep records
sufficient to determine whether a section 4062(e) event has occurred or
the amount of liability arising from such an event, PBGC may make such
determination on the basis of reasonable assumptions not inconsistent
with information that PBGC knows of and considers reliable.
Sec. 4062.35 Waivers.
PBGC may waive any provision of this subpart B to accommodate the
facts and circumstances of particular cases and promote the equitable
and rational interpretation and application of title IV.
PART 4063--WITHDRAWAL LIABILITY; PLANS UNDER MULTIPLE CONTROLLED
GROUPS
9. The authority citation for part 4063 continues to read as
follows:
Authority: 29 U.S.C. 1302(b)(3).
10. In section 4063.1, paragraph (a) is amended by revising the
second sentence to read as follows:
Sec. 4063.1 Cross references.
(a) * * * Part 4062 also sets forth rules under section 4062(e) of
ERISA, including rules for reporting section 4062(e) events and for
calculating and satisfying liability arising from such events.
* * * * *
[[Page 48294]]
Issued in Washington, DC, August 4, 2010.
Joshua Gotbaum,
Director, Pension Benefit Guaranty Corporation.
[FR Doc. 2010-19627 Filed 8-9-10; 8:45 am]
BILLING CODE 7709-01-P