[Code of Federal Regulations]
[Title 29, Volume 9]
[Revised as of July 1, 2005]
From the U.S. Government Printing Office via GPO Access
[CITE: 29CFR4022.61]

[Page 799-801]
 
                             TITLE 29--LABOR
 
            CHAPTER XL--PENSION BENEFIT GUARANTY CORPORATION
 
PART 4022_BENEFITS PAYABLE IN TERMINATED SINGLE-EMPLOYER PLANS--Table 
of Contents
 
            Subpart D_Benefit Reductions in Terminating Plans
 
Sec. 4022.61  Limitations on benefit payments by plan administrator.


    (a) General. When Sec. 4041.42 of this chapter requires a plan 
administrator to reduce benefits, the plan administrator shall limit 
benefit payments in accordance with this section.
    (b) Accrued benefit at normal retirement. Except to the extent 
permitted by paragraph (d) of this section, a plan administrator may not 
pay that portion of a monthly benefit payable with respect to any 
participant that exceeds the participant's accrued benefit payable at 
normal retirement age under the plan. For the purpose of applying this 
limitation, post-retirement benefit increases, such as cost-of-living 
adjustments, are not considered to increase a participant's benefit 
beyond his or her accrued benefit payable at normal retirement age.
    (c) Maximum guaranteeable benefit. Except to the extent permitted by 
paragraph (d) of this section, a plan administrator may not pay that 
portion of a monthly benefit payable with respect to any participant, as 
limited by paragraph (b) of this section, that exceeds the maximum 
guaranteeable benefit under section 4022(b)(3)(B) of ERISA and Sec. 
4022.22(b) of this part, adjusted for age and benefit form, for the year 
of the proposed termination date.
    (d) Estimated benefit payments. A plan administrator shall pay the 
monthly benefit payable with respect to each participant as determined 
under Sec. 4022.62 or Sec. 4022.63, whichever produces the higher 
benefit.
    (e) PBGC authority to modify procedures. In order to avoid abuse of 
the plan termination insurance system, inequitable treatment of 
participants and beneficiaries, or the imposition of unreasonable 
burdens on terminating plans, the PBGC may authorize or direct the use 
of alternative procedures for determining benefit reductions.
    (f) Examples. This section is illustrated by the following examples:

    Example 1--Facts. On October 10, 1992, a plan administrator files 
with the PBGC a notice of intent to terminate in a distress termination 
that includes December 31, 1992, as the proposed termination date. A 
participant who is in pay status on December 31, 1992, has been 
receiving his accrued benefit of $2,500 per month under the plan. The 
benefit is in the form of a joint and survivor annuity (contingent 
basis) that will pay 50 percent of the participant's benefit amount 
(i.e., $1,250 per month) to his surviving spouse following the death of 
the participant. On December 31, 1992, the participant is age 66, and 
his wife is age 56.
    Benefit reductions. Paragraph (b) of this section requires the plan 
administrator to cease paying benefits in excess of the accrued benefit 
payable at normal retirement age. Because the participant is receiving 
only his accrued benefit, no reduction is required under paragraph (b).
    Paragraph (c) of this section requires the plan administrator to 
cease paying benefits in excess of the maximum guaranteeable benefit, 
adjusted for age and benefit form in accordance with the provisions of 
subpart B. The maximum guaranteeable benefit for plans terminating in 
1992, the year of the proposed termination date, is $2,352.27 per month, 
payable in the form of a single life annuity at age 65. Because the 
participant is older than age 65, no adjustment is required under Sec. 
4022.23(c) based on the annuitant's age factor. The benefit form is a 
joint and survivor annuity (contingent basis), as defined in Sec. 
4022.23(d)(2). The required benefit reduction for this benefit form 
under Sec. 4022.23(d) is 10 percent. The corresponding adjustment 
factor is 0.90 (1.00-0.10). The benefit reduction factor to adjust for 
the age difference between the participant and the beneficiary is 
computed under Sec. 4022.23(e). In computing the difference in ages, 
years over 65 years of age are not taken into account. Therefore, the 
age difference is 9 years (65-56). The required percentage reduction 
when the beneficiary is 9 years younger than the participant is 9 
percent. The corresponding adjustment factor is 0.91 (1.00-0.09).
    The maximum guaranteeable benefit adjusted for age and benefit form 
is $1,926.51 ($2,352.27x0.90x0.91) per month. Therefore, the

[[Page 800]]

plan administrator must reduce the participant's benefit payment from 
$2,500 to $1,926.51. If the participant dies after December 31, 1992, 
the plan administrator will pay his spouse $963.26 (0.50x$1,926.51) per 
month.
    Example 2--Facts. The benefit of a participant who retired under a 
plan at age 60 is a reduced single life annuity of $400 per month plus a 
temporary supplement of $400 per month payable until age 62 (i.e., a 
step-down benefit). The participant's accrued benefit under the plan is 
$450 per month, payable from the plan's normal retirement age. On the 
proposed termination date, June 30, 1992, the participant is 61 years 
old.
    The maximum guaranteeable benefit adjusted for age under Sec. 
4022.23(c) of this chapter is $1,693.63 ($2,352.27 x 0.72) per month. 
Since the benefit is payable as a single life annuity, no adjustment is 
required under Sec. 4022.23(d) for benefit form.
    Benefit reductions. The plan benefit of $800 per month payable until 
age 62 exceeds the participant's accrued benefit at normal requirement 
age of $450 per month. Paragraph (b) of this section requires that, 
except to the extent permitted by paragraph (d), the plan benefit must 
be reduced to $450 per month. Since the levelized benefit of $404.10 
((0.082 x 50) + $400) per month, determined under Sec. 4022.23(f), is 
less than the adjusted maximum guaranteeable benefit of $1,693.63 per 
month, no further reduction in the $450 per month benefit payment is 
required under paragraph (c) of this section. The plan administrator 
next would determine the amount of the participant's estimated benefit 
under paragraph (d).
    Example 3--Facts. A retired participant is receiving a reduced early 
retirement benefit of $1,100 per month plus a temporary supplement of 
$700 per month payable until age 62. The benefit is in the form of a 
single life annuity. On the proposed termination date, November 30, 
1992, the participant is 56 years old.
    The participant's accrued benefit at normal retirement age under the 
plan is $1,200 per month. The maximum guaranteeable benefit adjusted for 
age is $1,152.61 ($2,352.27 x 0.49) per month. A form adjustment is not 
required.
    Benefit reductions. The plan benefit of $1,800 per month payable 
from age 56 to age 62 exceeds the participant's accrued benefit at 
normal retirement age of $1,200 per month. Therefore, under paragraph 
(b) of this section, the plan administrator must reduce the temporary 
supplement to $100 per month.
    For the purpose of determining whether the reduced benefit, i.e., a 
level-life annuity of $1,100 per month and a temporary annuity 
supplement of $100 per month to age 62, exceeds the maximum 
guaranteeable benefit adjusted for age, the temporary annuity supplement 
of $100 per month is converted to a level-life annuity equivalent in 
accordance with Sec. 4022.23(f) of this chapter. The level-life annuity 
equivalent is $38.70 ($100 x 0.387). This, added to the life annuity of 
$1,100 per month, equals $1,138.70. Since the maximum guaranteeable 
benefit of $1,152.61 per month exceeds $1,138.70 per month, no further 
reduction is required under paragraph (c) of this section.
    The plan administrator next would determine the participant's 
estimated benefit under paragraph (d). Assume that the estimated benefit 
under paragraph (d) is $780 per month until age 62 and $715 per month 
thereafter. The plan administrator would pay the participant $780 per 
month, reduced to $715 per month at age 62, subject to the final benefit 
determination made under title IV.
    Example 4--Facts. A retired participant is receiving a reduced early 
retirement benefit of $2,650 per month plus a temporary supplement of 
$800 per month payable until age 62. The benefit is in the form of a 
joint and survivor annuity (contingent basis) that will pay 50 percent 
of the participant's benefit amount to his surviving spouse following 
the death of the participant. On the proposed termination date, December 
20, 1992, the participant and his spouse are each 56 years old.
    The participant's accrued benefit at normal retirement age under the 
plan is $3,000 per month. The maximum guaranteeable benefit adjusted for 
age and the joint and survivor annuity (contingent basis) annuity form 
is $1,037.35 per month. An adjustment for age difference is not required 
because the participant and his spouse are the same age.
    Benefit reductions. The plan benefit of $3,450 per month payable 
from age 56 to age 62 exceeds the participant's accrued benefit at 
normal retirement age, which is $3,000 per month. Therefore, under 
paragraph (b) of this section, the plan administrator must reduce the 
participant's benefit so that it does not exceed $3,000 per month.
    The level-life equivalent of the participant's reduced benefit, 
determined using the Sec. 4022.23(f) adjustment factor, is $2,785.45 
(($350 x 0.387) + $2,650) per month. Since this benefit exceeds the 
participant's maximum guaranteeable benefit of $1,037.35 per month, the 
plan administrator must reduce the participant's benefit payment so that 
it does not exceed the maximum guaranteeable benefit.
    The ratio of (i) the participant's maximum guaranteeable benefit to 
(ii) the level-life equivalent of the participant's reduced benefit 
(computed under the ``accrued for normal retirement age'' limitation) is 
used in converting the level-life maximum guaranteeable benefit to the 
step-down benefit form. The level-life equivalent of the reduced benefit 
computed under the ``accrued for normal retirement age'' limitation is 
37.24 percent ($1,037.35/$2,785.45). Thus, the plan administrator must 
reduce the participant's level-life benefit of $2,650 per month to

[[Page 801]]

$986.86 ($2,650 x 0.3724) and must further reduce the reduced temporary 
benefit of $350 per month to $130.34 ($350 x 0.3724). Under paragraph 
(c) of this section, therefore, the participant's maximum guaranteeable 
benefit is $1,117.20 ($986.86 + $130.34) per month to age 62 and $986.86 
per month thereafter, subject to any adjustment under paragraph (d) of 
this section.
    Assume that the estimated benefit under paragraph (d) is $1,005.48 
per month to age 62 and $888.17 per month thereafter. The plan 
administrator would reduce the participant's benefit from $3,450 per 
month to $1,005.48 per month and pay this amount until age 62, at which 
time the benefit payment would be reduced to $888.17 per month, subject 
to the final benefit determination made under title IV.

[61 FR 34028, July 1, 1996, as amended at 62 FR 60428, Nov. 7, 1997]