ERISA Reportable Events for Active Participant Reductions
By Mark Johnson, Ph.D., J.D.
As coronavirus-related workforce reductions increase, employers should be mindful of their reporting obligations to the Pension Benefit Guaranty Corporation (PBGC) under the Employee Retirement Income Security Act (ERISA).
Effective March 5, 2020, PBGC using its regulatory discretion, modified reporting requirements under Section 4043 of ERISA. These provisions require employers to give notice to the PBGCof certain “reportable events” that may signal financial trouble with pension plans or contributing employers. The PBGC also has the authority under Section 4043 to waive reporting requirements undercertain circumstances. The PBGC made these changes to Section 4043 as part of their ongoing efforts to provide clarity, corrections, and improvements to ERISA.
Reportable events that must be disclosed to the PBGC include but are not limited to the following:
• Missed contributions
• Insufficient funds
• Large pay-outs
• Sponsor loan defaults
• Controlled group changes
These reportable events are considered to present a risk to a sponsor’s ability to continue to maintain their plans. Timely notification to the PBGC is intended to provide the agency with the time needed to encourage the continuation of such plans.
One event that may require notification to PBGC under Section 4043.23 is “active participant reduction.” An active participant is defined as a plan participant who is receiving compensation for work performed. An active participant reduction generally occurs through two different ways: 1) single-cause events, or 2) attrition events.
A single-cause event often occurs through employer reorganization or layoffs, which must be reported to the PBGC within 30 days of an occurrence if the event causes more than a 20 percent reduction in active plan participants in one year. However, in the event of normal attrition, which would be the normal hiring and departure of employees, such events need not be reported to PBGC until the premium filing due date for the plan year following the event year. This does not mean that employers who are laying off active participants at rates less than the 20 percent threshold do not have to report.
In the event of multiple single-cause events that do not meet the 20 percent threshold separately, such events will be reported as an attrition event if the 20 percent threshold is met when the actions are taken together. In the event of multiple single-cause events, each event must be reported separately to PBGC.
Active participant reduction notification is waived under the following circumstances:
• Small plans (plans with 100 or fewer participants for which only a flat-rate premium had to be paid to PBGC for the prior plan year)
• Low-default risk plan sponsors (sponsors that meet PBGC financial criteria)
• Well-funded plans (plans that had no variable rate premium due for the prior plan year)
• Public company plan sponsors (only if such sponsors timely filed an SEC Form 8-K which disclosed the relevant active participant reduction in sections other than those relating to Results of Operation or Financial Statements)
• Plan sponsor required to report to PBGC under ERISA Section 4062(e) (with regard to the same plan)
Another event that qualifies as a reportable event and requires PBGC notification is a change in contributing sponsors of controlled groups. Under ERISA Section 4043.29, a reportable event occurs when there is a transaction that results, or will result, in one or more persons’ ceasing to be a member of the plan’s controlled group.
ERISA Notification Requirements for Plan Liquidation
Section 4043.30(a)(1) of ERISA also requires employers to report when they plan to liquidate. Liquidation occurs when a member of the plan’s controlled group “resolves to cease all revenue-generating business operations, sell substantially all of its assets, or otherwise effect or implement its complete liquidation (including liquidation into another controlled group member) by decision of the member’s board of directors (or equivalent body such as the managing partners or owners) or other actor with the power to authorize such cessation of operations or liquidation.”
A member that has reported to the PBGC as a result of insolvency also does not need to report liquidation. In order to avoid duplicative reporting and given the similarities between the two events, PBGC believes that reporting under either Section 4043.40 Liquidation or Section 4043.35 Insolvency is sufficient.
Public companies thatplan to liquidate do not have to report such liquidation plans to the PBGC as soon as these plans arise. Section 4043.30(c) of ERISA gives an extension for filing such an event until the earlier of the timely filing of an SEC Form 8-K disclosing the liquidation or the issuance of a press release discussing the liquidation.
PBGC reporting obligations are waived for five reportable events (active participant reductions, distributions to a substantial owner, changes in contributing sponsors or controlled groups, extraordinary dividend or stock redemptions, and transfers of benefit liabilities) if any contributing sponsor of the plan is a public company and the contributing sponsor timely files an SEC Form 8-K that properly discloses the reportable event.
All above reporting obligations are applicable to events occurring on or after March 5, 2020.
Consult with an Experienced ERISA Attorney
The PBGC pension reporting rules under ERISA are complex and can vary based on plan circumstances. Plan sponsors are advised to obtain guidance from experienced counsel in regard to their individual PBGC reporting requirements.
About Pension and ERISA Expert Mark Johnson
Mark Johnson, Ph.D., J.D., is an experienced pension and ERISA expert. As a former ERISA Plan Managing Director and plan fiduciary for a Fortune 500 company, Dr. Johnson has practical knowledge of plan documents as well as an in-depth understanding of ERISA obligations. He works as an expert consultant and witness on 401(k), ESOP and pension fiduciary liability; retiree medical benefit coverage; third party administrator disputes; individual benefit claims; pension benefits in bankruptcy; long term disability benefits; and cash conversion balances. He can be reached at 817-909-0778 or www.erisa-benefits.com.
ERISA Benefits Consulting, Inc. by Mark Johnson provides benefit consulting and advisory services and does not engage in the practice of law.
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