PBGC Changes ERISA 4010 Reporting Requirements
By Mark Johnson, Ph.D., J.D.


Under a new final rule issued by the Pension Benefit Guaranty Corp. (PBGC),a greater number of benefitplan sponsors may have to perform Section 4010 reportingbecause they no longer qualify for reporting waivers.


Section 4010 of the Employee Retirement Income Security Act (ERISA) requires certain underfunded plans to report identifying, financial and actuarial information to the PBGC.


The PBGC’s ability to intervene in troubled benefit plans when necessary to protect benefit levels and take corrective action was being significantly hampered by this lack of information. As a result, the agency was not able to provide Congress with accurate and timely reporting, including projecting its potential liabilities.


The final PBGC rule, published on March 23, 2016, changes the Section 4010 reporting requirements as outlined below.


• Requires controlled groups with underfunded levels of less than $15 million to calculate such levels without the use of interest rate stabilization rules.


• Allows a reporting waiver for controlled groups with fewer than 500 participants.


• Establishes an alternate method for compliance with “at risk funding targets.”


• Finalizes Technical Updates 12-2 and 14-2 to reflect the impact of MAP-21 and HAFTA legislation on 4010 reporting.


Two additional, and new, waivers for plans with liens totaling $1 million or greater for missed contributions or that have outstanding minimum funding waivers greater than $1 million, provided certain other reporting requirements have been met, were also added.


In issuing the final rule, the PBGC sought to balance its own reporting needs to Congress with the reporting burdens placed on those required to provide financial and actuarial information to the agency. The new rule is intended to reduce reporting burdens while also allowing the PBGC to function effectively in accordance with its mandate.


Plan sponsors will face increased difficulty when trying to obtain a current reporting waiver, following changes made by the PBGC to the use of interest stabilization issues as well as the technical rule changes.


Previously, smaller plans funded at levels greater than 80 percent or underfunded by less than $15 million were able to obtain reporting waivers. The new rule eliminates the use of stabilized interest rates when determining the $15 million underfunding threshold and instead utilizes non-stabilized rates to determine funding shortfalls. The underfunded threshold for reporting waivers remains at $15 million, and can apply to any sized plan.


A larger than expected number of benefit plan sponsors were using legislatively-approved higher interest rates (also referred to as “stabilized interest rates”) to qualify for reporting waivers.


The previous, more relaxed reporting waiver rule resulted in a situation where the PBGC was no longer receiving information from 200 controlled groups that were previously required to report. These plans used stabilized interest rates to gain the reporting waiver.


The information available to the PBGC based on Form 5500 filings alone was not as up-to-date or thorough as desired. The resulting situation was one in which the “[p]pension insurance system was significantly undermined,” according to industry reports.


The new rule clarifies when stabilized rates are and are not taken into account related to 4010 reporting. In issuing its guidance and making the rule change, the PBGC was surprised the public comments supported the use of non-stabilized rates despite the potential need for alternate calculations to be made.


The new PBGC rule takes effect for reporting years beginning on or after January 1, 2016, with filings due on or after April 17, 2017.


The agency has some discretion to issue waivers and extensions in some circumstances according to the new final rule. In addition, the final rule provides alternative reporting methods for some types of actuarial information and makes a few technical changes to the regulation.


Section 4010 Rules Update MAP-21 and BBA Initiatives


The corrective action being taken by the PBGC has roots in two earlier legislative initiatives. The Moving Ahead for Progress in the 21st Century Act (“MAP-21”) was signed into law on July 6, 2012 and took effect for plan years beginning on or after January 1, 2012.


A key provision of the law was to provideinterest-rate stabilization for defined benefit (DB) plans struggling with the effects of low interest rates. The lower interest rates translated into larger funding requirements. MAP-21 also increased both flat-rate and variable-rate PBGC premiums beginning in 2013.


Three years later, the Bipartisan Budget Act of 2015 (“BBA”) was signed into law on November 1, 2015. Tucked away in this bill—intended primarily to increase federal spending limits and raise the debt ceiling—were two pension provisions, one of which allowed single employer defined benefit plans to calculate pension obligations in a favorable way that decreased minimum funding requirements.


April, 2016



ABOUT THE AUTHOR: Mark Johnson, J.D., Ph.D. Mark Johnson, Ph.D., J.D., is a highly experienced 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.


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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