By Paula Aven Gladych
A number of retirement industry groups have written letters of concern about the Pension Benefit Guaranty Corporation’s proposed regulations regarding reportable events requirements.
In April, the PBGC issued proposed regulations under the Employee Retirement Income Security Act that would change the circumstances under which plan administrators would have to notify the PBGC about problems with their pension plans. The goal of the rule was to eliminate unnecessary reporting from small plans that were not at risk of defaulting and focus the agency's attention on those plans that are at risk.
According to the PBGC, pension plan sponsors would not have to report most events that are currently covered by ERISA
if they meet certain critieria regarding their financial soundness.
"In this way, PBGC can reduce unnecessary reporting requirements, while at the same time target its resources to plans that are at risk. The revised proposal will exempt more than 90 percent of plans and sponsors from many reporting requirements" and reporting requirements would be simpler and more uniform," the agency said.
Many industry trade groups believe the rules will have the opposite effect, putting more of a burden on companies that can't afford to spare the resources proving their plans are financially sound.
The ERISA Industry Committee, a Washington, D.C.-based trade association that represents America’s major employers, asked PBGC
not to move forward with its plan because the group feels current regulations do enough.
Since the passage of the Pension Protection Act of 2006, plan sponsors have been making required minimum contributions to improve their plans’ ERISA funding levels; some have been contributing more than the required minimum amount.
The ERISA committe contends that the proposed regulations would require plan sponsors to divert a portion of those contributions to pay service providers to help comply with new regulatory requirements without materially enhancing the financial position of the PBGC.
ERIC also expressed concern that the safe harbors for plans and for companies in the proposed regulations
are either unworkable or are not useful in their current form.
The proposed regulations include safe harbors for plans that are either fully funded on a termination basis or that are 120-percent funded on a premium basis. ERIC said that most companies do not regularly calculate their plans’ unfunded benefit liabilities on a plan termination basis. Additionally, the overwhelming majority of plans will not qualify for the premium safe harbor, it said.
The American Benefits Council also expressed concern about the proposed rules, particularly the provision that would use the financial soundness of a plan sponsor as a factor in PBGC’s exercise of its enforcement authority.
“While the financial soundness test could decrease the reporting burden on some ‘stronger’ companies, the proposal has the effect of increasing the burden on ‘less strong’ companies by imposing more burdensome requirements that would be imposed if the reporting requirements applied equally to all companies,” according to the council.
The ABC also believes the financial soundness test would lead to more de-risking of pension plans.
The American Academy of Actuaries put in its two cents about the financial soundness test, too.
It said it would like to see a "proper" balance between company soundness and plan soundness. A sponsor that only marginally falls short of both the company and plan financial soundness criteria might pose little risk to PBGC, the organization said in a letter.
“Although it is true that PBGC's risk generally increases as funding levels decrease, we believe the proposed thresholds are too high. Very few sponsors would fund to these levels because if the plan sponsor later opted to undergo a standard termination with no cost to PBGC any surplus could only be retrieved after paying an onerous excise tax. The proposal would subject to reporting many plans that have higher than average funding levels and, as such, pose low risk to PBGC.”
Originally published on BenefitsPro.com