By Paula Aven Gladych
The Pension Benefit Guaranty Corporation is changing how it helps preserve pension plans by targeting enforcement where plans are at risk and reducing requirements where they are not.
“Instead of using a one-size-fits-all approach, we are focusing on the handful of companies that pose real risk,” said PBGC Director Josh Gotbaum
. “For most companies, it will mean fewer requirements and less hassle — and it will let us use our resources where they’re really needed.”
As a result, 92 percent of companies that sponsor pension plans will not face enforcement efforts. This includes small plans with 100 participants or less.
The PBGC made these changes in response to a presidential request to review and reconsider regulatory requirements.
The organization plans to apply the new approach to its financial assurance program under ERISA’s section 4062(e). No new financial soundness standards will be created. It will examine each case and use measures of financial soundness that are already available and used by companies and plans.
Whenever a company ceases operations and lays off a substantial amount of the people in the pension plan, PBGC requires financial assurance in some form, either through additional contributions to the plan or a letter of credit guaranteeing future contributions.
Historically, this requirement has been enforced regardless of the size of the plan or the financial health of the sponsoring company. The business community argued that this imposed a burden even where there was little threat to the retirement security of their employees or the agency. After careful review, PBGC agreed.
PBGC is starting a pilot program that focuses enforcement on companies where there is a higher risk of default. Companies that are financially sound by existing measures will not be required to provide financial assurance of any kind.
This pilot program is an exercise of PBGC’s discretionary enforcement authority. It will be modified based on experience.
Originally published on BenefitsPro.com