PBGC places moratorium on shutdown ruleNews added by Benefits Pro on July 9, 2014

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By Nick Thornton

The Pension Benefit Guaranty Corp. on Tuesday announced a moratorium on the enforcement of ERISA 4062(e) regulation cases until the end of the year.

The regulation grants the PBGC the authority, under ERISA, to levy fees against defined benefit plans when a company ceases operations at a facility through a shutdown or sale, and when 20 percent of the workers in a plan lose their jobs.

In the past seven years, the PBGC has used 4062(e) to protect pensions covering 180,000 people in 35 states, it said.

Also read: PBGC enforcement tactics draw fire

“The moratorium will enable PBGC to ensure that its efforts are targeted to cases where pensions are genuinely at risk,” the PBGC said in a statement. “The six-month period will also allow us to work with the business community, labor and other stakeholders.”

The PBGC already made changes to how it enforced 4062(e) in 2012, exempting more than 90 percent of plan sponsors from enforcement.

“PBGC’s mission is to preserve pensions and jobs,” PBGC Director Josh Gotbaum said in the agency’s news release Tuesday. “We have targeted our enforcement efforts to be mindful of both. This latest action will give PBGC time to be more thoughtful and more effective.”

Notwithstanding the relaxed enforcement standards, industry interests continued to report uncertainty over 4062(e), and concerns that the regulation led to assessments on transactions that had no consequence on the overall health of certain defined benefit plans.

Gotbaum’s statement said the moratorium will be used to further work with plan sponsors to minimize the effects on business activities.

Employers were instructed to continue to report facility sales or closures, but were also assured that the PBGC will take no action through the end of the year.
Last month, a consortium of benefits advocates and business leaders wrote a letter to the secretaries of Labor, Commerce and Treasury claiming that the PBGC’s enforcement policies are inconsistent with the law, are hurting business planning and, ultimately, enrollees in private-sector pensions.

The letter claimed the PBGC’s enforcement of 4062(e) was costing businesses hundreds of millions of dollars and diverting assets from investments in infrastructure and labor.

On Tuesday, Jan Jacobson, senior counsel at the American Benefits Council, said the group welcomed the moratorium.

“We'll be happy to work with the PBGC to help find a permanent solution to the 4062(e) enforcement problem," Jacobson said. “I think Director Gotbaum is listening to input from stakeholders. The moratorium will give them time to analyze what other changes need to be made."

Last week, Constance Donovan, the participant and plan sponsor advocate at the PBGC, told BenefitsPro.com the agency needs to do a “better job of understanding who the customer is — the plan participants, the plan sponsors, the trade and advocacy groups. We are a government agency here to help business. We have to have a better business sense.”

The problem with enforcement of 4062(e), as Donovan sees it, is that the “PBGC has too broad of an interpretation of what constitutes a cessation of operations.”

“A transaction may pose no threat whatsoever to a sponsor’s pension plan, but it’s perceived that way by the PBGC,” said Donovan.

Since 2007, 130 4062(e) assessments have been levied, according to Donovan. In no cases have those plans been terminated.

Originally published on BenefitsPro.com
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