Guest Article

(From the February 2, 2009 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

PBGC Clarifies How to Make Funding-Related Determinations for Reportable Events in 2009

Addressing the misfit resulting from PPA's modification of the way variable rate premiums are determined, PBGC issued a Technical Update clarifying how to apply the advance reporting threshold test and the funding-based waivers under the reportable events regulation for event years beginning in 2009. In determining the assets, vested benefits and unfunded vested benefits, the values for the preceding plan year as determined under the 2008 PBGC premium regulations are to be used. PBGC Technical Update 09-1 (01/09/09).

Funding-Based Waivers and Exceptions

Plan administrators and contributing sponsors are required to notify PBGC within 30 days after a reportable event occurs under ERISA § 4043(a) (e.g., when the plan is unable to pay benefits when due, distribution is made to a substantial owner, the plan merges or consolidates, etc.). However, certain waivers of this notice requirement are provided based upon the ratio of assets to vested benefits and the level of unfunded vested benefits (UVBs) for the plan year in which the event occurs (the "event plan year"). The calculation is made as of the "testing date" for the event plan year. The "testing date" corresponds with the date the variable-rate premium (VRP) is determined -- which, prior to the Pension Protection Act (PPA) of 2006, was generally the last day of the plan year preceding the event plan year (or in some cases, the first day of the event plan year).

Similarly, ERISA § 4043(b) requires certain non-public companies to notify PBGC at least 30 days in advance of particular reportable events (e.g., changes in the controlled group, declaration of extraordinary dividends, etc.). Non-public companies are subject to this advance notice requirement if a threshold test is met: (i) the UVBs of the controlled group exceed $50 million (disregarding plans with no UVBs), and (ii) the ratio of assets to vested benefits for the underfunded plans is less than 90%. The UVBs, assets and vested benefits are determined under the VRP rules as of the close of the preceding plan year -- i.e., as of the testing date for the event plan year.

Effective for plan years beginning after 2007, PPA modified the way the VRP is determined, requiring the amount of assets, vested benefits and UVBs (together, the "VRP values") to be determined as of the UVB valuation date (i.e., the funding valuation date for the premium payment year). Instead of the last day of the plan year, the UVB valuation date for a plan year is a day within the plan year -- typically the first day of the plan year, but for certain small plans it may be any day. As a result, for plan years beginning after 2007, the reportable events "testing date" no longer corresponds with the VRP determination date under the premium regulations. PBGC Technical Update 07-2 provided guidance on how this incongruity was to be resolved for event plan years beginning in 2008 (i.e., for 2008, the VRP values were to be determined as of the testing date using pre-PPA rules).

2009 Event Plan Years

For event plan years beginning in 2009, the testing date (i.e., last day of the prior plan year or first day of the current plan year) will always be one for which the new PPA variable rate premium rules are effective -- and one on which the VRP values are typically not known. However, the prior year's VRP values, determined as of the prior year's valuation date, are knowable on the testing date. Therefore, PBGC advises that, in applying the reportable events regulations for event plan years beginning in 2009, the prior-year VRP values -- that is, the value of assets and vested benefits and the amount of UBVs for the plan year preceding the event plan year, determined under the PBGC premium regulations as amended in 2008 -- are to be treated as the VRP values as of the testing date.

In applying the Form 1 extension for event plan years beginning in 2009, however, the VRP values for 2008 may be determined either under this method or under the rules set forth in Technical Update 07-2.

The Technical Update is available on the PBGC website.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Mark Neilio 202.378.5046, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2009, Deloitte.