Guest Article

(From the January 22, 2008 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

PBGC Proposes Rules on New Termination Information Disclosure Requirements

The Pension Benefit Guaranty Corporation (PBGC) has issued proposed regulations on the new termination information disclosure requirements for single-employer pension plan sponsors, administrators, and the PBGC. 72 FR 68542 (December 5, 2007). These new disclosure requirements were added to ERISA by the Pension Protection Act (PPA) of 2006 (P.L. 109-280), and are effective for distress and PBGC-initiated terminations initiated on or after August 17, 2006 -- the date the PPA was enacted. Comments on these proposed rules must be submitted by February 4, 2008.

Background

The PPA amended ERISA §§ 4041 and 4042 to require plan administrators and the PBGC to disclose certain information about a pending distress termination or PBGC-initiated termination to participants and other "affected parties" upon request. In addition to plan participants, "affected parties" include plan beneficiaries, employee organizations representing plan participants, and the PBGC.

In the case of an ERISA § 4041(c) distress termination, the plan administrator must provide the termination information to an affected party within 15 days of receiving the request. Similarly, the plan administrator and plan sponsor must provide termination information to an affected party within 15 days of receiving the request in the event of an ERISA § 4042 PBGC-initiated termination. Additionally, for PBGC-initiated terminations affected parties can request a copy of the PBGC's administrative record. The PBGC also must comply within 15 days of receiving this request.

When making a required disclosure, a plan sponsor or plan administrator is forbidden from providing information that "may directly or indirectly be associated with, or otherwise identify, an individual participant or beneficiary." However, a plan sponsor or plan administrator must go to court if it wants to exclude trade secrets and other confidential information that otherwise must be included in a required disclosure. Pursuant to a court order, the plan sponsor or plan administrator could limit disclosure of such information to authorized representatives who agree to ensure its confidentiality. The court order can apply only with respect to information that would be exempt from disclosure under the Freedom of Information Act (FOIA).

Requests Must Be in Writing

The proposed regulations would clarify that these requests for termination information by affected parties must be made to the plan sponsor, plan administrator, or PBGC in writing. Additionally, the proposed regulations would establish content requirements for these written requests, including information about who is making the request and how that person qualifies as an affected party.

Timing

Once the plan sponsor, plan administrator, or PBGC receives a written request for termination information from an affected party, it generally must comply within 15 days. The proposed regulations would clarify that this deadline is based on "business" days as opposed to "calendar" days. Existing PBGC regulations defines "business day" as "a day other than a Saturday, Sunday, or Federal holiday." See PBGC Reg. § 4000.22. Note, state holidays are not considered holidays under these rules.

Distress Terminations: What Plan Administrator Must Disclose

When seeking a distress termination, the plan administrator must give a notice of intent to terminate to each affected party. Additionally, the plan administrator must file a Form 600, Distress Termination, Notice of Intent to Terminate, with the PBGC. Even more information subsequently must be filed with the PBGC, pursuant to PBGC regulations.

The statute (ERISA § 4042(c)(2)(D)) could be read to require a plan administrator to is close only the information included in the Form 600 when responding to a request for termination information from an affected party. However, the proposed regulations would provide that the Form 600 plus any additional information filed with the PBGC must be disclosed.

Of course, it is possible an affected party could make a written request for termination information before the plan administrator has filed all of this additional information with the PBGC. Thus, the proposed regulations would require the plan administrator to provide such additional information to all affected parties that had previously made requests within 15 business days of filing the additional information with PBGC.

PBGC-Initiated Termination: What Plan Sponsor and Plan Administrator Must Disclose

Unlike the situation with distress terminations, there is little question about the scope of the plan sponsor's or plan administrator's termination information disclosure obligation in the case of a PBGC-initiated termination. According to ERISA § 4042(c)(3)(A)(i) --

Like distress terminations, the disclosure obligation in this situation is not limited to the information that has been filed with the PBGC at the time of the affected party's request. The proposed regulations would require the plan sponsor or plan administrator to provide any additional information subsequently filed with the PBGC to any affected parties who had previously made requests for termination information. The deadline for providing this additional information is 15 business days after it has been filed with the PBGC.

An affected party may not request information about a PBGC-initiated termination until after the plan administrator has received a Notice of Determination from the PBGC that the plan should be terminated. For this purpose, the proposed regulations would adopt an assumption that the plan administrator received the Notice of Determination three business days after it was issued by the PBGC. As a result, affected parties may submit their written requests for termination information beginning the third business day after the PBGC issued the Notice of Determination regardless of whether the plan sponsor or plan administrator actually has received the Notice.

Penalties for Failing to Timely Disclose

If a plan sponsor or plan administrator fails to timely disclose termination information when required to do so, the PBGC may impose penalties as provided under ERISA § 4071. The maximum penalty is $1,100 per day.

PBGC-Initiated Terminations: What PBGC Must Disclose

Within 15 business days of receiving a request for disclosure information from an affected party, the PBGC must "provide a copy of the administrative record, including the trusteeship decision record of a termination of a plan." ERISA § 4042(c)(3)(A)(ii). These requests can be submitted to the PBGC only after the plan administrator receives a Notice of Determination that the plan should be terminated. The proposed regulations would adopt an assumption that a plan administrator receives a Notice of Determination three business days after the PBGC issues it.

Confidential Information

As noted, a plan sponsor or plan administrator may not disclose information "that may directly or indirectly be associated with, or otherwise identify, an individual participant or beneficiary." Furthermore, a plan sponsor or plan administrator can seek a court order to limit disclosure of certain confidential information that would be exempt from disclosure under the FOIA. The PBGC is not subject to these provisions.

However, the PBGC is subject to the Privacy Act, which prohibits PBGC from "disclosing personally identifiable information with regard to a participant or beneficiary, without the individual's written consent." Thus, the proposed regulations would prohibit PBGC from disclosing any portions of the administrative record that would be subject to this Privacy Act prohibition.

What if the administrative record includes confidential information -- such as trade secrets or financial information -- the plan sponsor would rather not have the PBGC disclose? According to the preamble to the proposed regulations, the PBGC believes that it must disclose any confidential information included in the administrative record unless limited by a court.

In order to give the plan sponsor an opportunity to seek a court order to protect confidential information included in the administrative record, the proposed regulations would require PBGC to notify the plan sponsor and plan administrator whenever it receives a request for the administrative record from an affected party. The PBGC would provide this notice not later than two business days after receiving the request. From there it will be up to the plan sponsor to obtain the appropriate court order before the PBGC's 15 business day deadline for disclosing the administrative record to the affected party making the request.

Effective Date

As noted, the new termination disclosure requirements are effective for terminations initiated on or after August 17, 2006. However, the proposed regulations will apply only to requests for information made on or after the effective date of the final regulations.

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, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2008, Deloitte.