Notice of Intent to Terminate Not Given To Vested Terminees

[Guest merlin]

We have a client whose defined benefit plan covers 174 participants: 150 active and 24 vested terminees. The NOIT was n supposed to be given out 4/30/06 with proposed termination date of 6/30/06. Client called this morning to say that NOIT had been given to the actives, but not to the vested terms. Looking at PBGC reg. 4041.6 it says the PBGC may impose a penalty of $1100/day, and may also issue a notice of noncompliance. The operative word appears to be "may", which implies that there may be some wiggle room. Does anyone have experience with such a situation? The plan year end is 9/30, so it wouldn't be a major problem to issue a new notice with a later termination date, but client would rather not.

[david rigby]

Is someone waiting for an answer? Give the notice to the VTs!

[Guest merlin]

Pax,

That was my first thought, but what are the implications? Item 12b of the PBGC 500 would be completed showing that the latest date that NOITs were distributed is less than 60 days prior to the proposed date of termination. What will be the PBGC's response? A bill for $1100/day? Notice of noncompliance or other legal remedy? Are you saying they'll treat it as a minor violation?

[david rigby]

Not at all. I'm saying the problem (if there is one) can only get worse. Don't let it.

[Guest merlin]

I called the PBGC and spoke to a Pension Law Specialist in the Processing & Technical Assistance Branch. Her initial response was that a new notice had to be given out to all participants with a new termination date. Then she suggested giving the notice to the VTs now and "conveniently" ignoring the fact that they were not given timely notification and using 4/30/06 as the date for all purposes on Form 500. She said the issue would only come up on audit, and even then it shouldn't be a problem as long as no participant was harmed by the failure to give notice. No harm, no foul. A surprising answer, but an eminently practical one. FWIW, I recognized her name from a lot of correspondence over the years, so there is some credibility in her comments.

[Blinky the 3-eyed Fish]

If you put 4/30, I am sure the client would like to know that he is signing a statement "under penalty of perjury" or whatever it says that the notice was distributed on the date on the form.

[Guest merlin]

A lawyer once explained the phrase "under penalty of perjury" to me this way:

The big stick behind a charge of perjury is that it can lead to a charge of obstruction of justice, which means impeding an investigation into a criminal act by which someone comes to harm.

In this instance, as long as every participant gets the proper benefit, with no liability to the PBGC, there is no harm. Also, the plan year is 9/30/06, so the year's benefit has already accrued. Nothing would be gained by giving a new notice and starting the process anew. This would appear to be the reasoning of the PBGC agent. On the other hand, if the original notice and termination dates had been set up to avoid an additional year's accrual there would be no question that new notices would have to be given.

[david rigby]

Also, the plan year is 9/30/06, so the year's benefit has already accrued.

Holy cow! Are you saying that the plan is frozen at the (intended) termination date of 06/30/06? I hope those are two separate provisions in the amendment, else you may have extended your benefit accrual. If this plan bases benefits on compensation, or elapsed time, then any freeze date beyond 06/30/06 can accrue more liability.

[Guest merlin]

Pace, Pax. The benefits were separately frozen as of 6/30, and the plan is not top heavy. But a good reminder anyway.