Do you count non-vested participants for PBGC flat rate?

[Guest CindyO]

Historically, we have used Line 7 of Form 5500 for our PBGC participant count. We are questioning that practice after reading on page 15 of the instruction booklet (Comparison to Form 5500) that for flat rate purposes, individuals earning or retaining credited service but who have no Benefit Liabilities under the plan do not have to be counted. After carefully scrutinizing the definition of Benefit Liabilities, our interpretation is that we should not count non-vested participants unless our actuary can give us a good reason why we should.

Any thoughts or is anyone else excluding non-vested participants?

[david rigby]

If you mean non-vested terminated participants, then see page 14 of the instructions for when to exclude them.

If you mean non-vested active participants, then they must be counted for the flat rate.

[Andy the Actuary]

Historically, we have used Line 7 of Form 5500 for our PBGC participant count. We are questioning that practice after reading on page 15 of the instruction booklet (Comparison to Form 5500) that for flat rate purposes, individuals earning or retaining credited service but who have no Benefit Liabilities under the plan do not have to be counted. After carefully scrutinizing the definition of Benefit Liabilities, our interpretation is that we should not count non-vested participants unless our actuary can give us a good reason why we should.

Any thoughts or is anyone else excluding non-vested participants?

From PBGC instructions: “Benefit Liabilities” means all liabilities with respect to employees and their beneficiaries under the plan (within the meaning of Code section 401(a)(2)). Thus, Benefit Liabilities include liabilities for all accrued benefits, whether or not vested.

[Guest CindyO]

Thank you for the quick responses. We are referring to active non-vesteds. As for the instructions saying that Benefit Liabilities "include liabilities for all accrued benefits, whether or not vested", what we are questioning is whether there is actually an "accrued benefit" for those not yet vested. If they leave before they are vested, there is no benefit, yet we are paying PBGC insurance on that benefit. We are trying to determine why the instructions would even talk about the possibility of a different count than the 5500 otherwise. We are a large plan and, needless to say, we are talking substantial dollars. Yet I want to be sure we are protected. Any further thoughts?

[Andy the Actuary]

Thank you for the quick responses. We are referring to active non-vesteds. As for the instructions saying that Benefit Liabilities "include liabilities for all accrued benefits, whether or not vested", what we are questioning is whether there is actually an "accrued benefit" for those not yet vested. If they leave before they are vested, there is no benefit, yet we are paying PBGC insurance on that benefit. We are trying to determine why the instructions would even talk about the possibility of a different count than the 5500 otherwise. We are a large plan and, needless to say, we are talking substantial dollars. Yet I want to be sure we are protected. Any further thoughts?

Accrued benefit = benefit determined at a particular date under the terms of the plan. Part of this is nonforfeitable to the extent vested. Even if 0% vested, participant will have accrued a benefit.

If we follow the logic of considering only vested benefits, then there would be no funding of a new plan until benefits were vested -- e.g., for 5 years if cliff vesting. We know that's not right.

[Guest CindyO]

Good point. Thanks.

[tymesup]

Note that a participant can be vested without a benefit liability. For example, a participant whose gross DB accrued benefit is completely offset by a profit sharing account balance would not be counted for flat premium purposes.