standard termination and the pbgc

[abanky]

Does a pbgc covered plan have to terminate with the pbgc approval or can it just be terminated and paid out?

[Guest Sieve]

If a plan is subject to PBGC rules--and some are exempt--then a plan termination may only occur either through the standard termination process or distress termination process. The statute is pretty clear ("a single-employer plan may be terminated only in a standard termination . . . or a distress termination . . . (ERISA Section 4041(a)), but the reg is even clearer ("This part sets forth the rules and procedures for terminating a single-employer plan in a standard or distress termination . . . the exclusive means of voluntarily terminating a plan." PBGC Reg. Section 4041.1.)

Of course, the PBGC does not affirmatively approve a standard termination. PBGC approval occurs if the PBGC does not resond within 60 days of filing the PBGC Form 500 (and appropriate accompanying documents).

[david rigby]

I've done several. Sieve's response is correct.

However, PBGC approval is not the only step that has an associated timeline. The plan's actuary should be able to handle this.

[Andy the Actuary]

With PBGC approval. However, if the plan ceases to be covered by the PBGC, then approval not required.

For example, suppose all non-owner employees have terminated. Then, the plan ceases to be covered by the PBGC, and so the termination would not be subject to PBGC termination rules. See: http://www.pbgc.gov/docs/2000bluebook.pdf

question 16, page 10

[abanky]

thanks guys, That is what I thought the answer was.

[ScottR]

thanks guys, That is what I thought the answer was.

FWIW, I've become involved with a PBGC-covered plan that terminated last year without benefit of PBGC review. I contacted the PBGC, and they told us to file the plan termination papers now, including a post-distribution cert. They said we were guaranteed an audit of the plan termination.

.. Scott

[Andy the Actuary]

thanks guys, That is what I thought the answer was.

FWIW, I've become involved with a PBGC-covered plan that terminated last year without benefit of PBGC review. I contacted the PBGC, and they told us to file the plan termination papers now, including a post-distribution cert. They said we were guaranteed an audit of the plan termination.

.. Scott

What were the circumstances? For example, had all non-owners first terminated and then the owners terminated (i.e., the business closed)? Or, did the Plan simply bypass the standard termination process.

In the original post, the Company closed and participants were paid their due as terminated employees. The termination process was not followed in accordance with instructions on their website. The PBGC appears to have read new meaning into these instructions.

[Penman2006]

Even in normal circumstances, follow-up PBGC audits are fairly common, so make sure you keep accurate records, etc.