PBGC Premiums for Missing Participants

[BTG]

Is anyone aware of any guidance on whether missing participants should be counted for PBGC premium purposes? PBGC Reg. 4006.6 defines a participant as an individual with respect to whom the plan has "benefit liabilities."

As permitted by Treasury Reg. 1.411(a)-4(b)(6), the Plan in question provides that if a participant cannot be located, his or her benefit will be forfeited subject to reinstatement if the participant eventually comes forward. Since the participant's benefit is forfeited once he or she is deemed to be missing, I would think the plan no longer has "benefit liabilities" with respect to the participant, and therefore the participant would not be counted for PBGC premium purposes. However, I can see the argument that the liability to the participant never really goes away, because there's always the potential for reinstatement if the participant surfaces. Even under that logic, though, it would seem that the participant would have to be presumed dead at a certain age, so that the premiums don't continue in perpetuity.

Thoughts on this?

[My 2 cents]

First thing, it would be my understanding that a diligent seach would have to have been conducted to try to locate the participant before the participant could be considered "missing". The burden is on the plan adminstrator to find the participant, and declaring a participant as missing and treating their benefit as forfeited (pending reinstatement if the participant is found) could only be done after conducting a fruitless diligent search.

The best answer to this question would probably be another question: What position would the PBGC take? For this, consider that the PBGC, in questions 8 and 10 of the 2012 "Blue Book" (commentary from the PBGC prepared for the Enrolled Actuaries Meeting, like the Gray Book for IRS commentary) said that if a plan is terminating under a standard termination and there are missing participants whose benefits are considered forfeited pending reinstatement if they are located after a diligent search has been conducted, then the plan administrator must either pay the PBGC a designated benefit (under the PBGC missing participants program) or purchase suitable annuities from insurers for them. So if there are people whose benefits have been "forfeited" because they were missing, there must be full provision for those benefits if the plan terminates, so that they are not left out in the cold if they eventually turn up.

In Question 10, it is explicitly stated that if a participant is missing, a default IRA may not be set up. Answer 10 says that default IRAs can only be set up if the plan administrator can locate the participant. One presumes that this would apply to an ongoing plan and not just a terminating plan.

Given that position, do you think there is any chance that the PBGC would not consider itself entitled to annual premiums on account of missing participants prior to plan termination?

[david rigby]

Blue Books available here:

http://www.pbgc.gov/res/other-guidance/blue-books.html