Floor offset DB plan subject to PBGC coverage?

[Micks]

We’ve recommended that the Plan Administrator obtain guidance from an ERISA attorney, but I’m interested in how others would view this situation.

The TPA designed the floor offset defined benefit plan and prepares the Form 5500. The 2024 plan year is the first year the plan met the audit requirement threshold.

Per the Form 5500 filings, the TPA has consistently indicated that PBGC premiums are not required (i.e., “No” to PBGC coverage) since plan inception.

However, based on our understanding of the Plan sponsor, it does not appear to fall within a typical PBGC exemption category (e.g., not a governmental plan, church plan, small professional service employer, or owner-only plan).

Given that private-sector DB plans are generally covered by PBGC unless an exemption applies, the lack of PBGC premiums raises a question as to whether the plan has been appropriately classified.  In addition, if the plan should have been subject to PBGC coverage, this would introduce additional compliance concerns, including the apparent failure to issue required Notices of Intent to Terminate (NOITs).

In your experience, have you seen situations where a floor offset DB plan would legitimately not be subject to PBGC coverage under these facts? Or would this typically warrant further review (e.g., potential missed premiums or misclassification)?  

[Effen]

When you say, "met the audit requirement threshold", do you mean is had > 100 participants and required an audit, or it did not require an audit?

Can you provide additional information?  How many participants are in the floor offset plan?  How many of those have cash balance accounts?  What is the type of business?

There is nothing special about a floor offset plan that would exempt it from PBGC coverage, but some take the position that only those with cash balance accounts are actually participants.  

[C. B. Zeller]

I agree with Effen. Unless the plan meets one of the exemptions, it is covered by PBGC.

You only pay the flat rate premium on participants whose benefits are not fully offset. This can be confusing if the owner is the only one who is not fully offset, since normally you would not do a premium filing showing only 1 active participant, especially if that one participant is the owner. But that's how it works for floor offset plans.

They will owe multiple years of back premiums plus interest. I agree that you should let a lawyer handle this in order to preserve privelege.

Your comment about the audit threshold is confusing - did the DC plan hit over 120 participants with account balances this year, and now the IQPA is asking about the PBGC filings in the DB plan? Is that why the issue is coming up now? Or are you the IQPA? It would be helpful to know more about your role in this situation.

And the plan is terminating (or has already terminated)? What is/was the termination date?

[dmdavala]

You can ask the PBGC for a determination.  

[Micks]

Thank you for your input. Here are the relevant facts:

• The defined contribution plan had more than 120 participants with account balances in 2024 and was subject to an ERISA audit. During our audit, we identified several concerns related to the actuarial reporting and communicated those matters to the plan sponsor in a significant deficiency letter.
• The related defined benefit plan covers only four eligible participants with cash balance accounts
• The plan sponsor adopted a resolution to terminate the defined benefit plan effective June 30, 2025. We are currently engaged to perform the audit covering the final plan year and the stub period through the termination date, and the sponsor intends to file a final Form 5500.
• As part of our audit procedures, we requested documentation supporting the termination, including any plan termination amendment and evidence of required participant and regulatory notifications. During this process, we noted that no Notice of Intent to Terminate (NOIT) had been issued.
• We also observed that the plan sponsor answered "No" to the PBGC coverage question on all previously filed Form 5500s.

Given the absence of the NOIT and the historical reporting that the plan was not subject to PBGC coverage, we are trying to determine whether a board resolution alone is sufficient to terminate the plan, or whether a formal plan termination amendment would also be required under these circumstances. We are also interested in understanding the implications of discovering potential PBGC coverage issues only after the plan sponsor has initiated the termination process.