PBGC Publishes Final Rule on 401(k) Rollovers to Pensions

The Pension Benefit Guaranty Corporation (PBGC) on Nov. 24 issued a final rule that makes it easier for defined contribution plan participants to move their funds into defined benefit plans. The PBGC intends the new rule to better facilitate lifetime income.

This rule provides guidance on treatment of benefits resulting from a rollover distribution from a DC plan to a DB plan, when the DB plan is terminated and trusteed by the PBGC.

Under the final regulation a benefit resulting from rollover amounts generally will:

• be in the second-highest priority category among various classes of benefits in the allocation of assets;
• remain untouched by the PBGC's five-year phase-in limits — benefit increases from changes to a plan in the five years before it ends usually are partially guaranteed, but under the new proposal, these restrictions would generally not apply; and
• not be subject to the PBGC’s limits on maximum benefits that can be guaranteed. For a plan terminating in 2015, the agency's maximum guaranteed benefit for a 65-year-old retiree will be just over $60,000 a year.

The PBGC first proposed the rule in April. Ultimately, it is part of the PBGC’s efforts to enhance retirement security by promoting lifetime income options.