PBGC Proposal Would Allow New Rollover Option

By John Iekel • April 14, 2014 • 0 Comments

The Pension Benefit Guaranty Corporation has proposed allowing an employee to roll over funds from a DC plan into a DB plan. The proposal, which the PBGC issued on April 1 and was published in the Federal Register on April 2, is intended to increase returns by making rollovers easier and removing limits that could inhibit retirement saving. 

Under the proposal, benefits earned from a rollover generally would not be affected by PBGC's maximum guarantee limits. Currently the agency's maximum guaranteed benefit for a 65-year-old retiree is almost $59,320 a year.

The proposal also provides that rollover amounts generally would remain untouched by the PBGC's phase-in limits. Normally, benefit increases from changes to a plan in the five years before it ends are partially guaranteed. For instance, 20 percent of the increase is paid after one year, 40 percent after two years and so on. Under the new proposal, these restrictions generally would not apply.

The PBGC proposal is not yet in effect. The amendments made by this proposed rule would apply to DC plan terminations initiated on or after the effective date of rule after the PBGC issues it in final form.

The PBGC is not alone in seeking to encourage rollovers. The IRS recently issued Revenue Ruling 2014-9 to make it easier for them to move assets from one employer plan to another by allowing the plan administrator of a new employee’s plan to use a readily available online database to confirm the tax qualified status of the former employer’s plan. Based on your experience with clients, will the PBGC proposal have a meaningful impact? What’s your experience wiuth DC-to-DB rollovers? Share your thoughts in the comment box below.

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John Iekel is Senior Writer at ASPPA, as well as Editor of the ASPPA Net and NTSA Net web portals.