Frozen Plans Still Subject to PBGC Reportable Plan Rules
Are any pension plans you serve frozen, in part or in full? That may mean that in general there isn’t much going on, but the ice sheet doesn’t cover the Pension Benefit Guaranty Corporation (PBGC) reportable plan rules. Vivian S. McCardell, of counsel at Morgan Lewis Bockius, LLP’s Philadelphia office, in the blog Lexology reminds that the rules still apply to frozen plans.
McCardell points out that most reportable events can occur whether a pension plan is active or frozen. These include:
- a plan distribution to a substantial owner;
- a change in the plan’s controlled group, including a merger or consolidation within the group;
- liquidation of any member of the plan’s controlled group;
- an extraordinary dividend or stock redemption by any member of the plan’s controlled group;
- a transfer of less than all of the plan’s benefit liabilities to another pension plan;
- application of a minimum funding waiver;
- default by any member of the plan’s controlled group on a loan balance of $10 million or more; and
- the bankruptcy or similar settlement of any member of the plan’s controlled group.
Unless a waiver or extension applies, the rules require that:
- a plan administrator and employer responsible for making contributions to the pension plan notify the PBGC within 30 days after they know, or have reason to know, that a reportable event has occurred; and
- under certain situations (for non-public companies), the employer that makes contributions to the pension plan must notify the PBGC no later than 30 days before the effective date of the reportable event.
In addition, the PBGC reporting and liability rules under ERISA Section 4062(e) apply to active and frozen pension plans. These rules kick in when there is a permanent substantial cessation of operations at any of the plan sponsor’s facilities if because of that, cuts in staff eligible to participate in any of the controlled group’s retirement plans are equal to more than 15% of the total number of eligible employees in that group.
Failure to comply with the rules may result in steep penalties of up to $1,100 a day.
There is a circumstance under which the reportable rules do not apply: if a pension plan is fully terminated and all assets are distributed.