The Pension Benefit Guaranty Corporation (PBGC) has its hands full helping provide retirement security for plan participants. But what’s behind their approaches and actions? A recent meeting with a group of industry experts—including ASEA’s Kelsey Mayo and Virginia Wentz—provides a window into the PBGC’s approach and mindset concerning a variety of retirement plan vehicles and safety nets. 
The group with which PBGC representatives meets periodically, the Intersector Group, is composed of the American Society of Enrolled Actuaries (ASEA), the American Academy of Actuaries, the Conference of Consulting Actuaries (CCA) and the Society of Actuaries (SOA). At this particular meeting, attendees from those groups included:
- ASEA: Kelsey Mayo and Virginia Wentz
- American Academy of Actuaries: Bruce Cadenhead and David Pazamickas
- CCA: Ellen Kleinstuber and Tonya Manning
- SOA: Eric Keener and Maria Sarli
Linda Stone and Philip Maguire, senior pension fellow and a staff member at the American Academy of Actuaries respectively, also attended.
Following are highlights of the positions that the PBGC representatives articulated at the meeting.
Reportable Events
PBGC representatives said that the agency has considered requests for an additional waiver of the active 20% reduction reportable event, but that it came to the conclusion that other existing waivers usually applied.
The PBGC encourages practitioners and plan sponsors to review other waivers available before filing for that one, the representatives said. They further indicated that practitioners and plan sponsors do not always perform such reviews. During fiscal year (FY) 2021, for instance, plan sponsors submitted approximately 50 reportable event notices, even though many could have filed for another but did not first determine whether another applied.
The PBGC does not consider additional waivers necessary, the representatives said. They added that the PBGC is willing to work with plan sponsors case-by-case regarding reportable event notices in circumstances in which no waiver exists.
Standard Termination
The group and PBGC representatives discussed terminations from several perspectives.
Establishment of the plan termination final distribution date due to the stop payment/reissue process. The group indicated to the representatives that they have experienced standard terminations in which stop payments and reissued checks—due to a variety of administrative problems—have resulted in final distributions to individual participants being delayed by several months. They sought the representatives’ view regarding the effect administrative delays have on when a plan sponsor is required to file its post-distribution certification.
The PBGC representatives indicated that the final distribution of plan assets occurs when all payments are initially processed for distribution—that is, when checks are put in the mail. The PBGC considers checks returned to the plan sponsor to be exceptions and “administrative cleanup,” regardless of whether they are returned before or after the post-distribution certification is filed.
The PBGC holds that in general, returned checks should not delay post-distribution certification. That’s even the case when the plan sponsor is aware of individuals who require administrative cleanup on the date of the final filing, the representatives said; however, the number of individuals matters. There may be an issue to be resolved before filing the post-distribution certification, they said, if the plan sponsor is aware of “hundreds” of individuals who need administrative cleanup as opposed to “just a few stragglers.”
Lump sum timing. The group says that it is common in a plan termination for a plan to offer lump sums during a window period to participants who are not otherwise eligible for a lump sum. For instance, a lump sum can only be offered to active participants in connection with a plan termination—a window period usually taking place after the PBGC’s 60-day review period. In addition, a plan sponsor often will wait for a determination letter before completing the termination, which will delay the timing of the lump sum offer because active participants under age 59½ cannot receive one.
The group members said it is generally preferable in such situations to be able to close the lump sum window before securing the annuity purchase; this allows the plan sponsor to provide a more complete and up-to-date listing of participants the purchase will cover. It is possible to delay lump sums beyond the annuity starting date, they said, but it is better to avoid a significant delay. They added that for many years, it has been common to pay lump sums before completing the annuity purchase.
The PBGC representatives say that the agency’s main concern is that lump sums might be paid before there is certainty that the annuity purchase will be completed—which poses the risk of violating ERISA Section 4044. They said that the PBGC is concerned about (1) lump sums being paid and the annuity contract being purchased at precisely the same time or (2) making final distributions by priority category; nonetheless, it wants to be sure all priority categories will be satisfied before any termination distributions are made. Therefore, they said, the annuity purchase must be “secured” before lump sums are actually paid. The representatives added that there is no formal definition of what it means to secure an annuity, and the PBGC does not require the payment for the annuity contract to already have been made.
Effect of American Rescue Plan Act of 2021 (ARPA)
Group members sought additional discussion of PBGC Technical Update 21-1, which provided PBGC guidance on ARPA’s effect on annual financial and actuarial reporting under Section 4010 of ERISA and part 4010 of PBGC’s regulations. It waives 4010 reporting requirements when the reporting obligation is triggered solely because of a retroactive election permitted by ARP and IRS Notice 2021-48. It also provides guidance regarding actuarial information reported in a 4010 filing that changes because of ARPA.
The PBGC representatives said that the PBGC wanted to keep the rule articulated in Technical Update 21-1 simple and address the core issues. The representatives indicated in response to group members’ question that the PBGC had only received one theoretical question from plan sponsors regarding a waiver of late 4010 filings, but no other questions. They added that technically, it is too late for a plan sponsor to request a waiver for a filing that was due in April; they recommended that plan sponsors calling them directly on the matter.
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