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PBGC to Lessen Enforcement of Requirements for ?Ç£Creditworthy Companies?Ç¥ and ?Ç£Small Plans?Ç¥

The Pension Benefit Guaranty Corporation (?Ç£PBGC?Ç¥) recently announced that it is modifying enforcement of the financial security requirement if a company has a plant shutdown that results in job losses by more than 20 percent of the employees participating in the defined benefit plan. Going forward, the PBGC will analyze whether a company remains creditworthy. If the PBGC determines the company remains financially sound, or if the plan has less than 100 participants, the company will still have to notify the PBGC of the ERISA section 4062(e) event, but the PBGC will not enforce the financial guarantee requirement. The PBGC?ÇÖs FAQ can be found here.

IRS Issues Final Regulations Permitting Plan Sponsors to Eliminate Prohibited Payment Options

Under Internal Revenue Code (?Ç£Code?Ç¥) section 436, unless a defined benefit pension plan sponsored by a debtor in bankruptcy is fully funded, the plan may not make ?Ç£prohibited payments?Ç¥ (i.e., lump sum payments or payments in any other form that exceed the monthly amount under a single life annuity). Moreover, the anti-cutback rule in Code section 411(d)(6) prohibits a plan from being amended to eliminate an optional form of benefit. On November 8, the IRS issued a limited exception to the anti-cutback rules to permit a plan sponsor in bankruptcy to amend its plan to eliminate prohibited payments such as lump sums. The exception applies if the following four conditions are satisfied: first, the enrolled actuary certifies that the plan is less than fully funded; second, the prohibition on making prohibited payments arises because the plan sponsor is a debtor in bankruptcy; third and fourth, the bankruptcy court must issue… Continue Reading

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