Liability Pursuant to Section 4062(e) of ERISA, 9258-9260 [05-3702]

Agencies

• Pension Benefit Guaranty Corporation

[Federal Register Volume 70, Number 37 (Friday, February 25, 2005)]
[Proposed Rules]
[Pages 9258-9260]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-3702]


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PENSION BENEFIT GUARANTY CORPORATION

29 CFR Parts 4062 and 4063

RIN 1212-AB03


Liability Pursuant to Section 4062(e) of ERISA

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Proposed rule.

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SUMMARY: The PBGC proposes to amend its regulations to provide a rule 
for computing liability under section 4063(b) of the Employee 
Retirement Income Security Act of 1974 (``ERISA'') when there is a 
substantial cessation of operations by an employer as described by 
section 4062(e) of ERISA.

DATES: Comments must be received on or before April 26, 2005.

ADDRESSES: Comments may be mailed or delivered to the Legislative and 
Regulatory Department, Pension Benefit Guaranty Corporation, 1200 K 
Street, NW., Washington, DC 20005-4026. Comments also may be submitted 
electronically through the PBGC's Web

[[Page 9259]]

site at https://www.pbgc.gov/regs, or by fax to (202) 326-4112. The PBGC 
will make all comments available on its Web site, https://www.pbgc.gov. 
Copies of the comments may also be obtained by writing to the PBGC's 
Communications and Public Affairs Department at Suite 240 at the above 
address or by visiting that office or calling (202) 326-4040 during 
normal business hours. (TTY and TDD users may call the Federal relay 
service toll-free at 1-800-877-8339 and ask to be connected to 202-326-
4040.)

FOR FURTHER INFORMATION CONTACT: James J. Armbruster, Acting Director, 
or James L. Beller, Attorney, Legislative and Regulatory Department, 
Pension Benefit Guaranty Corporation, 1200 K Street, NW., Washington, 
DC 20005-4026, (202) 326-4024. (TTY and TTD users may call the Federal 
relay service toll-free at 1-800-877-8339 and ask to be connected to 
(202) 326-4024.)

SUPPLEMENTARY INFORMATION: This proposed rule is part of the Pension 
Benefit Guaranty Corporation's (PBGC's) ongoing effort to streamline 
regulation and improve administration of the pension insurance program.
    Section 4062(e) of ERISA provides special rules that apply when 
``an employer ceases operations at a facility in any location and, as a 
result of such cessation of operations, more than 20 percent of the 
total number of his employees who are participants under a plan 
established and maintained by him are separated from employment'' (a 
``section 4062(e) event''). In the case of a section 4062(e) event, the 
employer ``shall be treated with respect to that plan as if he were a 
substantial employer under a plan under which more than one employer 
makes contributions and the provisions of Sec. Sec.  4063, 4064, and 
4065 shall apply.''
    Section 4063(b) imposes liability upon a substantial employer that 
withdraws from a multiple employer plan. This section 4063(b) liability 
represents the withdrawing employer's share of the total liability to 
the PBGC that would arise if the plan were to terminate without enough 
assets to pay all benefit liabilities. (In general, the total liability 
to the PBGC upon termination of a plan is the amount of the plan's 
unfunded benefit liabilities, together with interest). The section 
4063(b) liability payment made by the employer is held in escrow by the 
PBGC. If the plan terminates within five years, the section 4063(b) 
liability payment is treated as part of the plan's assets. If the plan 
does not terminate within five years, the liability payment is returned 
to the employer. The statute also provides that, in lieu of the 
liability payment, the contributing sponsor may be required to furnish 
a bond to the PBGC in an amount not exceeding 150% of the section 
4063(b) liability.
    The statute also specifies a method of computing the amount of the 
section 4063(b) liability. Section 4063(b) provides that ``[t]he amount 
of liability shall be computed on the basis of an amount determined by 
the [PBGC] to be the amount described in section 4062 for the entire 
plan, as if the plan had been terminated by the [PBGC] on the date of 
the withdrawal, multiplied by a fraction (1) the numerator of which is 
the total amount required to be contributed to the plan by such 
contributing sponsor for the last 5 years ending prior to the 
withdrawal, and (2) the denominator of which is the total amount 
required to be contributed to the plan by all contributing sponsors for 
such last 5 years.''
    In sum, section 4063(b) imposes liability and provides a method for 
determining the amount of that liability--i.e., for determining the 
withdrawing employer's portion of the total liability to the PBGC that 
would arise if the plan terminated.
    Section 4062(e) provides that, when a section 4062(e) event occurs, 
the employer is treated as a substantial employer under a multiple 
employer plan. Thus, section 4062(e) creates liability that is 
analogous to the section 4063(b) liability arising when a substantial 
employer withdraws from a multiple employer plan. Section 4062(e) does 
not, however, provide any details as to how this analogy is to be 
implemented--i.e., how the total liability is to be apportioned with 
respect to the cessation of operations.
    As explained above, when a substantial employer withdraws from a 
multiple employer plan, section 4063(b) allocates liability to that 
withdrawing employer based upon the ratio of the employer's required 
contributions to all required contributions for the five years 
preceding the withdrawal. The PBGC has found that application of this 
statutory allocation formula is relatively straightforward when 
determining withdrawal liability under a multiple employer plan because 
it is easy to verify what contributions were required to be made by the 
withdrawing employer and what contributions were required to be made by 
all of the contributing employers.
    In contrast, when there is a section 4062(e) event, there is by 
definition only one employer that contributes to the plan. When there 
is only one employer, the numerator and denominator used to determine 
the liability under section 4063(b) would always be equal. Thus, it is 
impracticable to use the allocation method described in section 4063(b) 
to determine the liability arising upon a section 4062(e) event. 
Instead, the PBGC has been using the method proposed in this rule to 
determine that liability on a case-by-case basis.
    Section 4063(b) of ERISA provides that ``in addition to and in lieu 
of'' the manner of computing the liability prescribed in that 
provision, the PBGC ``may also determine the liability on any other 
equitable basis prescribed by the [PBGC] in regulations.'' Pursuant to 
that authority, the PBGC is proposing in this rule a simple, 
practicable, and equitable method for determining the liability for a 
section 4062(e) event. Specifically, the PBGC proposes to compute that 
liability by multiplying the total liability under section 4062 by a 
fraction (1) the numerator of which is the number of the employer's 
employees who are participants under the plan and are separated from 
employment as a result of the cessation of operations, and (2) the 
denominator of which is the total number of the employer's employees 
who were participants under the plan before taking into account the 
cessation of operations. The PBGC would determine the total liability 
under section 4062 as if the plan had been terminated by the PBGC 
immediately after the cessation of operations rather than ``on the date 
of the withdrawal'' (as specified in section 4063(b)), which does not 
literally apply in the case of a section 4062(e) event.
    By providing a simple and transparent method for determining the 
amount of this liability, this rule will allow plan sponsors who 
experience a section 4062(e) event (or believe they may experience a 
section 4062(e) event) to readily determine their liability (or 
expected liability). Although the proposed rule would specify a method 
for determining the amount of the liability imposed by statute, it 
would not affect the imposition of liability. Moreover, because the 
PBGC has generally followed this method on a case-by-case basis, the 
proposed rule would have little or no effect on the amount of 
liability.
    Nothing in this proposed rule would affect the computation of 
liability incurred when there is a withdrawal of a substantial employer 
from a multiple employer plan under ERISA section 4063.

Compliance With Rulemaking Guidelines

    The PBGC has determined, in consultation with the Office of 
Management and Budget, that this proposed rule is a ``significant

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regulatory action'' under Executive Order 12866. The Office of 
Management and Budget, therefore, has reviewed this notice under 
Executive Order 12866.
    The PBGC certifies under section 605(b) of the Regulatory 
Flexibility Act that this proposed rule would not have a significant 
economic impact on a substantial number of small entities. A section 
4062(e) event is generally not relevant for small employers. Most small 
employers sponsoring defined benefit plans tend not to have multiple 
operations. For these small employers, the shutdown of operations would 
be accompanied by plan termination. Section 4062(e) protection is only 
relevant when the plan is ongoing after the cessation of operations. 
Thus, the change would not have a significant economic impact on a 
substantial number of small entities. Accordingly, sections 603 and 604 
of the Regulatory Flexibility Act do not apply.

List of Subjects

29 CFR Part 4062

    Employee Benefit Plans, Pension insurance, Reporting and 
recordkeeping requirements.

29 CFR Part 4063

    Employee Benefit Plans, Pension insurance, Reporting and 
recordkeeping requirements.

    For the reasons set forth above, the PBGC proposes to amend parts 
4062 and 4063 of 29 CFR chapter LX as follows:

PART 4062--LIABILITY FOR TERMINATION OF SINGLE-EMPLOYER PLANS

    1. The authority citation for part 4062 continues to read as 
follows:

    Authority: 29 U.S.C. 1302(b)(3), 1362-1364, 1367, 1368.

    2. Amend Sec.  4062.1 by adding the following sentence after the 
first sentence to read as follows:


Sec.  4062.1  Purpose and scope.

* * * * *
    This part also sets forth rules for determining the amount of 
liability incurred under section 4063 of ERISA pursuant to the 
occurrence of a cessation of operations as described by section 4062(e) 
of ERISA.
* * * * *


Sec. Sec.  4062.8, 4062.9, and 4062.10  [Redesignated]

    3. Redesignate Sec. Sec.  4062.8, 4062.9, and 4062.10 as Sec. Sec.  
4062.9, 4062.10, and 4062.11, respectively.
    4. Add new Sec.  4062.8 to read as follows:


Sec.  4062.8  Liability pursuant to section 4062(e).

    If, pursuant to section 4062(e) of ERISA, an employer ceases 
operations at a facility in any location and, as a result of such 
cessation of operations, more than 20% of the total number of the 
employer's employees who are participants under a plan established and 
maintained by the employer are separated from employment, the PBGC will 
determine the amount of liability under section 4063(b) of ERISA to be 
the amount described in section 4062 of ERISA for the entire plan, as 
if the plan had been terminated by the PBGC immediately after the date 
of the cessation of operations, multiplied by a fraction--
    (a) The numerator of which is the number of the employer's 
employees who are participants under the plan and are separated from 
employment as a result of the cessation of operations; and
    (b) The denominator of which is the total number of the employer's 
employees who were participants under the plan before taking the 
cessation of operations into account.


Sec.  4062.3  [Amended]

    5. In paragraph (b) of Sec.  4062.3, remove the references to 
``Sec.  4062.8(c)'' and ``4062.8(b)'' and add the references to ``Sec.  
4062.9(c)'' and ``Sec.  4062.9(b)'' in their places, respectively.


Sec.  4062.7  [Amended]

    6. In paragraph (a) of Sec.  4062.7, remove the reference to 
``Sec.  4062.8'' and add in its place the reference ``Sec.  4062.9''.

PART 4063--LIABILITY OF SUBSTANTIAL EMPLOYER FOR WITHDRAWAL FROM 
SINGLE-EMPLOYER PLANS UNDER MULTIPLE CONTROLLED GROUPS AND OF 
EMPLOYER EXPERIENCING A CESSATION OF OPERATION

    7. The authority citation for part 4063 continues to read as 
follows:

    Authority: 29 U.S.C. 1302(b)(3).

    8. Revise paragraph (a) of Sec.  4063.1 to read as follows:


Sec.  4063.1  Cross-references.

    (a) Part 4062 of this chapter sets forth rules for determination 
and payment of the liability incurred, under section 4062(b) of ERISA, 
upon termination of any single-employer plan and, to the extent 
appropriate, determination of the liability incurred with respect to 
multiple employer plans under sections 4063 and 4064 of ERISA. Part 
4062 also sets forth rules for determining the amount of liability 
incurred under section 4063 of ERISA pursuant to the occurrence of a 
cessation of operations as described by section 4062(e) of ERISA.
* * * * *

    Issued in Washington, DC, this 22nd day of February, 2005.
Bradley D. Belt,
Executive Director, Pension Benefit Guaranty Corporation.
[FR Doc. 05-3702 Filed 2-24-05; 8:45 am]
BILLING CODE 7708-01-P