5500 Preparer's Manual for 2012 Plan Years
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from Spencer’s Benefits Reports: In comment letters submitted on January 22 to the Pension Benefit Guaranty Corporation, both the American Benefits Council and the ERISA Industry Committee (ERIC) urged the PBGC to retain the waivers and extensions currently contained in the agency’s reportable event regulations under ERISA Sec. 4043. That section requires defined benefit plan sponsors to notify the PBGC of the occurrence of specified reportable events, such as a liquidation or a failure to make a required minimum funding contribution.
Last November, the PBGC issued proposed regulations that would amend the reportable events rules by eliminating the existing waivers and extensions and creating two additional reportable events. In its comments, the American Benefits Council observes, “In its proposal, the PBGC states that it might consider reinstating some waivers and extensions if, over time, the facts warrant such waiver or extension. Because of the potentially disruptive financial consequences of this approach, the Council strongly urges the PBGC to exercise extreme caution before modifying any automatic waivers or extension. Rather than a sweeping elimination of waivers and extensions, it is the Council’s position that the PBGC should only modify automatic waivers and extensions in the least harmful ways that are supported by the facts.”
The Council asked the PBGC to withdraw its proposed regulations and consider “creative, targeted modifications to the automatic waivers and extensions that respond to the PBGC’s issues.” The Council further asked the PBGC to carefully balance its need for information against the potential harm that might result from overreaching requirements, and explore alternate ways of obtaining information without expanding reportable event requirements.
The Council stated that it “is primarily concerned that the proposed changes will have unintended consequences which will result in massive numbers of filings that could trigger debt and credit covenants. Lending institutions certainly retain the right to renegotiate loan covenants. However, at this point it is unclear how those negotiations might proceed. In addition, it is unclear how credit rating agencies might respond to the expanded scope of reportable events. As a minimum, this proposal would generate significant uncertainty regarding plan sponsor access to credit markets, which could increase plan sponsor cost of debt. In the end, it could result in greater liability for the PBGC.”
The Council went on to explain that it “understands that the PBGC is seeking more filings so that the agency can potentially spot troubled companies before the plan is in trouble, but the Council believes the proposal is too extensive and is concerned the new requirements could actually cause harm to some companies. The Council would recommend that existing automatic waivers and extensions be continued. However, the PBGC could require a simple letter or information filing notifying PBGC that the company would be required to file under the reportable event regulations but for the following exemption or extension. The PBGC could then request additional information it believes is necessary from some companies (as is the case with the current system). In addition, the PBGC could consider tiered requirements where the automatic waivers and extensions continue to apply at the current base level of event, but would expire if the severity of the situation reached some secondary level. Although this likely would not resolve every situation, creating a new information request requirement would not cause the problems which could ensue from eliminating all of these exemptions from the reportable event regulations. One of the goals of the PBGC is to promote defined benefit plans and the blanket elimination of so many exemptions would hardly assist this promotion.
“The proposed regulations will also shorten the filing period for many reportable events, some by eliminating extension periods. This may also have unintended consequences. For example, some errors in contributions are discovered a few weeks or months after the mistake. The current deadline for a reportable event for missing contributions may encourage employers to replace those contributions (and earnings) before the report must be filed, but the new 30-day filing requirement may result in later corrections when the filing is required regardless of when it is corrected.”
In its comments, ERIC president Mark Ugoretz asserted, “The proposed regulations are likely to hinder rather than enhance the PBGC’s efforts to monitor the financial health of defined benefit plans and plan sponsors, while unduly burdening plan administrators and sponsors. In particular, the elimination of the automatic waiver for the existing reportable events is likely to seriously undermine the financial health of plan sponsors and, therefore, indirectly for plan funding levels. It will also make it less, rather than more, likely, that PBGC will be able to predict financial distress in advance and intervene in a timely fashion.”
According to Mr. Ugoretz, the proposed regulations are “an unwarranted interference by a government agency in the credit marketplace and, since the PBGC’s action threatens the ability of a sponsoring enterprise to engage in regular and ordinary business activities, as opposed to companies that don’t sponsor pension plans, is a considerable disincentive to maintain a defined benefit plan. Employers that sponsor defined benefit plans—unlike employers that sponsor only defined contribution plans or do not sponsor any qualified plan—would have more difficulty obtaining loans and retaining access to lines of credit that might otherwise be used to maintain and expand existing operations, finance new ventures, and maintain and improve the employer’s financial health. The result would be to diminish, rather than enhance, the ability of defined benefit plan sponsors to adequately fund—as well as to continue to maintain—their pension plans, and to put defined benefit plan sponsors at a serious competitive disadvantage.”
ERIC called on the PBGC to withdraw the proposed regulations or leave the current regulations in place until the agency can engage in a negotiated rulemaking process. If the PBGC does not wish to withdraw the regulations or engage in a negotiated rulemaking process, then ERIC requested that the PBGC delay the effective date of the proposed regulations to allow employers sufficient time to renegotiate lending arrangements that rely upon the current waiver provisions and to establish special compliance units to monitor events that might trigger the reporting requirements.
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