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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
The Pension Benefit Guaranty Corporation (PBGC) has issued proposed regulations providing guidance on the phase-in period for the guarantee of "unpredictable contingent event benefits." The proposed regulations would implement provisions of the Pension Protection Act of 2006 (PPA; P.L. 109-280). Comments on the proposed rules are due by May 10, 2011.
PPA treatment of UCEBs
Under ERISA §4022(b)(7), the PBGC's guarantee of pension benefits under a new plan or of a new benefit or benefit increase under an amendment to an existing plan is phased in based on the number of full years the benefit increase is in the plan. The time period that a benefit increase has been provided under a plan is measured from the later of the adoption date of the provision creating the benefit increase or the effective date of the benefit increase. Generally, 20% of a benefit increase is guaranteed after one year, 40% after two years, etc., with full phase-in of the guarantee after five years. Unpredictable contingent event benefits (UCEBs) are benefits or benefit increases that become payable solely by reason of the occurrence of an unpredictable contingent event (UCE), such as a plant shutdown. UCEBs typically provide a full pension, without any reduction for age, starting well before an unreduced pension would otherwise be payable.
The PPA made two significant changes to the rules for UCEBs. First, PPA added ERISA §206(g) and parallel Code Sec. 436(b) that restrict payment of UCEBs with respect to a UCE if the plan is less than 60% funded for the plan year in which the UCE occurs (or would be less than 60% funded taking the UCEB into account). Second, PPA added ERISA §4022(b)(8), which changes the start of the phase-in period for plant shutdowns and other UCEBs. Under ERISA §4022(b)(8), the phase-in rules are applied as if a plan amendment creating a UCEB was adopted on the date the UCE occurred, rather than as of the actual adoption date of the amendment, which is almost always earlier. As a result of the new provision, the guarantee of benefits arising from plant shutdowns and other UCEs that occur within 5 years of plan termination (or the date the plan sponsor entered bankruptcy, if applicable under the PPA) generally will be lower than under pre-PPA law. This provision, which does not otherwise change the existing phase-in rules, applies to benefits that become payable as a result of a UCE that occurs after July 26, 2005.
The IRS provided guidance on UCEBs in final regulations issued in 2009. The IRS regulations provide that UCEBs include only benefits or benefit increases to the extent such benefits or benefit increases would not be payable but for the occurrence of a UCE. The IRS rules also clarify that the reference to "plant shutdown" in the statutory definition of UCEB includes a full or partial shutdown.
Guidance on UCEBs reflects PPA and IRS regs
The proposed regulations incorporate the definition of UCEB under ERISA §206(g)(1)(C) and the IRS final regulations. The proposed rules also provide that the guarantee of a UCEB would be phased in from the latest of the date the benefit provision is adopted, the date the benefit is effective, or the date the UCE that makes the benefit payable occurs. Under the proposed regulations, the PBGC would determine the date the UCE occurs based on the plan provisions and the relevant facts and circumstances, such as the nature and level of activity at a facility that is closing and the permanence of the event.
Where a plan provides that a UCEB is payable only upon the occurrence of more than one UCE, the proposed regulations provide that the guarantee would be phased in from the latest date when all such UCEs have occurred. For example, if a UCEB is payable only if a participant is laid off and the layoff continues for a specified period of time, the phase-in period would begin at the end of the specified period of time. Similarly, if a UCEB is payable only if both the plant where an employee worked is permanently shut down and it is determined that the employer has no other suitable employment for the employee, the phase-in period would begin when it is determined that the employer had no other suitable employment for the employee (assuming that date was later than the shutdown date).
The proposed regulations include eight examples that show how the UCEB phase-in rules would apply in certain specified fact situations. In addition, the proposed rules provide guidance on the interaction of the UCEB rules with the rules under the PPA that provide that when an underfunded plan terminates while its contributing sponsor is in bankruptcy, the amount of guaranteed benefits will be determined as of the date the sponsor entered bankruptcy, rather than the termination date.
For more information, visit http://www.wolterskluwerlb.com/rbcs.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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