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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 that implement provisions of the Pension Protection Act of 2006 (PPA; P.L. 109-280) changing the rules for determining benefits upon the termination of a hybrid plan, such as a cash balance plan. The proposed regulations would amend the PBGC's regulations to conform the rules for determining allocations of assets and the amount of benefits payable under ERISA Title IV to reflect the PPA changes in the benefit determination rules for hybrid plans. The proposed regulations would also implement a PPA change for determining the present value of an accrued benefit under a hybrid plan and would provide guidance on benefits payable under a hybrid plan that terminates in a standard termination. Comments on the proposed rules are due by December 30, 2011.
PPA changes to hybrid plan rules
The PPA provides that when a hybrid plan, such as a cash balance plan, terminates, a variable rate used under the plan to determine accrued benefits will be equal to the average of the interest rates used under the plan during the five-year period ending on the termination date. Further, the amount of the benefit payable in the form of an annuity payable at normal retirement age will be determined using the interest rate and mortality table specified under the plan for that purpose as of the termination date (or an average interest rate if the plan rate is a variable rate). This change was intended to facilitate the calculation of benefits and provide participants with greater certainty about their benefit amounts when a plan terminates.
In addition, the PPA provides that, when an underfunded pension plan terminates during the bankruptcy of the plan sponsor, the date that the sponsor's bankruptcy petition was filed is treated as the plan's termination date for purposes of determining: (1) the amount of benefits that the PBGC guarantees and (2) the amount of benefits in priority category 3 in the asset allocations under the part 4044 of the ERISA regulations.
Benefits payable in terminated plan
The PBGC proposes to amend its regulations on Benefits Payable in Terminated Single-Employer Plans (29 CFR part 4022) to implement the changes made by the PPA regarding the termination of hybrid plans. Under the proposed regulations, the PBGC would generally determine plan benefits based on plan terms as of the plan's termination date. If, however, the plan used a variable rate during the five-year period ending on the termination date, the PBGC would take into account the plan's provisions for determining and applying an average rate of interest in accordance with Code Sec. 411(b)(5)(B)(vi) and IRS Reg. §1.411(b)(5)-1(e)(2). In addition, the proposed regulations set forth certain default rules that the PBGC would apply to the extent that the terms of the plan do not satisfy the plan termination requirements under the PPA or IRS regulations or fail to specify provisions necessary to implement those requirements.
Except in the case of certain involuntary plan terminations, the PBGC would generally apply its rules to determine the benefits of any participant with an annuity starting date after the plan's termination date or, in the case of a distress termination under ERISA §4041(c), the plan's proposed termination date. The proposed regulations also address the interest crediting rules that apply to a plan that terminates during the bankruptcy of the plan sponsor.
Allocation of assets
In addition, the PBGC proposes to amend its regulations on Allocation of Assets in Single-Employer Plans (29 CFR part 4044) to conform the rules for valuing benefits and allocating plan assets to the changes in the benefit determination rules. Under the proposed regulations, certain benefits would be calculated differently for valuation purposes than for payment purposes. For example, de minimis benefits would continue to be calculated as annuities for valuation purposes, as under the current regulations, but the method of calculating such benefits for payment purposes would change.
The PBGC regulations would also be amended to provide that the priority category 3 benefits of a participant who is eligible but does not retire three years before a plan's termination date (or bankruptcy filing date, if applicable) would be determined based on the participant's account balance and the interest rates under the plan as if the participant had retired three years before the termination date (or bankruptcy filing date, if applicable).
Plans terminating in a standard termination
Finally, the PBGC proposes to amend its regulations on Termination of Single-Employer Plans (29 CFR part 4041) to provide that, for purposes of part 4041, a plan that terminates in a standard termination (or a distress termination where the plan is sufficient for guaranteed benefits) will be deemed to satisfy the plan termination requirements under ERISA §204(b)(5)(B)(vi) and Code Sec. 411(b)(5)(B)(vi) and IRS regulations if the plan calculates and pays benefits consistent with the provisions for statutory hybrid plans under part 4022.
Source: PBGC proposed regulations, 76 FR 67105, October 31, 2011.
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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