[Federal Register Volume 79, Number 87 (Tuesday, May 6, 2014)]
[Rules and Regulations]
[Pages 25667-25675]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-10357]


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PENSION BENEFIT GUARANTY CORPORATION

29 CFR Part 4022

RIN 1212-AB18


Benefits Payable in Terminated Single-Employer Plans; Limitations 
on Guaranteed Benefits; Shutdown and Similar Benefits

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Final rule.

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SUMMARY: This final rule amends PBGC's regulation on Benefits Payable 
in Terminated Single-Employer Plans, which sets forth rules on PBGC's 
guarantee of pension plan benefits, including rules on the phase-in of 
the guarantee. The amendments implement the Pension Protection Act of 
2006 provision that the phase-in period for the guarantee of benefits 
that are contingent upon the occurrence of an ``unpredictable 
contingent event,'' such as a plant shutdown, starts no earlier than 
the date of the shutdown or other unpredictable contingent event.

DATES: Effective June 5, 2014.

FOR FURTHER INFORMATION CONTACT: Catherine B. Klion, Assistant General 
Counsel for Regulatory Affairs, Office of the General Counsel, Pension 
Benefit Guaranty Corporation, 1200 K Street NW., Washington, DC 20005, 
202-326-4224 or klion.catherine@pbgc.gov. (TTY/TDD users may call the 
Federal relay service toll-free at 1-800-877-8339 and ask to be 
connected to 202-326-4224.)

SUPPLEMENTARY INFORMATION:

Executive Summary

    This rule is needed to conform PBGC's benefit payment regulation to 
Pension Protection Act of 2006 changes to the phase-in of PBGC's 
guarantee of benefits that are contingent upon the occurrence of an 
``unpredictable contingent event,'' such as a plant shutdown.
    PBGC's legal authority for this action comes from section 
4002(b)(3) of the Employee Retirement Income Security Act of 1974 
(ERISA), which authorizes PBGC to issue regulations to carry out the 
purposes of Title IV of ERISA, and section 4022 of ERISA, which sets 
forth rules on PBGC's guarantee of benefits in terminated single-
employer plans.
    This final regulation codifies the Pension Protection Act of 2006 
provision that the phase-in period for the guarantee of benefits that 
are contingent upon the occurrence of an ``unpredictable contingent 
event,'' such as a plant shutdown, starts no earlier than the date of 
the shutdown or other unpredictable contingent event. The regulation 
incorporates the definition of an unpredictable contingent event 
benefit under Title II of ERISA and Treasury regulations; provides that 
the guarantee of an unpredictable contingent event benefit is phased in 
from the latest of the date the benefit provision is adopted, the date 
the benefit is effective, or the date the event that makes the benefit 
payable occurs; and includes eight examples that show how the phase-in 
rules apply in various situations.
    PBGC received one public comment on its 2011 proposed regulation. 
PBGC has made a change to the final regulation in response to the 
comment.

Background

    The Pension Benefit Guaranty Corporation (PBGC) administers the 
single-employer pension plan termination insurance program under Title 
IV of the Employee Retirement Income Security Act of 1974 (ERISA). The 
program covers certain private-sector, single-employer defined benefit 
plans, for which premiums are paid to PBGC each year.
    Covered plans that are underfunded may terminate either in a 
distress termination under section 4041(c) of ERISA or in an 
involuntary termination (one initiated by PBGC) under section 4042 of 
ERISA. When such a plan terminates, PBGC typically is appointed 
statutory trustee of the plan, and becomes responsible for paying 
benefits in accordance with the provisions of Title IV.
    Under sections 4022(b)(1) and 4022(b)(7) of ERISA and Sec. Sec.  
4022.24 through .26 of PBGC's regulation on Benefits Payable in 
Terminated Single-Employer Plans, 29 CFR part 4022, PBGC's guarantee of 
new pension benefits and benefit increases is ``phased in'' over a 
five-year period, which begins on the date the new benefit or benefit 
increase is adopted or effective, whichever is later.
    The Pension Protection Act of 2006, Public Law 109-280 (PPA 2006), 
amended section 4022 of ERISA by adding a new section 4022(b)(8), which 
changes the start of the phase-in period for plant shutdown and other 
``unpredictable contingent event benefits.'' Under section 4022(b)(8), 
the phase-in rules are applied as if a plan amendment creating an 
unpredictable contingent event benefit (UCEB) was adopted on the date 
the unpredictable contingent event (UCE) occurred rather than as of the 
actual adoption date of the amendment, which is almost always earlier. 
As a result of the change, the guarantee of benefits arising from plant 
shutdowns and other UCEs that occur within five years of plan 
termination (or the date the plan sponsor entered bankruptcy, if 
applicable under PPA 2006, as explained below) generally will be lower 
than under prior 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.

Phase-In of PBGC Guarantee

    Under section 4022(b)(7) of ERISA, the guarantee of benefits under 
a new plan or of a new benefit or benefit increase under an amendment 
to an existing plan (all of which are referred to in PBGC's regulations 
as ``benefit increases'') 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 
percent of a benefit increase is guaranteed after one year, 40 percent 
after two years, etc., with full phase-in of the guarantee after five 
years. If the amount of the monthly benefit increase is below $100, the 
annual rate of phase-in is $20 rather than 20 percent.
    The phase-in limitation generally serves to protect the insurance 
program from losses caused by benefit increases that are adopted or 
made effective shortly before plan termination. This protection is 
needed because benefit increases can create large unfunded liabilities. 
An example is a plan amendment that significantly increases credit 
under the plan benefit formula for service performed prior to the 
amendment. Such increases generally are funded over time under the 
ERISA minimum funding rules. Congress determined that an immediate full 
guarantee would result in an inappropriate loss for PBGC if a plan 
terminated before an employer significantly funded a benefit increase. 
Phase-in of the guarantee allows time for some funding of new 
liabilities before they are fully guaranteed.
    Funding of liabilities created by a benefit increase generally 
starts at the

[[Page 25668]]

same time as the PBGC guarantee first applies under the phase-in rule. 
Under ERISA and the Internal Revenue Code (Code), liability created by 
a benefit increase must be reflected in a plan's required contribution 
no later than the plan year following adoption of the benefit increase. 
For example, a benefit increase that is adopted and effective in the 
2009 plan year must be reflected in the minimum funding contribution 
calculations for a plan year not later than the 2010 plan year. 
Similarly, such a benefit increase would become partially guaranteed 
during the 2010 plan year.
    Over the years, legislative reforms, including those in PPA 2006, 
have generally shortened the permitted funding period from thirty years 
to seven years (or less in certain cases). This closer coordination 
between the permitted funding period and five-year guarantee phase-in 
period generally enhanced the effectiveness of the phase-in provisions 
in protecting the PBGC insurance program against losses due to unfunded 
benefit increases. However, as explained below, before the PPA 2006 
changes to the phase-in of UCEBs, this coordination generally failed in 
the case of UCEBs.

Unpredictable Contingent Event Benefits

    UCEBs, described more specifically below, are benefits or benefit 
increases that become payable solely by reason of the occurrence of a 
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 events most commonly giving 
rise to UCEBs are events relating to full or partial plant shutdowns or 
other reductions in force. UCEBs, which are frequently provided in 
pension plans in various industries such as the steel and automobile 
industries, are payable with respect to full or partial plant shutdowns 
as well as shutdowns of different kinds of facilities, such as 
administrative offices, warehouses, retail operations, etc. UCEBs are 
also payable, in some cases, with respect to layoffs and other 
workforce reductions.\1\
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    \1\ The Technical Explanation of PPA 2006 prepared by the Joint 
Committee on Taxation Staff specifies that UCEBs include benefits 
payable with respect to ``facility shutdowns or reductions in 
workforce.'' Joint Committee on Taxation, Technical Explanation of 
H.R. 4, the ``Pension Protection Act of 2006,'' as passed by the 
House on July 26, 2006, and as considered by the Senate on August 3, 
2006 (JCX-38-06), August 3, 2006, at 90 (hereinafter Technical 
Explanation of PPA 2006).
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    A typical shutdown benefit provision in the steel industry--the so-
called ``70/80 Rule''--generally allows participants who lose their 
jobs due to the complete or partial closing of a facility or a 
reduction-in-force and whose age plus service equals 70 (if at least 
age 55) or 80 (at any age) to begin receiving their full accrued 
pension immediately, even though they have not reached normal 
retirement age. Similar UCEBs are common in the automobile industry 
with respect to shutdowns and layoffs. The purpose of these benefits is 
to assist participants financially in adjusting to a permanent job 
loss.

Time Lag Between Start of Guarantee Phase-In and Funding of UCEBs

    A UCEB provision typically has been in a plan many years before the 
occurrence of the event that eventually triggers the benefit, such as a 
plant shutdown. As a result, before PPA 2006, shutdown benefits, for 
example, were often fully guaranteed under the phase-in rules when a 
shutdown occurred. Because the benefit is contingent on the occurrence 
of an unpredictable event, plan sponsors typically did not make 
contributions to provide for advance funding of such benefits; funding 
of such benefits often did not begin until after the UCE had occurred. 
If, as often happened, plan termination occurred within a few years 
after a shutdown, the time lag between the start of the phase-in period 
and the start of funding resulted in an increased loss to the insurance 
program.

Treatment of UCEBs in OBRA 1987

    Congress first explicitly addressed UCEBs in funding reforms 
contained in the Pension Protection Act of 1987, enacted as part of 
Public Law 100-203, the Omnibus Budget Reconciliation Act of 1987 (OBRA 
1987). The OBRA 1987 rules for deficit reduction contributions required 
employers to recognize UCEBs on an accelerated basis (generally, within 
five to seven years), beginning after the triggering event occurred.\2\ 
However, the rules did not address the mismatch of the funding and 
guarantee phase-in periods discussed above. They also did not address 
the fact that UCEBs are likely to be triggered when the employer is 
experiencing financial difficulty, which threatens both funding and 
continuation of the plan. For these reasons, in the years since OBRA 
1987, PBGC has assumed more than $1 billion of unfunded benefit 
liabilities from shutdown and similar benefits.
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    \2\ Public Law 100-203, 10 Stat. 1330, 339-41 (codified as 
amended at 26 U.S.C. 412(l) (1987)); see S. Rep. No. 100-63 at 171-
72, 175-76 (1987).
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Treatment of UCEBs in PPA 2006

    Congress further addressed UCEBs in PPA 2006. PPA 2006 affected 
UCEBs in two important ways.
    First, PPA 2006 added new ERISA section 206(g) and parallel Code 
section 436(b) that restrict payment of UCEBs with respect to a UCE if 
the plan is less than 60 percent funded for the plan year in which the 
UCE occurs (or would be less than 60 percent funded taking the UCEB 
into account). Unless the restriction is removed during that plan year 
as a result of additional contributions to the plan or an actuarial 
certification meeting certain requirements, the restriction becomes 
permanent and, under Treas. Reg. Sec.  1.436-1(a)(4)(iii),\3\ the plan 
is treated as if it does not provide for those UCEBs.\4\ Because PBGC 
guarantees only benefits that are provided under a plan, a UCEB that is 
treated as not provided under the plan because of this restriction is 
not guaranteeable by PBGC at all, and the phase-in rules that are the 
subject of this final regulation do not come into play for such a UCEB. 
Moreover, under Treas. Reg. Sec.  1.436-1(a)(3)(ii), benefit 
limitations under ERISA section 206(g) that were in effect immediately 
before plan termination continue to apply after termination.
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    \3\ Treasury Regulations under Code sections 430 and 436 also 
apply for purposes of the parallel rules in ERISA sections 303 and 
206(g).
    \4\ 74 FR 53004, 53062 (Oct. 15, 2009). Treas. Reg. Sec.  1.436-
1(a)(4)(iii) permits all or any portion of prohibited UCEBs to be 
restored by a plan amendment that meets the requirements of section 
436(c) of the Code and Treas. Reg. Sec.  1.436-1(c) and other 
applicable requirements. Such an amendment would create a ``benefit 
increase'' under Sec.  4022.2 and therefore PBGC's guarantee of 
UCEBs restored by such an amendment would be phased in from the 
later of the adoption date of the amendment or the effective date as 
of which the UCEB is restored, as provided under Sec.  4022.27(c) of 
the final regulation.
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    Second, PPA 2006 better aligns the starting dates of the funding 
and guarantee phase-in of UCEBs. Under PPA 2006, phase-in of the PBGC 
guarantee does not start until the UCE actually occurs. Specifically, 
ERISA section 4022(b)(8), added by section 403 of PPA 2006, provides: 
``If an unpredictable contingent event benefit (as defined in section 
206(g)(1)) is payable by reason of the occurrence of any event, this 
section shall be applied as if a plan amendment had been adopted on the 
date such event occurred.'' The provision applies to UCEs that occur 
after July 26, 2005. Thus, for purposes of the phase-in limitation, the 
date a UCE occurs is treated as the adoption date of the plan provision 
that provides for the related UCEB. This statutory change provides

[[Page 25669]]

the PBGC insurance program a greater measure of protection than prior 
law from losses due to unfunded UCEBs--most notably, benefits that 
become payable by reason of a plant shutdown or similar event such as a 
permanent layoff.\5\
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    \5\ In addition, Treas. Reg. Sec.  1.430(d)-(1)(f)(6) requires 
that calculation of the funding target for a single-employer plan 
take into account, based on information as of the valuation date, 
the probability that UCEBs will become payable. Under that Treasury 
regulation, the probability may be assumed to be zero if there is 
not more than a de minimis likelihood that the UCE will occur.
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    ERISA section 206(g)(1), as added by section 103(a) of PPA 2006, 
defines ``unpredictable contingent event benefit'' as any benefit 
payable solely by reason of a plant shutdown (or similar event, as 
determined by the Secretary of the Treasury), or an event other than 
the attainment of any age, performance of any service, receipt or 
derivation of any compensation, or occurrence of death or disability.
    PPA 2006 did not alter the rule that UCEBs are not guaranteed at 
all unless the triggering event occurred prior to the plan termination 
date (see PBGC v. Republic Tech. Int'l, LLC, 386 F.3d 659 (6th Cir. 
2004)).

Treasury Final Regulation

    On October 15, 2009 (at 74 FR 53004), the Department of the 
Treasury (Treasury) published a final rule on Benefit Restrictions for 
Underfunded Pension Plans that defines UCEB for purposes of ERISA 
section 206(g)(1), and thus also for purposes of section 4022(b)(8). 
Treasury's final regulation clarifies the following points regarding 
UCEBs:
     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 reference to ``plant shutdown'' in the statutory 
definition of UCEB includes a full or partial shutdown.

Treasury's final regulation also states that a UCEB includes benefits 
triggered by events similar to plant shutdowns. Treas. Reg. Sec.  
1.436-1(j)(9) defines a UCEB at 26 CFR 1.436(j)(9).

PBGC Proposed Rule and Public Comment

    On March 11, 2011 (at 76 FR 13304), PBGC published a proposed rule 
to implement section 403 of PPA 2006.\6\ PBGC received one comment on 
the proposed rule, from an association of labor organizations.\7\ The 
commenter requested that the final rule limit PBGC's discretion to 
determine the beginning date of the phase-in period for the guarantee 
of a UCEB and require PBGC to notify participants affected by the 
phase-in of the date of the UCE. The commenter also expressed concern 
about the participant-by-participant basis for determining the date on 
which a UCE occurs in the case of a reduction in force. PBCG's response 
to the comment is discussed below.
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    \6\ With one exception, explained below under the heading 
``Bankruptcy filing date treated as deemed termination date,'' the 
other provisions of PPA 2006 affecting PBGC's guarantee do not 
affect phase-in of the guarantee of UCEBs and thus were not 
addressed in the proposed rule.
    \7\ The comment is posted on PBGC's Web site, www.pbgc.gov.
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Overview of Final Regulation

    The final regulation incorporates the definition of UCEB under 
section 206(g)(1)(C) of ERISA and Treas. Reg. Sec.  1.436-1(j)(9). It 
also provides that the guarantee of a UCEB is 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. 
The final rule includes eight examples that show how the UCEB phase-in 
rules apply in the following situations:
     Shutdown that occurs later than the announced shutdown 
date.
     Sequential permanent layoffs.
     Skeleton shutdown crews.
     Permanent layoff benefit for which the participant 
qualifies shortly before the sponsor enters bankruptcy.
     Employer declaration during a layoff that return to work 
is unlikely.
     Shutdown benefit with age requirement that can be met 
after the shutdown.
     Retroactive UCEB.
     Removal of IRC Section 436 restriction.\8\
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    \8\ The examples are not an exclusive list of UCEs or UCEBs and 
are not intended to narrow the statutory definition, as further 
delineated in Treasury Regulations.
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    The final regulation is nearly the same as the proposed regulation. 
As explained below, PBGC has made one change in the regulation in 
response to the public comment. In addition, PBGC has updated the dates 
in the examples.

Regulatory Changes

UCEBs Covered

    As explained above, ERISA section 4022(b)(8), added by section 403 
of PPA 2006, changes the rules for phasing in the guarantee of UCEBs in 
the case of UCEs that occur after July 26, 2005. Section 4022(b)(8) 
covers shutdown-type benefits, including benefits payable by reason of 
complete shutdowns of plants, and benefits payable when participants 
lose their jobs or retire as a result of partial closings or 
reductions-in-force at all kinds of facilities, in addition to other 
UCEBs. Accordingly, Sec.  4022.27(a) expressly refers to benefits 
payable as a result of ``plant shutdowns or other unpredictable 
contingent events . . ., such as partial facility closings and 
permanent layoffs.'' \9\
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    \9\ As explained in Technical Explanation of PPA 2006, supra 
note 1, ``layoff benefits,'' as that term is used in Treas. Reg. 
Sec.  1.401-1(b)(1)(i), are severance benefits that may not be 
included in tax-qualified pension plans. In contrast, the benefits 
covered in this regulation are retirement benefits payable in the 
event of certain workforce reductions. These retirement benefits--
generally subsidized early retirement benefits--may be provided in 
tax-qualified plans insured by PBGC.
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    As stated above, a UCEB is defined by section 206(g)(1)(C) of ERISA 
to include benefits payable solely by reason of (1) a plant shutdown or 
similar event, or (2) an event other than an event such as attainment 
of a certain age or performance of service, that would trigger 
eligibility for a retirement benefit. The final regulation provides 
that PBGC will determine whether a benefit is a UCEB based on the facts 
and circumstances; the substance of the benefit, not what it is called, 
determines whether the benefit would be a UCEB covered by the new 
phase-in rule. Accordingly, under Sec.  4022.27(b), the guarantee of 
any benefit that PBGC determines, based on plan provisions and facts 
and circumstances, is a shutdown benefit or is otherwise a UCEB will be 
phased in as a UCEB.
    The definition of UCEB under Sec.  4022.2 provides that a benefit 
does not cease to be a UCEB for phase-in purposes merely because the 
UCE has already occurred or its occurrence has become reasonably 
predictable. This interpretation is supported by the plain language of 
ERISA section 4022(b)(8), which incorporates ERISA section 
206(g)(1)(C). Section 206(g)(1)(C) expressly defines a UCEB not in 
terms of degree of predictability, but rather whether a benefit is 
``payable solely by reason of a shutdown or similar event . . . or an 
event other than the attainment of any age, performance of any service, 
receipt or derivation of any compensation, or occurrence of death or 
disability.'' In other words, section 206(g)(1)(C) provides that a UCEB 
remains a UCEB after the UCE occurs. Because many events that are not 
reliably and reasonably predictable become predictable immediately 
before they occur, and the concept of predictability does not apply to 
events after they have occurred, PBGC interprets ERISA section 
4022(b)(8) to apply to benefits such as shutdown benefits regardless of 
whether the events

[[Page 25670]]

triggering those benefits have already occurred or have become 
predictable.

Date UCE Occurs

    Under the final regulation, PBGC determines the date a UCE occurs 
based on the plan provisions and other facts and circumstances, 
including the nature and level of activity at a facility that is 
closing and the permanence of the event. Statements or determinations 
by the employer, the plan administrator, a union, an arbitrator under a 
collective bargaining agreement, or a court about the date of the event 
may be relevant but are not controlling. Where a plan provides that a 
UCEB is payable only upon the occurrence of more than one UCE, the 
regulation provides that the guarantee is 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 begins 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 begins 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 commenter expressed concern that the proposed ``facts and 
circumstances'' standard granted PBGC broad discretionary authority to 
reduce participants' guaranteed benefits and requested that this 
discretion should be limited, in general, by granting deference to 
eligibility determinations made by the plan sponsor (when acting as 
plan administrator), or that PBGC should be bound by the decision of an 
arbitrator, benefit agreement or judicial decision construing a 
collective bargaining agreement. The commenter points out that such 
deference is especially appropriate where participants are receiving 
benefits and have relied upon those determinations.
    Because shutdowns and similar situations are fact-specific, PBGC 
continues to believe that a facts-and-circumstances approach is the 
best way to implement the statute. However, PBGC agrees with the 
commenter that determinations made by a plan, arbitrator, or court 
regarding the date when participants became entitled to the UCEB may be 
relevant. Accordingly, in response to the comment, Sec.  4022.27(d) of 
the final regulation specifically includes determinations and 
statements by such parties as factors that will be considered, to the 
extent relevant, in establishing the UCE date. PBGC will not, however, 
treat any such determinations or statements as controlling.
    This change does not alter the principle that PBGC is ultimately 
responsible for determining participants' guaranteed benefits. The 
agency administers a program that places statutory limits on benefits, 
and it is not generally bound by a private party's determination of 
benefits.
    Whether a UCEB phase-in determination applies on a participant-by-
participant basis, as opposed to facility-wide or some other basis, 
will depend largely upon plan provisions. For example, a benefit 
triggered by a reduction-in-force would be determined with respect to 
each participant, and thus layoffs that occur on different dates would 
generally be distinct UCEs. See Example 2 of the final regulation 
(Sec.  4022.27(e)(2)). But a benefit payable only upon the complete 
shutdown of the employer's entire operations applies plan-wide, and 
thus the shutdown date generally is the date of the UCE for all 
participants.
    The commenter expressed concern that in cases of sequential 
layoffs, participants laid off early in a shutdown process would obtain 
a greater phase-in percentage than participants laid off later in the 
process. The commenter suggested that sequential layoffs resulting in a 
shutdown should be viewed as a single event, and the UCE date should be 
the date on which the sponsor decided upon the layoffs, or at the 
latest, the date on which the first participants are laid off. PBGC has 
not adopted this suggestion.
    In the case of a sequential layoff where the plan provides that 
benefits become payable as of the layoff date, it is true that a 
participant-by-participant determination of the UCE date could result 
in participants laid off early in a shutdown process receiving a 
greater phase-in percentage than participants laid off later in the 
process. However, that result is dictated by plan language that 
conditions a benefit upon the participant's layoff, and ERISA section 
4022(b)(8), which requires that the phase-in period commence no earlier 
than the date of the event that triggers the UCEB. Setting a phase-in 
date that is prior to the date of the event that made the layoff 
benefit payable would not accord with the statute and therefore would 
be beyond PBGC's authority.\10\
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    \10\ In contrast, where the plan provides that a UCEB is payable 
only when all participants are laid off and the plant is permanently 
shut down, the plan itself has created a benefit trigger that is 
actually a single event, and therefore phase-in would commence as of 
the same date for all participants.
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    The commenter also requested that the final rule require that PBGC 
explain in detail, as part of the benefit determination process, the 
reasons for its selection of the triggering date on which the phase-in 
is based, if that date is different from the triggering date used by 
the plan. PBGC's regulations do not specify the amount of detail to be 
included in benefit determinations, in order to preserve flexibility in 
dealing with a wide variety of plans and plan provisions. In issuing 
benefit determinations to participants and beneficiaries, PBGC 
carefully balances providing additional information with reducing the 
potential for confusion from undue complexity. However, PBGC 
understands the commenter's concern and is committed to transparency in 
its communications with participants and beneficiaries. In response to 
the comment, PBGC's policy will be to provide the UCE date and the 
information necessary to understand it, in all benefit determinations, 
with the amount of additional information necessarily varying from case 
to case.

Date Phase-In Begins

    ERISA sections 4022(b)(1) and 4022(b)(7) provide that PBGC's 
guarantee of a benefit increase is phased in from the date the benefit 
increase is ``in effect,'' i.e., from the later of the adoption date or 
effective date of the increase. ERISA section 4022(b)(8) (added by PPA 
2006) provides that, for phase-in purposes, shutdown benefits and other 
UCEBs are deemed to be ``adopted on the date . . . [the UCE] occurs.'' 
Thus ERISA section 4022(b)(8) protects PBGC in the typical situation 
where a shutdown or permanent layoff occurs long after a shutdown 
benefit provision was originally adopted.
    Section 4022(b)(8) could be read to produce an incongruous result 
in an unusual situation where the UCE occurs first and a UCEB is 
adopted later, effective retroactive to the UCE. Because the date of 
the UCE would be treated under section 4022(b)(8) as the adoption date 
of the UCEB, in this situation the phase-in arguably would begin on the 
date of the UCE, rather than on the actual adoption date of the plan 
amendment, as under pre-PPA 2006 law. The result would be a more 
generous--and more costly--guarantee of UCEBs than under pre-PPA 2006 
law. To avoid this incongruous result, Sec.  4022.27(c) provides that a 
benefit increase due solely to a UCEB is ``in effect'' as of the latest 
of the adoption date of the plan provision that provides

[[Page 25671]]

for the UCEB, the effective date of the UCEB, or the date the UCE 
occurs.
    Finally, if a UCEB becomes payable because a restriction under IRC 
section 436 is removed after, for example, an adequate funding 
contribution is made, the effective date of the UCEB for phase-in 
purposes is determined without regard to the restriction.

Allocation of Assets

    When PBGC becomes trustee of a pension plan that terminates without 
sufficient assets to provide all benefits, it allocates plan assets to 
plan benefits in accordance with the statutory priority categories in 
section 4044 of ERISA. The category to which a particular benefit is 
assigned in the asset allocation can affect insurance program costs and 
the extent to which participants receive nonguaranteed benefits.
    Priority category 3 in the asset allocation is particularly 
important, because it often includes benefits that, depending on the 
level of the plan assets, may be paid by PBGC even though not 
guaranteed. Priority category 3 contains only those benefits that were 
in pay status at least three years before the termination date of the 
plan (or that would have been in pay status if the participant had 
retired before that three-year period). An individual's benefit amount 
in priority category 3 is based on the plan provisions in effect during 
the five-year period preceding plan termination under which the benefit 
amount would be the least. Thus priority category 3 does not include 
benefit increases that were adopted or became effective in the five 
years before plan termination or, in some cases as discussed below, the 
bankruptcy filing date.
    PBGC considered whether the UCEBs that are not guaranteed under the 
PPA 2006 changes should be excluded from priority category 3. Under 
that approach, plan assets would go farther to pay for other benefits, 
especially guaranteed benefits, and participants would be less likely 
to receive UCEBs that are not guaranteed. Alternatively, if UCEBs that 
are not guaranteed under the PPA 2006 changes were included in priority 
category 3--as they are under pre-PPA law and PBGC's current regulation 
on Allocation of Assets (part 4044)--plan assets would be less likely 
to reach other benefits, especially guaranteed benefits, and 
participants would be more likely to receive UCEBs that are not 
guaranteed.
    Because section 403 of PPA 2006 does not make any reference to 
section 4044,\11\ PBGC concluded that the latter interpretation is the 
better one, and thus the final regulation, like the proposed 
regulation, does not amend part 4044.
---------------------------------------------------------------------------

    \11\ By contrast, three other provisions of PPA 2006 that 
changed PBGC's guarantee of benefits specifically provide changes to 
the asset allocation scheme under section 4044. See PPA 2006 
sections 404 (treatment of bankruptcy filing date as deemed 
termination date), 402(g)(2)(A) (special termination rules for 
commercial airlines), and 407 (relating to majority owners), 
enacting respectively sections 4044(e), 4022(h), and 4044(b)(3) of 
ERISA.
---------------------------------------------------------------------------

Bankruptcy Filing Date Treated as Deemed Termination Date

    On June 14, 2011 (76 FR 34590), PBGC published a final rule, 
``Bankruptcy Filing Date Treated as Plan Termination Date for Certain 
Purposes; Guaranteed Benefits; Allocation of Plan Assets; Pension 
Protection Act of 2006,'' to implement section 404 of PPA 2006, which 
added a new section 4022(g) to ERISA. This section provides that when 
an underfunded plan terminates while its contributing sponsor is in 
bankruptcy, the amount of guaranteed benefits under section 4022 will 
be determined as of the date the sponsor entered bankruptcy (bankruptcy 
filing date) rather than as of the termination date. The provision 
applies to plans terminating while the sponsor is in bankruptcy, if the 
bankruptcy filing date is on or after September 16, 2006.\12\
---------------------------------------------------------------------------

    \12\ See definition of ``PPA 2006 bankruptcy termination'' in 
Sec.  4001.2.
---------------------------------------------------------------------------

    Section 4022(g) applies to all types of plan benefits, including 
UCEBs. Under this provision, if a permanent shutdown (or other UCE) 
occurs after the bankruptcy filing date, UCEBs arising from the UCE are 
not guaranteed because the benefits are not nonforfeitable as of the 
bankruptcy filing date. Similarly, if the shutdown (or other UCE) 
occurs before the bankruptcy filing date, the five-year phase-in period 
for any resulting UCEBs is measured from the date of the UCE to the 
bankruptcy filing date, rather than to the plan termination date. For 
example, if a permanent shutdown occurs three years before the 
bankruptcy filing date, the guarantee of any resulting UCEBs will be 
only 60 percent phased in, even if the shutdown was more than five 
years before the plan's termination date. This rule is illustrated by 
Examples 4 and 5 in the regulation (Sec.  4022.27(e)(4) and (5), 
respectively).
    PBGC considered whether UCEBs could be excepted from the section 
4022(g) bankruptcy provision on the ground that the general phase-in 
rule in section 4022(g) is superseded by the specific section 
4022(b)(8) phase-in rule for UCEBs. However, PBGC concluded that the 
language of the bankruptcy and UCEB statutory provisions does not allow 
for any such exception. The UCEB provision alters the starting date for 
phase-in of UCEBs, while the bankruptcy provision alters the date 
beyond which no further phase-in is allowed for any benefit increase, 
including a UCEB. PBGC sees no conflict in applying both provisions to 
UCEBs.

Estimated Guaranteed Benefits

    ERISA section 4041(c)(3)(D)(ii)(IV) requires administrators of 
plans terminating in a distress termination to limit payment of 
benefits to estimated guaranteed benefits and estimated non-guaranteed 
benefits funded under section 4044, beginning on the proposed 
termination date. Section 4022.62 of PBGC's regulation on Benefits 
Payable in Terminated Single-Employer Plans contains rules for 
computing estimated guaranteed benefits, including provisions for 
estimating guaranteed benefits when a new benefit or benefit increase 
was added to the plan within five years before plan termination. The 
final regulation, like the proposed regulation, amends Sec.  4022.62 to 
provide that the date the UCE occurs is treated as the date the UCEB 
was adopted, i.e., the date the plan was amended to include the UCEB.

Applicability

    The amendments in this final rule, like section 403 of PPA 2006, 
will apply to UCEBs that become payable as a result of a UCE that 
occurs after July 26, 2005.

Regulatory Procedures

Executive Order 12866 ``Regulatory Planning and Review'' and Executive 
Order 13563 ``Improving Regulation and Regulatory Review''

    PBGC has determined, in consultation with the Office of Management 
and Budget, that this final rule not is a ``significant regulatory 
action'' under Executive Order 12866.
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. Executive Orders 12866 and 13563 require that a 
comprehensive regulatory impact

[[Page 25672]]

analysis be performed for any economically significant regulatory 
action, defined as an action that would result in an annual effect of 
$100 million or more on the national economy or which would have other 
substantial impacts. In accordance with OMB Circular A-4, PBGC has 
examined the economic and policy implications of this final rule and 
has concluded that the action's benefits justify its costs.
    Under Section 3(f)(1) of Executive Order 12866, a regulatory action 
is economically significant if ``it is likely to result in a rule that 
may . . . [h]ave an annual effect on the economy of $100 million or 
more or adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities.'' This final rule does not cross the $100 million 
threshold for economic significance and is not otherwise economically 
significant.
    The economic effect of the final rule is entirely attributable to 
the economic effect of section 403 of PPA 2006. Three factors tend to 
reduce the economic impact of section 403.
    First, before section 403 went into effect, PBGC often 
involuntarily terminated plans with shutdown liabilities before 
company-wide shutdowns, under the ``long-run loss'' provision in 
section 4042(a)(4) of ERISA. That provision allows PBGC to initiate 
termination proceedings if its long-run loss ``may reasonably be 
expected to increase unreasonably if the plan is not terminated.'' A 
sudden increase in PBGC's liabilities resulting from a shutdown could 
create just such an unreasonable increase in long-run loss. Section 403 
avoids the need for PBGC to make case-by-case decisions whether to 
initiate such ``pre-emptive'' terminations. Although it is difficult to 
make assumptions about PBGC's ability and intent to pursue such 
terminations if section 403 had not gone into effect, this factor tends 
to reduce its economic impact.
    Second, another PPA 2006 amendment provides that if a plan 
terminates while the sponsor is in bankruptcy, the amount of benefits 
guaranteed by PBGC is fixed at the date of the bankruptcy filing rather 
than at the plan termination date. Because of that provision, if a 
plant shutdown or other UCE occurred between the bankruptcy filing date 
and the termination date, the resulting UCEB would not be guaranteed at 
all, and thus section 403 would have no economic effect.
    Third--and perhaps most important--as also discussed above, other 
PPA 2006 provisions restrict payment of UCEBs if a plan is less than 60 
percent funded. If, because of those restrictions, a UCEB was not 
payable at all, section 403 again would have no economic effect.
    As stated above in Applicability, section 403 of PPA 2006 applies 
to any UCEB that becomes payable as a result of a UCE that occurs after 
July 26, 2005. PBGC estimates that, to date, the total effect of 
section 403--in terms of lower benefits paid to participants and 
associated savings for PBGC--is less than $4 million. Although PBGC 
cannot predict with certainty which plans with UCEBs will terminate, 
the funding level of such plans, or what benefits will be affected by 
the guarantee limits, given the relatively low estimate of the effect 
of the statutory provision to date, PBGC has determined that the annual 
effect of the rule will be less than $100 million.

Regulatory Flexibility Act

    PBGC certifies under section 605(b) of the Regulatory Flexibility 
Act that this final rule will not have a significant economic impact on 
a substantial number of small entities. The amendments implement and in 
some cases clarify statutory changes made in PPA 2006; they do not 
impose new burdens on entities of any size. Virtually all of the 
statutory changes affect only PBGC and persons who receive benefits 
from PBGC. Accordingly, sections 603 and 604 of the Regulatory 
Flexibility Act do not apply.

List of Subjects in 29 CFR Part 4022

    Pension insurance, Pensions, Reporting and recordkeeping 
requirements.

    For the reasons given above, PBGC is amending 29 CFR part 4022 as 
follows:

PART 4022--BENEFITS PAYABLE IN TERMINATED SINGLE-EMPLOYER PLANS

0
1. The authority citation for part 4022 continues to read as follows:

    Authority:  29 U.S.C. 1302, 1322, 1322b, 1341(c)(3)(D), and 
1344.


0
2. In Sec.  4022.2:
0
a. Amend the definition of ``benefit increase'' by removing the final 
``and'' in the second sentence and adding in its place, ``an 
unpredictable contingent event benefit, and''; and
0
b. Add in alphabetical order definitions for unpredictable contingent 
event (UCE) and unpredictable contingent event benefit (UCEB) to read 
as follows:


Sec.  4022.2  Definitions.

* * * * *
    Unpredictable contingent event (UCE) has the same meaning as 
unpredictable contingent event in section 206(g)(1)(C) of ERISA and 
Treas. Reg. Sec.  1.436-1(j)(9) (26 CFR 1.436-1(j)(9)). It includes a 
plant shutdown (full or partial) or a similar event (such as a full or 
partial closing of another type of facility, or a layoff or other 
workforce reduction), or any event other than the attainment of any 
age, performance of any service, receipt or derivation of any 
compensation, or occurrence of death or disability.
    Unpredictable contingent event benefit (UCEB) has the same meaning 
as unpredictable contingent event benefit in section 206(g)(1)(C) of 
ERISA and Treas. Reg. Sec.  1.436-1(j)(9) (26 CFR 1.436-1(j)(9)). Thus, 
a UCEB is any benefit or benefit increase to the extent that it would 
not be payable but for the occurrence of a UCE. A benefit or benefit 
increase that is conditioned upon the occurrence of a UCE does not 
cease to be a UCEB as a result of the contingent event having occurred 
or its occurrence having become reasonably predictable.


0
3. Revise Sec.  4022.24(e) to read as follows:


Sec.  4022.24  Benefit increases.

* * * * *
    (e) Except as provided in Sec.  4022.27(c), for the purposes of 
Sec. Sec.  4022.22 through 4022.28, a benefit increase is deemed to be 
in effect commencing on the later of its adoption date or its effective 
date.
* * * * *

Sec.  4022.27  [Redesignated as Sec.  4022.28]

0
4. Section 4022.27 is redesignated as Sec.  4022.28.


0
5. New Sec.  4022.27 is added to read as follows:

Sec.  4022.27  Phase-in of guarantee of unpredictable contingent event 
benefits.

    (a) Scope. This section applies to a benefit increase, as defined 
in Sec.  4022.2, that is an unpredictable contingent event benefit 
(UCEB) and that is payable with respect to an unpredictable contingent 
event (UCE) that occurs after July 26, 2005.
    (1) Examples of benefit increases within the scope of this section 
include unreduced early retirement benefits or other early retirement 
subsidies, or other benefits to the extent that such benefits would not 
be payable but for the occurrence of one or more UCEs.
    (2) Examples of UCEs within the scope of this section include full 
and partial closings of plants or other

[[Page 25673]]

facilities, and permanent workforce reductions, such as permanent 
layoffs. Permanent layoffs include layoffs during which an idled 
employee continues to earn credited service (creep-type layoff) for a 
period of time at the end of which the layoff is deemed to be 
permanent. Permanent layoffs also include layoffs that become permanent 
upon the occurrence of an additional event such as a declaration by the 
employer that the participant's return to work is unlikely or a failure 
by the employer to offer the employee suitable work in a specified 
area.
    (3) The examples in this section are not an exclusive list of UCEs 
or UCEBs and are not intended to narrow the statutory definitions, as 
further delineated in Treasury Regulations.
    (b) Facts and circumstances. If PBGC determines that a benefit is a 
shutdown benefit or other type of UCEB, the benefit will be treated as 
a UCEB for purposes of this subpart. PBGC will make such determinations 
based on the facts and circumstances, consistent with these 
regulations; how a benefit is characterized by the employer or other 
parties may be relevant but is not determinative.
    (c) Date phase-in begins. (1) The date the phase-in of PBGC's 
guarantee of a UCEB begins is determined in accordance with subpart B 
of this part. For purposes of this subpart, a UCEB is deemed to be in 
effect as of the latest of--
    (i) The adoption date of the plan provision that provides for the 
UCEB,
    (ii) The effective date of the UCEB, or
    (iii) The date the UCE occurs.
    (2) The date the phase-in of PBGC's guarantee of a UCEB begins is 
not affected by any delay that may occur in placing participants in pay 
status due to removal of a restriction under section 436(b) of the 
Code. See the example in paragraph (e)(8) of this section.
    (d) Date UCE occurs. For purposes of this section, PBGC will 
determine the date the UCE occurs based on plan provisions and other 
facts and circumstances, including the nature and level of activity at 
a facility that is closing and the permanence of the event. PBGC will 
also consider, to the extent relevant, statements or determinations by 
the employer, the plan administrator, a union, an arbitrator under a 
collective bargaining agreement, or a court, but will not treat such 
statements or determinations as controlling.
    (1) The date a UCE occurs is determined on a participant-by-
participant basis, or on a different basis, such as a facility-wide or 
company-wide basis, depending upon plan provisions and the facts and 
circumstances. For example, a benefit triggered by a permanent layoff 
of a participant would be determined with respect to each participant, 
and thus layoffs that occur on different dates would generally be 
distinct UCEs. In contrast, a benefit payable only upon a complete 
plant shutdown would apply facility-wide, and generally the shutdown 
date would be the date of the UCE for all participants who work at that 
plant. Similarly, a benefit payable only upon the complete shutdown of 
the employer's entire operations would apply plan-wide, and thus the 
shutdown date of company operations generally would be the date of the 
UCE for all participants.
    (2) For purposes of paragraph (c)(1)(iii) of this section, if a 
benefit is contingent upon more than one UCE, PBGC will apply the rule 
under Treas. Reg. Sec.  1.436-1(b)(3)(ii) (26 CFR 1.436-1(b)(3)(ii)) 
(i.e., the date the UCE occurs is the date of the latest UCE).
    (e) Examples. The following examples illustrate the operation of 
the rules in this section. Except as provided in Example 8, no benefit 
limitation under Code section 436 applies in any of these examples. 
Unless otherwise stated, the termination is not a PPA 2006 bankruptcy 
termination.

    Example 1. Date of UCE. (i) Facts: On January 1, 2006, a Company 
adopts a plan that provides an unreduced early retirement benefit 
for participants with specified age and service whose continuous 
service is broken by a permanent plant closing or permanent layoff 
that occurs on or after January 1, 2007. On January 1, 2013, the 
Company informally and without announcement decides to close 
Facility A within a two-year period. On January 1, 2014, the 
Company's Board of Directors passes a resolution directing the 
Company's officers to close Facility A on or before September 1, 
2014. On June 1, 2014, the Company issues a notice pursuant to the 
Worker Adjustment and Retraining Notification (WARN) Act, 29 U.S.C. 
2101, et seq., that Facility A will close, and all employees will be 
permanently laid off, on or about August 1, 2014. The Company and 
the Union representing the employees enter into collective 
bargaining concerning the closing of Facility A and on July 1, 2014, 
they jointly agree and announce that Facility A will close and 
employees who work there will be permanently laid off as of November 
1, 2014. However, due to unanticipated business conditions, Facility 
A continues to operate until December 31, 2014, when operations 
cease and all employees are permanently laid off. The plan 
terminates as of December 1, 2015.
    (ii) Conclusion: PBGC would determine that the UCE is the 
facility closing and permanent layoff that occurred on December 31, 
2014. Because the date that the UCE occurred (December 31, 2014) is 
later than both the date the plan provision that established the 
UCEB was adopted (January 1, 2006) and the date the UCEB became 
effective (January 1, 2007), December 31, 2014, would be the date 
the phase-in period under ERISA section 4022 begins. In light of the 
plan termination date of December 1, 2015, the guarantee of the 
UCEBs of participants laid off on December 31, 2014, would be 0 
percent phased in.
    Example 2. Sequential layoffs. (i) Facts: The same facts as 
Example 1, with these exceptions: Not all employees are laid off on 
December 31, 2014. The Company and Union agree to and subsequently 
implement a shutdown in which employees are permanently laid off in 
stages--one third of the employees are laid off on October 31, 2014, 
another third are laid off on November 30, 2014, and the remaining 
one-third are laid off on December 31, 2014.
    (ii) Conclusion: Because the plan provides that a UCEB is 
payable in the event of either a permanent layoff or a plant 
shutdown, PBGC would determine that phase-in begins on the date of 
the UCE applicable to each of the three groups of employees. Because 
the first two groups of employees were permanently laid off before 
the plant closed, October 31, 2014, and November 30, 2014, are the 
dates that the phase-in period under ERISA section 4022 begins for 
those groups. Because the third group was permanently laid off on 
December 31, 2014, the same date the plant closed, the phase-in 
period would begin on that date for that group. Based on the plan 
termination date of December 1, 2015, participants laid off on 
October 31, 2014, and November 30, 2014, would have 20 percent of 
the UCEBs (or $20 per month, if greater) guaranteed under the phase-
in rule. The guarantee of the UCEBs of participants laid off on 
December 31, 2014, would be 0 percent phased in.
    Example 3. Skeleton shutdown crews. (i) Facts: The same facts as 
Example 1, with these exceptions: The plan provides for an unreduced 
early retirement benefit for age/service-qualified participants only 
in the event of a break in continuous service due to a permanent and 
complete plant closing. A minimal skeleton crew remains to perform 
primarily security and basic maintenance functions until March 31, 
2015, when skeleton crew members are permanently laid off and the 
facility is sold to an unrelated investment group that does not 
assume the plan or resume business operations at the facility. The 
plan has no specific provision or past practice governing benefits 
of skeleton shutdown crews. The plan terminates as of January 1, 
2015.
    (ii) Conclusion: Because the continued employment of the 
skeleton crew does not effectively continue operations of the 
facility, PBGC would determine that there is a permanent and 
complete plant closing (for purposes of the plan's plant closing 
provision) as of December 31, 2014, which is the date the phase-in 
period under ERISA section 4022 begins with respect to employees who 
incurred a break in continuous service at that time. The UCEB of 
those participants would be a nonforfeitable benefit as of the plan 
termination date, but PBGC's guarantee of the UCEB would be 0 
percent phased in. In the case of the skeleton

[[Page 25674]]

crew members, such participants would not be eligible for the UCEB 
because they did not incur a break in continuous service until after 
the plan termination date. (If the plan had a provision that there 
is no shutdown until all employees, including any skeleton crew are 
terminated, or if the plan were reasonably interpreted to so provide 
in light of past practice, PBGC would determine that the date that 
the UCE occurred was after the plan termination date. Thus the UCEB 
would not be a nonforfeitable benefit as of the plan termination 
date and therefore would not be guaranteeable.)
    Example 4. Creep-type layoff benefit/bankruptcy of contributing 
sponsor. (i) Facts: A plan provides that participants who are at 
least age 55 and whose age plus years of continuous service equal at 
least 80 are entitled to an unreduced early retirement benefit if 
their continuous service is broken due to a permanent layoff. The 
plan further provides that a participant's continuous service is 
broken due to a permanent layoff when the participant is terminated 
due to the permanent shutdown of a facility, or the participant has 
been on layoff status for two years. These provisions were adopted 
and effective in 1990. Participant A is 56 years old and has 25 
years of continuous service when he is laid off in a reduction-in-
force on May 15, 2014. He is not recalled to employment, and on May 
15, 2016, under the terms of the plan, his continuous service is 
broken due to the layoff. He goes into pay status on June 1, 2016, 
with an unreduced early retirement benefit. The contributing sponsor 
of Participant A's plan files a bankruptcy petition under Chapter 11 
of the U.S. Bankruptcy Code on September 1, 2017, and the plan 
terminates during the bankruptcy proceedings with a termination date 
of October 1, 2018. Under section 4022(g) of ERISA, because the plan 
terminated while the contributing sponsor was in bankruptcy, the 
five-year phase-in period ended on the bankruptcy filing date.
    (ii) Conclusion: PBGC would determine that the guarantee of the 
UCEB is phased in beginning on May 15, 2016, the date of the later 
of the two UCEs necessary to make this benefit payable (i.e., the 
first UCE is the initial layoff and the second UCE is the expiration 
of the two-year period without rehire). Since that date is more than 
one year (but less than two years) before the September 1, 2017, 
bankruptcy filing date, 20 percent of Participant A's UCEB (or $20 
per month, if greater) would be guaranteed under the phase-in rule.
    Example 5. Creep-type layoff benefit with provision for 
declaration that return to work unlikely. (i) Facts: A plan provides 
that participants who are at least age 60 and have at least 20 years 
of continuous service are entitled to an unreduced early retirement 
benefit if their continuous service is broken by a permanent layoff. 
The plan further provides that a participant's continuous service is 
broken by a permanent layoff if the participant is laid off and the 
employer declares that the participant's return to work is unlikely. 
Participants may earn up to 2 years of credited service while on 
layoff. The plan was adopted and effective in 1990. On March 1, 
2014, Participant B, who is age 60 and has 20 years of service, is 
laid off. On June 15, 2014, the employer declares that Participant 
B's return to work is unlikely. Participant B retires and goes into 
pay status as of July 1, 2014. The employer files for bankruptcy on 
September 1, 2016, and the plan terminates during the bankruptcy.
    (ii) Conclusion: PBGC would determine that the phase-in period 
of the guarantee of the UCEB would begin on June 15, 2014--the later 
of the two UCEs necessary to make the benefit payable (i.e., the 
first UCE is the initial layoff and the second UCE is the employer's 
declaration that it is unlikely that Participant B will return to 
work). The phase-in period would end on September 1, 2016, the date 
of the bankruptcy filing. Thus 40 percent of Participant B's UCEB 
(or $40 per month, if greater) would be guaranteed under the phase-
in rule.
    Example 6. Shutdown benefit with special post-employment 
eligibility provision. (i) Facts: A plan provides that, in the event 
of a permanent shutdown of a plant, a participant age 60 or older 
who terminates employment due to the shutdown and who has at least 
20 years of service is entitled to an unreduced early retirement 
benefit. The plan also provides that a participant with at least 20 
years of service who terminates employment due to a plant shutdown 
at a time when the participant is under age 60 also will be entitled 
to an unreduced early retirement benefit, provided the participant's 
commencement of benefits is on or after attainment of age 60 and the 
time required to attain age 60 does not exceed the participant's 
years of service with the plan sponsor. The plan imposes no other 
conditions on receipt of the benefit. Plan provisions were adopted 
and effective in 1990. On January 1, 2014, Participant C's plant is 
permanently shut down. At the time of the shutdown, Participant C 
had 20 years of service and was age 58. On June 1, 2015, Participant 
C reaches age 60 and retires. The plan terminates as of September 1, 
2015.
    (ii) Conclusion: PBGC would determine that the guarantee of the 
shutdown benefit is phased in from January 1, 2014, which is the 
date of the only UCE (the permanent shutdown of the plant) necessary 
to make the benefit payable. Thus 20 percent of Participant C's UCEB 
(or $20 per month, if greater) would be guaranteed under the phase-
in rule.
    Example 7. Phase-in of retroactive UCEB. (i) Facts: As the 
result of a settlement in a class-action lawsuit, a plan provision 
is adopted on September 1, 2014, to provide that age/service-
qualified participants are entitled to an unreduced early retirement 
benefit if permanently laid off due to a plant shutdown occurring on 
or after January 1, 2014. Benefits under the provision are payable 
prospectively only, beginning March 1, 2015. Participant A, who was 
age/service-qualified, was permanently laid off due to a plant 
shutdown occurring on January 1, 2014, and therefore he is scheduled 
to be placed in pay status as of March 1, 2015. The unreduced early 
retirement benefit is paid to Participant A beginning on March 1, 
2015. The plan terminates as of February 1, 2017.
    (ii) Conclusion: PBGC would determine that the guarantee of the 
UCEB is phased in beginning on March 1, 2015. This is the date the 
benefit was effective (since it was the first date on which the new 
benefit was payable), and it is later than the adoption date of the 
plan provision (September 1, 2014) and the date of the UCE (January 
1, 2014). Thus 20 percent of Participant A's UCEB (or $20 per month, 
if greater) would be guaranteed under the phase-in rule.
    Example 8. Removal of IRC section 436 restriction. (i)(A) Facts: 
A plan provision was adopted on September 1, 1989, to provide that 
age/service-qualified participants are entitled to an unreduced 
early retirement benefit if permanently laid off due to a plant 
shutdown occurring after January 1, 1990. Participant A, who was 
age/service-qualified, was permanently laid off due to a plant 
shutdown occurring on April 15, 2014. The plan is a calendar year 
plan.
    (B) Under the rules of Code section 436 (ERISA section 206(g)) 
and Treasury regulations thereunder, a plan cannot provide a UCEB 
payable with respect to an unpredictable contingent event, if the 
event occurs during a plan year in which the plan's adjusted funding 
target attainment percentage is less than 60%. On March 17, 2014, 
the plan's enrolled actuary issued a certification stating that the 
plan's adjusted funding target attainment percentage for 2014 is 
58%. Therefore, the plan restricts payment of the unreduced early 
retirement benefit payable with respect to the shutdown on April 15, 
2014.
    (C) On August 15, 2014, the plan sponsor makes an additional 
contribution to the plan that is designated as a contribution under 
Code section 436(b)(2) to eliminate the restriction on payment of 
the shutdown benefits. On September 15, 2014, the plan's enrolled 
actuary issues a certification stating that, due to the additional 
section 436(b)(2) contribution, the plan's adjusted funding target 
attainment percentage for 2014 is 60%. On October 1, 2014, 
Participant A is placed in pay status for the unreduced early 
retirement benefit and, as required under Code section 436 and 
Treasury regulations thereunder, is in addition paid retroactively 
the unreduced benefit for the period May 1, 2014 (the date the 
unreduced early retirements would have become payable) through 
September 1, 2014. The plan terminates as of September 1, 2016.
    (ii) Conclusion: PBGC would determine that the guarantee of the 
UCEB is phased in beginning on April 15, 2014, the date the UCE 
occurred. Because April 15, 2014, is later than both the date the 
UCEB was adopted (September 1, 1989) and the date the UCEB became 
effective (January 1, 1990), it would be the date the phase-in 
period under ERISA section 4022 begins. Commencement of the phase-in 
period is not affected by the delay in providing the unreduced early 
retirement benefit to Participant A due to the operation of the 
rules of Code section 436 and the Treasury regulations thereunder. 
Thus 40 percent of Participant A's UCEB (or $40 per month, if 
greater) would be guaranteed under the phase-in rule.


0
6. In Sec.  4022.62(c)(2)(i), add a sentence after the third sentence 
to read as follows:

[[Page 25675]]

Sec.  4022.62  Estimated guaranteed benefit.

* * * * *
    (c) * * *
    (2) * * *
    (i) * * * ``New benefits'' also result from increases that become 
payable by reason of the occurrence of an unpredictable contingent 
event (provided the event occurred after July 26, 2005), to the extent 
the increase would not be payable but for the occurrence of the event; 
in the case of such new benefits, the date of the occurrence of the 
unpredictable contingent event is treated as the amendment date for 
purposes of Table I. * * *
* * * * *

    Issued in Washington, DC, this 30th day of April 2014.
Joshua Gotbaum,
Director, Pension Benefit Guaranty Corporation.
[FR Doc. 2014-10357 Filed 5-5-14; 8:45 am]
BILLING CODE 7709-02-P