A consortium of benefits advocates and business leaders have written a letter to the secretaries of Labor, Commerce and Treasury claiming that the Pension Benefit Guarantee Corp.’s enforcement policies are inconsistent with the law, are hurting business planning and, ultimately, enrollees in private-sector pensions.
Specifically, the letter claims the PBGC’s enforcement of ERISA section 4062(e) is not consistent with the law, and that the erroneous enforcement of the rule is costing businesses hundreds of millions of dollars and diverting assets from investments in infrastructure and labor.
Section 4062(e) requires that companies with defined benefit plans report to the PBGC when a facility of the business is shut down and more than 20 percent of the employees lose their jobs as a result. In such cases, companies are required to pay additional sums into their pension plan to assure they are properly financed, given the absence of contributions from the laid-off workers.
Under the statute, the PBGC can assess liability costs to an employer when “an employer ceases operations at a facility in any location.” According to the letter from industry executives and benefits advocates, the statute was intended to apply to those situations where all operations at a facility are shut down.
The PBGC has proposed that liability is triggered where just one of multiple operations is shut down, or even where no operations are shut down, but where they are transferred to another employer, to another location, or temporarily suspended for repairs.
In an effort to address previous comments from the private sector, the PBGC decided to exempt smaller companies — typically those with 100 or fewer participants in their DB plans — from enforcement. The most recent letter from industry and its representatives says this did not go far enough.
“Credit worthy” companies are also exempted from enforcement, but that those are not deemed as such face liabilities that could affect their ability to recover, the group said in its letter. “No company, even a company that is strong today, wants to face a future where if the company confronts financial challenges, it may suddenly have a large PBGC liability for a previous business transaction, or be severely limited in its ability to engage in helpful future business transactions,” the letter said.
The PBGC puts federal tax liens on some companies facing immediate liabilities when they don’t agree with the extent of the payments owed. This act, by law, is only available to the PGGC when a pension plan has been terminated.
The American Benefits Council, ASPPA, College of Pension Actuaries, Committee on Benefits Finance, Financial Executives International and The Committee on Investment of Employee Benefits Assets signed the letter.
The three cabinet secretaries addressed oversee the PBGC.