Speaking last Friday in an interview with the Associated Press, PBGC Executive Director Bradley Belt reiterated the Administration’s concern over provisions relating to ERISA 4010 in pending pension reform legislation. Whereas last year 429 companies filed 4010 reports with the agency, representing $350 billion of underfunded pension liability by the PBGC’s estimate, the agency fears the House version of the legislation would cut the number of companies required to file to 40.
Under ERISA 4010 and corresponding regulations, if the aggregate unfunded vested benefits under single-employer defined benefit pension plans maintained by an employer’s controlled group members exceeds $50 million, then a report must be filed with the PBGC containing plan actuarial information and controlled group financial information. Confidential ERISA 4010 information is excepted from FOIA disclosure and is generally unavailable to the public.
The Administration blames “heavy lobbying by business interests” for legislative efforts to sharpen 4010 focus. The current $50 million threshold can easily hit a large controlled group, even if the controlled group is in excellent financial shape and no one pension plan sponsored by the controlled group is heavily underfunded. In contrast, smaller employers near bankruptcy with severely underfunded plans that pose greater risk to the PBGC are currently exempt from 4010 filing as long as aggregate pension underfunding remains under the $50 million threshold.
H.R. 2830 §503 would require 4010 reporting if either – (a) the aggregate funding ratio of single-employer defined benefit plans maintained by controlled group members is less than 60%; or (b) the aggregate funding ratio of single-employer defined benefit plans maintained by controlled group members is less than 75%, and the plan sponsor is in an industry with respect to which the PBGC determines that there is substantial unemployment or underemployment and sales or profits are depressed or declining. Instead of the current vested benefit basis, funded ratios for this rule would be determined on the basis of accrued benefits; and new interest and mortality assumptions proposed in the pension reform legislation would be used to measure liabilities.
Still, if it were that simple, the “heavy lobbying by business interests” might claim success: large controlled groups with more than $50 million of unfunded liabilities would not be subject to 4010 reporting if the controlled group’s aggregate funded ratio were high enough; whereas the PBGC would get 4010 information from plan sponsors currently exempt, if the plan or sponsor were judged by the new rule to pose high risk to the agency. Unfortunately, the 4010 reporting rules get caught up in another pension reform war: the credit balance. New §4010(b)(1) finds its definition of funded ratio – the “aggregate funding target attainment percentage” – from new §4010(d)(2), which relies on new ERISA §303(d)(1), which takes plan assets into account as reduced under new ERISA §303(f)(4)(B), which refers to the new rules’ amounts for the credit balance. Meaning that an employer could keep its pension promises by accelerating contributions to the point of even being more than 100% funded, yet be subject to 4010 reporting because the credit balance is ignored for the new threshold, although that pension plan would pose absolutely no risk to the PBGC if it were actually terminated. (And there are only 40 employers with low funded ratios after ignoring credit balances? That hardly seems credible.)
The Senate version (§505) mirrors the House bill, but would retain the current $50 million threshold if either – (a) the controlled group’s single-employer pension plans have an aggregate funded ratio below 90%, or (b) the employer or its bonds have less than investment-grade rating.
Neither version goes all the way for another key 4010 item on the Administration’s wish list: public access to 4010 filings. The House version would require employers to notify plan participants and congressional committees of 4010 reporting, providing certain funding information that had been given on the filing. The Senate version would require only a summary report of the funding information to be provided to congressional committees. Otherwise, existing prohibition on public disclosure and FOIA exemptions would continue in force.