The PBGC is proceeding with an initiative to collect information on what it calls “risk transfer activity” in defined benefit pension plans — essentially certain de-risking transactions — as part of the filing plan sponsors make when they pay PBGC premiums.  If approved by the Office of Management and Budget, the PBGC’s draft new premium form will require plan sponsors to report certain “Lump Sum Windows” and “Annuity Purchases” offered during the current or the preceding year.  As a result, the proposal would require reporting of certain transactions that occurred in 2014 or may occur in early 2015.

As we have described in previous posts, de-risking transactions for defined benefit plans have become increasingly prevalent in recent years.  In reaction to this trend, the PBGC announced last fall that it intended to collect information on “certain undertakings to cash out or annuitize benefits” of former employees.

The announcement drew significant criticism from defined benefit plan sponsors.  Plan sponsors argued that the PBGC’s request would not provide any information that was relevant to the PBGC because, by their nature, these transactions relate to liabilities that would never become liabilities of the PBGC and, in any event, are not relevant in the context of premium filings.  Plan sponsors also noted that the information request was vague and burdensome, and could potentially cause the disclosure of confidential information.

Despite this criticism, the PBGC announced in a notice released earlier this week that its new draft form requires plan sponsors to report “risk transfer activity.”  In a supporting statement issued with the notice, the PBGC responded to the comments it received following last year’s announcement and noted that:

  • the information it is seeking will help it better estimate its future premium income, which is critical to its ability to assess its ongoing financial condition;
  • amounts paid out through these transactions do not reduce the PBGC’s potential liability on a dollar-for-dollar basis;
  • there are not viable alternative sources of this information;
  • the information sought is minimal and not burdensome to provide;
  • the PBGC has confidentiality procedures for those plan sponsors who believe that there is a risk of disclosure of confidential information; and
  • the PBGC has made a number of clarifications to its original proposal to address plan sponsor concerns that the original proposal was too vague or that it would be difficult for plan sponsors to provide the requested information.

If the proposed form is approved, plan sponsors planning future de-risking transactions should carefully review the definitions of “lump sum window” and “annuity purchase.”  These definitions exclude a number of practices that might commonly be thought to be covered by these terms, such as early retirement windows or “in plan” annuity purchases.  Plan sponsors should also be aware that lump sum windows and annuity purchases that occur less than 60 days before the premium filing is made need not be included on the current year’s form.

The PBGC has requested that comments on the new proposal be filed by February 11, 2015.