PBGC Issues Final Rule on Allocation of Assets, Benefits Payable in Terminated Single-Employer Plans

The Pension Benefit Guaranty Corporation (PBGC) on July 11, 2023 issued a final rule amending its regulations on benefit payments, allocation of assets, and termination liability. On Sept. 30, 2019, the PBGC had published a proposed rule to amend these regulations.

The PBGC did so to increase transparency of its benefits administration for terminated single-employer pension plans for which the PBGC serves as a trustee. It also seeks to clarify and simplify language, increase flexibility, codify practices, and harmonize regulatory provisions with statutory provisions.

What the Final Rule Does

The final rule changes the PBGC's regulations on Benefits Payable in Terminated Single-Employer Plans and Allocation of Assets in Single-Employer Plans. The changes make clarifications and codify policies involving payment of lump sums, changes to benefit forms, and valuation of plan assets and
amend regulations on benefit payments, allocation of assets, and termination liability.

More specifically, the final rule: 

• Changes wording that refers to the current statutory dollar amount subject to cashout ($5,000) to instead refer to the statutory provision that specifies the maximum dollar amount.
• Requires that fair market value or fair value, as appropriate, be used for purposes of valuing assets to be allocated to participants' benefits and in determining employer liability and net worth.

The final rule also clarifies that: 

• PBGC's rules on payment of a lump sum are unaffected by election of a lump-sum distribution before plan termination.
• a de minimis benefit of a married participant who dies after plan termination will be paid as an amount due a decedent, not as a qualified preretirement survivor annuity.
• benefits will be paid to estates only as lump sums.
• accumulated mandatory employee contributions may not be withdrawn if benefits are in pay status when a plan becomes trusteed.
• the form of benefit in pay status when a plan becomes trusteed will not be changed.

Dates

Effective date. This rule is effective on August 10, 2023. 

Applicability date. The amendments under this final rule apply to plan terminations initiated on or after August 10, 2023. The PBGC adds, however, that most of the amendments the final rule makes codify policies and practices it has followed for many years, and that it will continue to follow those policies and practices in the interim.