Will more corporations need to file PBGC Form 4010 for their defined benefit pension plans for the 2016 fiscal year?

Kamenir-JeffThis blog post was originally published on January 5, 2016. It has been updated to reflect the PBGC’s final rule in March 2016.

The Pension Benefit Guaranty Corporation (PBGC), the federal agency responsible for insuring unfunded liability for single-employer defined benefit pension plans in the event of a distress plan termination, issued final guidance in March 2016 that will likely increase the number of companies required to submit a 4010 filing for the 2016 fiscal year and beyond. An example of a circumstance in which a distress plan termination can occur is when a company files for bankruptcy.

The PBGC is charged under federal law with monitoring poorly funded defined benefit pension plans in part by requiring a special filing under ERISA Section 4010, commonly referred to as a “4010 filing.” This filing requires the employer to submit defined benefit pension plan financial and actuarial information as well as the company’s financial information. The filing is generally due three and a half months after the end of the fiscal year. The PBGC keeps this information shielded from public disclosure, which protects the privacy of closely held companies, which are not required to follow U.S. Securities and Exchange Commission (SEC) regulatory rules for listed companies.

Under current rules, employers with defined benefit pension plans that are less than 80% funded based on prescribed interest rates are required to report under Section 4010 unless they can meet the requirements for certain limited exemptions. Plans with under 500 participants are exempt if they are underfunded by $15 million or less. Companies that sponsor one or more pension plans with a combined participant count of 500 or more are exempt if the combined underfunding of all plans is $15 million or less.

Beginning with the 2016 fiscal year, PBGC modified the actuarial assumptions used for determining the underfunding exemption if the combined pension plan participant count is 500 or more. The modified assumptions use lower interest rates for determining pension plan liabilities that will increase liabilities and therefore make it more difficult to qualify for the underfunding exemption. For example, a plan with 500 or more participants that is less than 80% funded and may have been exempt from submitting a 4010 filing because the underfunding was less than $15 million may no longer qualify for the exemption under the new final rules. A guess is that this plan deficit would swell to over $15 million and a 4010 filing will be required. On the other hand, if the combined participant count is less than 500, the final rules automatically exempt the plans from 4010 filing requirements.

Companies that sponsor pension plans with 500 or more participants that wish to avoid the 4010 filing requirements under the final rules should work with their actuaries to take steps to bring each plan up to at least 80% funded for the 2016 plan year or to meet the $15 million or less underfunding exemption based on the newly required actuarial assumptions.