Reverse spinoff considerations for pension sponsors

Plan sponsors are employing clever approaches to minimize Pension Benefit Guaranty Corporation (PBGC) premium obligations. While some approaches legitimately address both flat-rate and variable-rate premiums, other approaches are problematic. For example, one approach called a “reverse spinoff,” uses a “two-step transaction” to exploit two perceived loopholes in rules that are only intended for new plans and terminating plans in existing PBGC regulations.

The PBGC has not issued formal guidance on the reverse spinoff approach. However, given the language used in a recent PBGC staff response to a practitioner-submitted question, there is significant cause for concern upon thorough examination of the reverse spinoff approach. Milliman’s PJ Davis provides some perspective in this article.