Understanding the New Public Company Waiver for Certain PBGC Reportable Events
Federal law requires the sponsor of a single-employer defined benefit plan to notify the Pension Benefit Guaranty Corporation (the “PBGC”) of the occurrence of “reportable events.” Some reportable events directly involve the plan, such as an inability to pay benefits when due. Other events may involve a member of the controlled group that sponsors the plan. The PBGC can assess penalties of up to $1,100 per day for violation of the reportable event rules and other similar rules under Section 4062(e) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). As a result, timely reporting is imperative. This LEGALcurrents® supplements our more general newsletter on the topic of PBGC reportable events and events reportable under Section 4062(e) of ERISA, which is available at http://www.hselaw.com/news-and-information/legalcurrents/886-single-employer-defined-benefit-plans-pbgc-reporting-obligations.
On September 11, 2015, the PBGC issued long-awaited final regulations addressing the reportable event rules. The final regulations revised the definition of several of the reportable events and applicable reporting event waivers. This LEGALcurrents® focuses on the new waiver for public companies that file a timely qualifying Form 8-K with the Securities and Exchange Commission.
New Public Company Waiver for Certain Reportable Events
Under the new reportable event regulations, certain reportable events are waived if any contributing sponsor of the plan that has experienced one or more applicable reportable events is a public company and the contributing sponsor timely files a Form 8-K with the Securities and Exchange Commission disclosing the event(s) under an Item of the Form 8-K other than Item 2.02 (Results of Operations and Financial Conditions) or Item 9.01 (Financial Statements and Exhibits).
The new public company waiver applies with respect to the following reportable events:
- Active participant reduction;
- Distribution to a substantial owner;
- Change in contributing sponsor or controlled group;
- Extraordinary dividend or stock redemption; and
- Transfer of benefit liabilities.
It is important to bear in mind that the new regulations do not address the level of specificity with which a covered reportable event must be disclosed in order for the public company waiver to apply. Accordingly, unless and until the PBGC issues additional guidance on this topic, public company sponsors of single-employer defined benefit plans that have triggered one or more covered PBGC reportable events and who intend to rely on the public company waiver may wish to err on the side of caution. In other words, they may want to disclose very specific information about the event(s) in a qualifying Item of a timely filed Form 8-K in order to ensure the strongest possible argument that the public company waiver will apply.
Public companies sponsoring single-employer defined benefit pension plans should continuously monitor company and plan actions, including, without limitation, transactions, loan defaults and financial instability relating to members of the plan’s controlled group. Large public companies often face challenges in identifying reportable events on a timely basis, because employees who know about the events are unfamiliar with reporting rules, and vice versa. Accordingly, employees likely to have knowledge about such events need to be trained to know when and how to report to employees who are familiar with the company’s benefit plans and PBGC reporting obligations. In addition, companies should be sure to keep their plan actuaries and employee benefits legal counsel informed regarding transactions and other events that could implicate the reporting rules.
Furthermore, in light of the current ambiguity regarding the specificity with which a covered reportable event must be disclosed on a Form 8-K in order to qualify for the public company waiver, companies wishing to avail themselves of that waiver should plan to have both their securities and employee benefits counsel review any Form 8-K intended to satisfy the waiver before it is timely filed with the Securities and Exchange Commission. Planning ahead can help keep your pension plan in compliance and avoid costly reporting penalties.
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