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PBGC proposes pension plan risk-transfer disclosure requirement

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PBGC proposes pension plan risk-transfer disclosure requirement

Employers that reduce the risk of their pension plans could face a new requirement: disclosing basic information about the transactions to the Pension Benefit Guaranty Corp. as part of paying their annual premium to the federal agency.

If the Office of Management and Budget approves the proposal, the risk-transfer disclosure requirement would affect 2015 premium filings, which for most employers are due Oct. 15.

In cases when employers offer to convert plan participants' monthly annuity to a cash lump sum, employers would have to answer four questions: how many plan participants not in pay status, such as retirees, were offered the option and how many took it. The same questions for employees in pay status also would have to be answered.

In cases when employers buy a group annuity from an insurer and the insurer then provides the pension benefits to participants, the employer would have to report how many participants were in pay status and how many were not when the annuity was purchased.

However, employers could disregard annuity purchases and lump sum benefit offers made less than 60 days before the PBGC premium filing was made. Initially, the agency had proposed a 30-day cutoff, but expanded the cutoff amid suggestions from employer groups that 30 days was too short, a change welcomed by employer groups.

The ERISA Industry Committee “supports the more reasonable time frame the PBGC will use for purposes of counting annuity and/or lump sum purchases in these circumstances. We want to ensure that the data collection is accurate and reflective of the transactions covered in the notice,” said Kathryn Ricard, the Washington-based benefits lobbying organization's senior vice president of retirement policy.

The answers to the PBGC questions would relate to lump sum offers and annuity purchases that occurred in 2014 and those in 2015 that occurred 60 days prior to when plan sponsors made their PBGC premium payments.

In succeeding years, it is widely expected that risk-transfer information for a one-year period would be required.

The proposed requirement to file the risk-transfer information comes amid a surge of employers over the last few years who have engaged in such transactions.

The potential effect of such transactions on the PBGC's premium base was the driving force behind the move to obtain risk-transfer information.

Risk transfers “deserve PBGC's attention because, among other things, they lower the participant count and reduce premium income,” the agency said last week in a filing with OMB. “Premium losses have the potential to degrade PBGC's ability to carry out its mandate” to guarantee benefits.

Employer groups concur that the PBGC needs the information. “We are open-minded about it. De-risking has an impact on the PBGC premium income base, and the PBGC wants to know what that impact will be,” said Lynn Dudley, senior vice president of global retirement and compensation policy at the American Benefits Council in Washington.