PBGC Says Plan Asset Transfers Could Affect Termination Insurance



Defined benefit plans involved in a spinoff, merger or consolidation should consider ahead of time how the transaction affects their termination insurance premiums and due dates, the Pension Benefit Guaranty Corporation said.

The PBGC said that it added instructions to its 2017 comprehensive premium filing instructions released Jan. 6 on plan spinoffs, mergers and consolidations after encountering several situations in which plans had made faulty filings. The faulty filings don’t affect the funding of the agency, but could affect the amount of premiums plans must pay and the due date.

PBGC is a federal agency whose funding relies partly on insurance premiums that defined benefit plan sponsors pay to ensure that plan participants receive benefits if the plan is terminated. The amount of the premium is based on the number of participants covered by a plan.

In a plan spinoff, merger or consolidations, one or more plans shift their assets and/or liabilities to other plans.

In a spinoff, a transferor plan transfers a portion of its assets and/or liabilities to a transferee plan, which may be a new plan created by the spinoff or an existing plan. In a merger, the plan transfers of all of its assets and liabilities to an existing plan and thus ceases to exist. In a consolidation, two or more plans transfer all of their assets and liabilities to a new plan that did not exist before the transaction.

The PBGC gave a series of examples to illustrate the impact of these transactions on premiums. Depending on when the spinoff occurs and if the plans involved follow the calendar year will affect when the premiums are due.

For example, in the case of a Jan. 1 spinoff from a plan that follows the calendar year to another calendar year plan, the premiums for both plans are due on Oct. 15. If the spinoff occurs mid-year, the transferor plan’s premium due date remains Oct. 15 while the transferee plan’s premium due date is April 15 of the following year.

If one calendar year plan merges into another calendar year plan on January 1, the merged plan ceases to exist on what would have been the first day of its plan year and thus is not required to pay premiums in the new year.

The PBGC also gave the example of three plans consolidating into a fourth plan on March 1. One of the three plans runs on the calendar year and the two others begin their plans years on March 1 and Oct. 1 respectively. In that situation, the fourth plan, as a new plan, owes premiums for the first short plan year of coverage from March 1-Dec. 31. The new plan’s participant count date for premium purposes also is March 1.

See related article, Pension Insurer Updates Instructions for Premium Filings.

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