The Employee Retirement Income Security Act of 1974 (ERISA) provides a comprehensive federal scheme for the regulation of employee pension and welfare benefit plans offered by employers. ERISA contains various provisions intended to protect the rights of plan participants and beneficiaries in employee benefit plans.

The Pension Benefit Guarantee Corporation (PBGC) is a federal corporation created by ERISA. It currently protects the pensions of nearly 44 million American workers and retirees in more than 29,000 private single-employer and multiemployer defined benefit pension plans. PBGC receives no funds from general tax revenues. Operations are financed by insurance premiums set by Congress and paid by sponsors of defined benefit plans, investment income, assets from pension plans trusteed by PBGC, and recoveries from the companies formerly responsible for the plans.

Although the PBGC's liabilities are not explicitly backed by the full faith and credit of the federal government, Congress could face political pressure to bail out the PBGC at taxpayer expense should the agency become financially insolvent.

Bradley Belt, former executive director of the Pension Benefit Guaranty Corporation (PBGC), testified before Congress in October, 2004: "I am particularly concerned with the temptation, and indeed, growing tendency, to use the pension insurance fund as a means to obtain an interest-free and risk-free loan to enable companies to restructure. Unfortunately, the current calculation appears to be that shifting pension liabilities onto other premium payers or potentially taxpayers is the path of least resistance rather than a last resort."
 

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(Table of Contents below)

Underfunded Pensions, Pension Dumping, and Retirement Security

Table of Contents

1.  "Summary of the Employee Retirement Income Security Act (ERISA)," CRS Report for Congress RL34443, April 10, 2008 . . . . . . . . . . . . . . . 1

- Introduction
-- Historical Development of Pension Plans in the United States
-- Origins of ERISA
-- Types of Qualified Retirement Plans
--- Hybrid Plans
--- The Revenue Act of 1978 and 401(k) Plans
- ERISA: An Overview
- ERISA Title I: Protection of Employee Benefit Rights
-- A. Coverage
-- B. Reporting and Disclosure
--- 1. Summary Plan Description
--- 2. Summary of Material Modifications
--- 3. Annual Report
--- 4. Benefit Statements
--- 5. Annual Funding Notice
--- 6. Notice of Freedom to Divest Employer Securities
-- C. Participation Requirements
-- D. Benefit Accrual
--- 1. Anti-cutback Rule
--- 2. Benefit Accrual and Age Discrimination
-- E. Minimum Vesting Standards
--- Breaks in Service
-- F. Benefit Protections for Spouses
--- 1. Preretirement Survivor Benefits
--- 2. Postretirement Survivor Benefits
--- 3. Qualified Domestic Relations Orders
-- G. Buyouts, Mergers, and Consolidations
-- H. Plan Funding
--- 1. Funding Requirements for Single-employer Plans
--- 2. Valuation of Plan Assets
--- 3. Benefit Limitations in Underfunded Plans
--- 4. Lump-sum Distributions
--- 5. Funding Requirements for Multiemployer Plans
-- I. Fiduciary Responsibility
--- 1. Duty of Loyalty
--- 2. Duty of Prudence
--- 3. Duty to Diversify Investments
--- 4. Duty to Act in Accordance with Plan Documents
--- 5. Prohibited Transactions
--- 6. Investment Advice
--- 7. Fiduciary Duty and Participant-Controlled Investment
--- 8. Fiduciary Liability under ERISA Section 409
-- J. Administration and Enforcement
--- 1. Civil Enforcement under Section 502(a)
--- 2. Claims to Enforce Benefit Rights
--- 3. Claims to Redress Breaches of Fiduciary Duty
--- 4. Claims to Enforce Plan Provisions and "Other Equitable Relief"
--- 5. Criminal Enforcement under ERISA and Other Federal Law
-- K. Preemption of State Laws
--- 1. Section 514
--- 2. Section 502
-- L. Special Regulation of Health Benefits
--- 1. COBRA
--- 2. HIPAA
--- 3. Mental Health Parity
--- 4. Maternity Length of Stay
--- 5. Reconstructive Surgery Following Mastectomies
- ERISA Title II: Internal Revenue Code Provisions
-- A. Limits on Plan Contributions and Benefits
--- 1. Defined Benefit Plan Provisions
--- 2. Defined Contribution Plan Provisions
-- B. Coverage and Nondiscrimination
--- 1. Nondiscrimination Test
--- 2. Safe Harbor Plans
-- C. Distributions from Qualified Plans
--- 1. Plan Loans
--- 2. Additional Tax on Early Withdrawals
--- 3. Rollovers
-- D. Integration with Social Security
-- E. Special Rules for "Top-heavy" Plans
- ERISA Title III: Jurisdiction, Administration, and Enforcement
- ERISA Title IV: Pension Benefit Guaranty Corporation and Plan Termination
-- A. Premiums for Single-employer Plans
-- B. PBGC Insurance Limit
-- C. Plan Terminations
--- 1. Standard Termination
--- 2. Distress Termination
--- 3. Involuntary Termination
-- D. Employer Liability to the PBGC
-- E. Reportable Events
-- F. Notice Requirements
-- G. Premiums for Multiemployer Pension Plans
-- H. Withdrawal Liability
- Table 1. Number of Plans, Participants, and Assets by Type of Plan, 1975-2004
- Table 2. Maximum Average 401(k) Contributions for Highly Compensated Employees

2.  "The Pension Benefit Guaranty Corporation and the Federal Budget," CRS Report for Congress RS22650, April 24, 2007 . . . . . . 71

- Summary
- Cash Accounting and the PBGC
-- Figure 1. Operational Cash Flows of the PBGC
- The Impact of the Pension Protection Act on the Federal Budget
-- Table 1. The PPA's Impact on Direct Spending (Outlays)
- The Impact of the President's Federal Budget Proposal on the Budget Projections

3.  "The Worker, Retiree, and Employer Recovery Act of 2008: An Overview," CRS Report for Congress R40171, January 29, 2009 . . . . . . 77

- WRERA's Provisions Relating to the Economic Crisis
-- Temporary Waiver of Minimum Distribution Rules
-- Amendment of the Funding Transition Rule for Single-Employer Plans
-- Temporary Modification on Freezing Benefit Accruals
-- Temporary Delay of Designation of Endangered or Critical Status for Multiemployer Plans
-- Temporary Extension of the Funding Improvement and Rehabilitation Periods for Multiemployer Pension Plans in Critical and Endangered Status
- Technical Corrections to the Pension Protection Act of 2006
-- Rollovers to Non-Spouse Beneficiaries
-- Missing Participants Program
-- Lump-Sum Payments for Underfunded Plans
-- Disclosure Requirements for Distress/Involuntary Terminations
- Selected Other Provisions of WRERA
-- Rollover of Amounts Received in Airline Carrier Bankruptcy to Roth IRAs
-- Determination of Plan Assets to Account for Expected Earnings
-- Plan Asset Valuation for Airline Plans
- Table 1. General Characteristics of Plans in Endangered or Critical Status under Internal Revenue Code Section 432

4.  "Pension Benefit Guaranty Corporation (PBGC) Investment Policy: Issues for Congress," CRS Report for Congress RL34656, September 8, 2008 . . . . . . 91

- Background on the PBGC
-- The Two Kinds of Pension Plans
-- The PBGC's Benefit Guarantee
-- The Single-Employer Insurance Program
-- The Multiemployer Insurance Program
-- PBGC Benefit Limits
-- Sources of Funding
-- PBGC Premiums
-- Recent Reforms
- Background on PBGC Investment Policy
-- PBGC's Investment Income
-- Accounting in the Federal Budget
-- Oversight of PBGC Investments
-- PBGC's New Investment Policy
-- Investment Strategies
-- The "Total Return" Approach
-- The "Asset-Liability Matching" Approach
- Implications of the New Policy
-- PBGC's Future Financial Condition
-- Risks for Taxpayers
- Figure 1. PBGC Income from Premiums and Investment Earnings, 1997-2007
- Figure 2. Financial Structure of the PBGC
- Figure 3. PBGC Assets Held in Trust Fund and Revolving Fund, 1997-2007
- Figure 4. Percentage of PBGC Assets Invested in Equities, 1990-2007
- Figure 5. Average Percentage Allocation of Assets Among the 200 Largest Defined Benefit Pension Plans, 2007
- Table 1. Claims Experience of PBGC Single-Employer Insurance Program and Probable Future Terminations
- Table 2. PBGC Premium Revenue and Benefit Payments, 1997-2007
- Table 3. Target Asset Allocation of PBGC Trust Fund, 2008
- Table 4. Previous PBGC Target Investment Allocation, Actual Investment Allocations, and New Target Allocation
- Table 5. Asset Allocation of UK Pension Protection Fund, 2008

5.  "Proposed Plan Buyouts by Financial Firms Pose Potential Risks and Benefits," United States Government Accountability Office, GAO-09-207, March 2009 . . . . . . 115

- Why GAO Did This Study
- What GAO Found
- Results in Brief
- Background
- Proposed Plan Buyouts Would Offer Sponsors an Alternative to Standard Plan Terminations, with Significant Differences
- Some Plan Buyouts Could Benefit Participants and PBGC, but in General Pose New Risks
- Concluding Observations
- Agency Comments
- Appendix I. UK Experience with Noninsured Plan Buyouts Provides Only Limited Regulatory Lessons for the United States
- Appendix II. Internal Revenue Service 2008 Revenue Ruling on Defined Benefit Plan Buyouts
- Appendix III. GAO Contacts and Staff Acknowledgments
- Table 1: Comparison of Key Characteristics of Plan Buyouts and Terminations
- Table 2: Potential Positive Outcomes and Risks Associated with Plan Buyouts
- Figure 1: Proposed DB Plan Buyout Models

6.  "The Financial Health of the Pension Guaranty Benefit Corporation (PBGC)," CRS Report for Congress RL33937, March 23, 2007 . . . . . . . 153

- Background
- Funded Status of the PBGC Single Employer Program
- Recent Large Claims on the PBGC
- Pension Funding Rules: Basic Concepts
- Pension Funding Rules Prior to the PPA
- Pension Funding Rules Under the PPA
-- Funding Rules
-- Smoothing
-- Interest Rates
-- PBGC Premiums
- Relief for Airlines Under the PPA
- Prognosis for the PBGC
- Conclusion
- Appendix A. Glossary of PBGC Related Terms
- Appendix B. PBGC Claims Assumptions for Projection Purposes
- Figure 1. PBGC Annual Premiums and Net Claims, 1990-2005
- Table 1. PBGC Single-Employer Program Funded Status
- Table 2. Plan Information from SEC Filings for Select Airlines
- Table 3. PBGC Actual and Average Expected Net Claims,1995-2005
- Table B1. PBGC Actual and Assumed Net Claims, 1995-2005

7.  "The Pension Benefit Guaranty Corporation," Statement of Dallas Salisbury, President & CEO, Employee Benefit Research Institute . . . . . . 173

- What are the current obligations facing the PBGC?
-- How many pensions is it insuring?
- How prepared is the PBGC in paying out existing pensions and what limitations does PBGC face in securing revenue for this (i.e. inability to raise premiums, etc.).
- What are the future challenges facing the PBGC?
- What are the future liabilities (unhealthy DB plans) for the PBGC?
- How will this affect the PBGC moving forward?
- Are companies with healthy DB plans likely to retain their plans and remain paying premiums into the future?
- Conclusion

8.  "Pension Benefit Guaranty Corporation Financial Challenges Highlight Need for Improved Governance and Management," Statement of Barbara D. Bovbjerg, GAO . . . . . . . 181

- Why GAO Did This Study
- What GAO Found
- Background
- PBGC's Financial Condition Has Likely Worsened Since September 2008
-- Figure 1: PBGC Assets and Liabilities, Fiscal Year 1990 to 2008
- Improvements Needed to PBGC's Governance and Management
-- PBGC's Governance Structure Needs Improvement
-- Figure 2: Number of PBGC Board Meetings 1974 to May 2009
-- As PBGC Relies Heavily on Its' Contractor and Federal Workforce, A More Strategic Approach Is Needed
-- Figure 3: PBGC Overall Versus Contractor Spending and Personnel, Fiscal Year 2007
- Conclusions

9.  "No Guarantees: As Pension Plans Crumble, can PBGC Deliver?," Statement of Rebecca Anne Batts, Inspector General, Pension Benefit Guaranty Corporation . . . . . . 205

- PBGC must continue to work with its Board to determine how to ensure integrity as it contracts for investment services.
-- 1. The Former Director Assumed De Facto Responsibility for Key Procurement Actions.
-- 2. The Former Director Consulted Directly with Some Firms Prior to Issuance of the RFP.
-- 3. The Former Director Had Inappropriate Contact with Bidders During the "Blackout" Period.
-- 4. The Former Director Sought Employment Assistance from an Executive of One of the Winning Bidders.
-- A Special "Thank You" to the Whistleblower
- Our audit and investigative initiatives must continue to examine areas that present the greatest risks and promptly notify PBGC, the Board, and Congress of actions needed to ensure effective governance and readiness for whatever the future brings.
-- The Office Of Inspector General Is Working With PBGC To Ensure Implementation Of Outstanding Audit Recommendations.
-- The Office of Inspector General Is Conducting a Review to Identify Vulnerabilities and Any Needed Changes in PBGC's Approach to Executing its Investment Policy.
-- Other Ongoing Audit and Investigative Initiatives
-- The Office of Inspector General is Taking Action to Best Position Itself for Future Change.
- Conclusion
-- Appendix: PBGC OIG Audit Report: Former Director's Involvement in Contracting for Investment Services Blurs Roles and Raises Fairness Issues, AUD-2010-5 / PA-08063-1, May 15, 2009.

10.  Testimony of Vincent K. Snowbarger, Acting Director, Pension Benefit Guaranty Corporation before the Special Committee on Aging, U.S. Senate . . . . . . 245 

- Overview
-- Defined Benefit Pension Plans
-- Governance and Financial Structure
- Administration of Terminated Plans
-- Benefit Payments
-- Benefit Limits
- Financial Condition and Trends
-- Deficit and Current Financial Condition
-- Claims History
-- Chart: PBGC Net Position Single-Employer Program
-- Table: Top 10 Firms Presenting Claims (1975-2008) PBGC Single-Employer Program
-- Table: PBGC Claims by Industry (FY 1975-2008), Single-Employer Program
-- Current Exposure
-- Ten-Year Forecast
-- Table: Distribution of PBGC's Potential 2018 Financial Position
-- Investment Policy
- Preparedness
-- Workload for Terminated Plans
-- Risk Mitigation
-- Customer Service
- Conclusion

11.  "The Effects of Recent Turmoil in Financial Markets on Retirement Security," Statement of Peter R. Orszag, Director, Congressional Budget Office . . . . . 257

- Turmoil in Financial Markets
- Private-Sector Pension Plans
-- Defined-Benefit Pension Plans
-- Defined-Contribution Pension Plans
- State and Local Pension Plans
- Households' Assets and Retirement Behavior
- Mitigating Financial Market Risks
- Figure 1. Sources of Income for People Age 65 and Older, by Income Quintile, 2006
- Figure 2. Percentage of Older People Participating in the Labor Force, 1970 to 2007
- Figure 3. Percentage of People Age 55 and Older Working Full- or Part-Time, 1990 to 2007

12.  "A Review of the Pension Benefit Guaranty Corporation's New Investment Strategy," Letter from Peter Orszag, Director, Congressional Budget Office . . . . . 267

- Background
- Asset Diversification and the Risk to PBGC's Funded Status
- Implications for Taxpayers
- Figure 1. Funded Status Efficient Frontiers
- Costs of the New Investment Strategy

13.  Testimony of Bradley D. Belt, Executive Director, Pension Benefit Guaranty Corporation, Before the Senate Committee on Commerce, Science, and Transportation . . . . . 273

- Structural Flaws in the Pension Insurance Program
- Trends in the Defined Benefit System
- Comprehensive Reform Needed
- Conclusion

14.  ERISA Part 4010. 29 CFR Part 4010 . . . . . 283

Sec.
4010.1 Purpose and scope.
4010.2 Definitions.
4010.3 Filing requirement.
4010.4 Filers.
4010.5 Information year.
4010.6 Information to be filed.
4010.7 Identifying information.
4010.8 Plan actuarial information.
4010.9 Financial information.
4010.10 Due date and filing with PBGC.
4010.11 Waivers and extensions.
4010.12 Alternative method of compliance for certain sponsors of multiple employer plans.
4010.13 Confidentiality of information submitted.
4010.14 Penalties.
4010.15 OMB control number.

15.  PBGC FAQs: Plan Funding . . . . . 297

- What is being done to try to prevent plans from becoming dangerously underfunded?
- How does PBGC work with plans to prevent their termination or mitigate potential losses?
- Why are companies allowed to turn over their underfunded plans to PBGC?

16.  Other Resources . . . . 299

17.  Other Resources From TheCapitol.Net . . . . 301

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