[Federal Register Volume 62, Number 216 (Friday, November 7, 1997)]
[Rules and Regulations]
[Pages 60424-60445]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-29500]



[[Page 60423]]

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Part III





Pension Benefit Guaranty Corporation





_______________________________________________________________________



29 CFR Parts 4001, 4006, 4022, 4041, 4050



Termination of Single-Employer Plans; Final Rule

  Federal Register / Vol. 62, No. 216 / Friday, November 7, 1997 / 
Rules and Regulations  

[[Page 60424]]



PENSION BENEFIT GUARANTY CORPORATION

29 CFR Parts 4001, 4006, 4022, 4041, 4050

RIN 1212-AA82


Termination of Single-Employer Plans

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Pension Benefit Guaranty Corporation is amending its 
termination regulation to extend deadlines, to otherwise simplify the 
standard termination process, and to ensure that participants receive 
information on state guaranty association coverage of annuities.

EFFECTIVE DATE: January 1, 1998. This rule is applicable to 
terminations for which the first notice of intent to terminate is 
issued on or after January 1, 1998. Certain provisions of the rule that 
provide increased flexibility during the termination process apply to 
pending terminations, as explained under Applicability of Final Rule in 
SUPPLEMENTARY INFORMATION.

FOR FURTHER INFORMATION CONTACT: Harold J. Ashner, Assistant General 
Counsel, or Catherine B. Klion, Attorney, Office of the General 
Counsel, PBGC, 1200 K Street, NW., Washington, DC 20005-4026, 202-326-
4024 (800-877-8339 for TTY and TDD).

SUPPLEMENTARY INFORMATION:

Background

    A single-employer plan covered by the PBGC's insurance program may 
be voluntarily terminated only in a standard or distress termination. 
The rules governing voluntary terminations are in section 4041 of the 
Employee Retirement Income Security Act of 1974 and part 4041 of the 
PBGC's regulations.
    On March 14, 1997, the PBGC published a proposed rule (62 FR 12508) 
revising and simplifying the standard termination process and making a 
limited number of conforming changes to the distress termination and 
premium regulations, as well as conforming and simplifying changes to 
the missing participants regulation. The proposal was developed after 
conducting focus groups with plan practitioners and took into account 
participant concerns and the PBGC's experience.
    The proposed regulation extended certain standard termination 
deadlines--most significantly the deadlines for filing the standard 
termination notice (Form 500) and for distributing benefits after 
receiving a determination letter from the Internal Revenue Service 
(IRS)--and gave the PBGC discretion to extend these and other 
deadlines.
    The final regulation generally follows the proposed regulation. The 
commenters commended the PBGC for extending deadlines, but raised some 
technical and other issues. The PBGC has carefully considered all 
comments. The following includes a discussion of the major comments and 
the significant changes from the proposed regulation.

Notice of Intent To Terminate

    One commenter suggested that the notice of intent to terminate 
include a copy of the summary plan description. Plan administrators are 
required to provide participants and beneficiaries with the summary 
plan description periodically and upon request pursuant to section 
104(b) of ERISA. The final regulation requires plan administrators to 
include in the notice of intent to terminate a statement as to how a 
participant or beneficiary can get the summary plan description under 
section 104(b).
    Another commenter suggested that the PBGC specify different 
information requirements for the notice in the case of affected parties 
discovered long after the termination process is complete. The PBGC has 
not adopted the suggestion because tailoring the information 
requirements depending on the passage of time would be unnecessarily 
complicated.
    The PBGC received a number of inquiries, including a comment on the 
proposed rule, about the relationship between the notice of intent to 
terminate and section 204(h) of ERISA, and about the proposed 
requirement that the notice of intent to terminate address whether 
accruals have been or will be frozen.
    The final regulation, like the proposed regulation, requires that 
the notice of intent to terminate make clear when, and under what 
circumstances, accruals cease. The notice of intent to terminate, in 
and of itself, does not constitute a section 204(h) notice. If the 
termination is successfully completed, the plan will be deemed to 
satisfy section 204(h) not later than the termination date, and 
therefore there will be no post-termination date accruals (see Treas. 
Reg. Sec. 1.411(d)-6T, Q&A 14(a)). The deeming rule does not apply if 
the plan does not successfully complete the termination process. In 
addition, the deeming rule will not cause accruals to stop before the 
termination date. In order for accruals to cease before the termination 
date, the plan administrator must provide a notice that satisfies 
section 204(h). The notice may be provided separately or with or as 
part of the notice of intent to terminate.
    The final regulation provides that the notice of intent to 
terminate (and the notice of plan benefits) must be issued to each 
person who becomes a beneficiary of a deceased participant or an 
alternate payee after the proposed termination date and on or before 
the distribution date. (The notice will be saved from being untimely, 
provided the ``after-discovered affected parties'' requirements are 
satisfied.)

Notice of Plan Benefits

    While the proposed regulation did not make substantive changes to 
the existing requirements for the content of the notice of plan 
benefits, there were several comments and questions about this notice. 
The notice of plan benefits is designed to facilitate the ability of 
participants and beneficiaries to determine whether their benefit 
calculations are correct before all plan assets are distributed.
    One commenter asked what actions are required when necessary 
personal data is unavailable. The final regulation requires the plan 
administrator to provide the best available data, to inform the 
affected party of any personal data needed to calculate a benefit that 
is not available, and to give the affected party an opportunity to 
supply it and to correct any information he or she believes to be 
incorrect.
    Another commenter suggested eliminating the personal data 
requirement for persons who have already received a prior benefit 
notice (e.g., a terminated vested participant) and asked whether 
personal data should be provided in the form of ``root data'' or 
``derived data.'' To facilitate the ability of participants and 
beneficiaries to review benefit calculations at the time of 
termination, the final regulation retains the requirement that personal 
data be provided in all cases except where a participant or beneficiary 
has been in pay status for more than one year. The final regulation 
continues to give plan administrators the flexibility to provide 
personal data in the form they consider to be most useful.
    The same commenter also suggested that the PBGC drop the existing 
requirement to provide information about alternative benefit forms 
(because it is available in the summary plan description) and actuarial 
adjustment factors (because it is not provided by ongoing plans and is 
difficult for affected parties to understand). The final regulation 
retains this requirement, thereby keeping in a single document

[[Page 60425]]

key information that helps affected parties (or their advisors) check 
the accuracy of benefit calculations.
    To further ensure that the notice of plan benefits provides 
affected parties with adequate information to check their benefit 
calculations, the final regulation requires that, for benefits that 
will or may be paid in lump sum form, the plan administrator must 
specify the mortality table used to convert the benefit, describe the 
interest rate to be used to convert to the lump sum benefit (e.g., the 
30-year Treasury rate for the third month before the month in which the 
lump sum is distributed), and (if known) provide the applicable 
interest rate. This information will enable affected parties to ensure 
that plan administrators are using permissible interest and mortality 
assumptions in calculating lump sums.

State Guaranty Information

    The proposed regulation, in response to a General Accounting Office 
recommendation, required plan administrators to include with the notice 
of identity of insurer a general explanation of state guaranty coverage 
and state-by-state information (addresses, telephone numbers, and 
coverage limits for each state). The proposed forms and instructions 
package included all of the required information so that plan 
administrators could copy it and provide it to affected parties.
    Several commenters thought the information on state guaranty 
coverage was burdensome and not useful. They argued that the majority 
of participants elect lump sums, and that participants who choose 
annuities do not need the information unless and until the annuity 
provider experiences financial difficulty. On the other hand, a 
participant organization did not believe the notice went far enough in 
clearly informing participants of the consequences of insurance company 
failure (in particular that, in certain limited circumstances, they may 
not receive state guaranty protection).
    Basic information about state guaranty coverage is useful at the 
time of plan termination. Participants who understand the potential 
consequences of the plan administrator's selection of an insurer can 
make better informed decisions as to the form of their benefit and 
whether to bring any concerns about a particular insurer to the 
attention of the plan administrator.
    The final regulation retains the state guaranty information 
requirement with some modifications. Plan administrators must still 
provide a general explanation of state guaranty coverage. (A model 
notice is included in the forms and instructions package.) The notice 
must inform affected parties that a guaranty association is responsible 
for all, part, or none of the annuity if the insurance company cannot 
pay. While the detailed state-by-state information is not required, the 
notice must include a statement generally describing applicable dollar 
coverage limits, and must also inform affected parties how they can 
obtain the addresses and telephone numbers of state guaranty 
association offices from the PBGC. The PBGC intends to maintain a 
current list of these addresses and telephone numbers on its home page 
and to respond to inquiries for this information so that affected 
parties may obtain current information whenever it is most useful to 
them.

Closeout of Plan

    Several commenters addressed the statement in the proposed rule 
that the PBGC intends to audit insurer selections for compliance with 
Title I fiduciary standards and to take appropriate corrective action, 
with one specifically questioning the PBGC's statutory authority for 
this statement. One commenter suggested that the PBGC periodically 
publish a list of ``safe-harbor'' insurers that plan administrators 
could select and thereby avoid audit. Another commenter suggested that 
the PBGC audit proposed insurer selections before the selection is made 
and include in the notice of identity of insurer both insurance company 
ratings and a certification of compliance with fiduciary standards in 
selecting an insurer.
    By requiring compliance with Title I fiduciary standards to have a 
valid termination and by monitoring that compliance, the PBGC is 
furthering one of Title IV's fundamental purposes--``to provide for the 
timely and uninterrupted payment of pension benefits'' (section 
4002(a)(1) of ERISA). The Department of Labor's Interpretive Bulletin 
95-1 (60 FR 12329, March 6, 1995), codified at 29 CFR Sec. 2509.95-1, 
provides guidance with respect to the application of Title I of ERISA 
to the selection of annuity providers when purchasing annuities for the 
purpose of distributing benefits under a pension plan. As explained in 
Interpretive Bulletin 95-1, the selection process depends in part on 
the relevant facts and circumstances at the time an annuity is 
purchased. The PBGC will coordinate with the Department of Labor in 
this area.
    The PBGC does not believe it appropriate to publish a list of 
``safe harbor'' insurers, to audit proposed insurer selections, or to 
require as part of the notice of identity of insurer either ratings or 
a special certification for this one aspect of the termination process.

PBGC Audits

    The PBGC currently reviews benefit calculations after distribution 
for a statistically significant number of plans terminating in standard 
terminations, as required by section 4003(a) of ERISA. A participant 
organization suggested that the PBGC review benefit calculations before 
distribution. Prior to passage of the Single-Employer Pension Plan 
Amendments Act of 1986 (SEPPAA), the PBGC did conduct pre-distribution 
reviews of benefit calculations. Congress's intent in passing SEPPAA 
was to reduce the PBGC's role in standard terminations, thereby 
enabling the PBGC to devote more of its resources to underfunded 
terminations (where both premium payers and participants can face 
significant exposure). See 52 FR 33318, 33318-19, September 2, 1987. 
Although the PBGC has not adopted the commenter's suggestion, the PBGC 
has revised the forms and instructions packages to address common 
errors found in post-distribution audits by including detailed guidance 
on calculating lump sum distributions. The PBGC will continue to 
conduct post-distribution audits and require appropriate corrective 
action.

Filing and Issuance Rules

    The proposed regulation eased filing deadlines by changing the date 
of filing a notice with the PBGC from the date of receipt to the date 
of the U.S. Postal Service postmark or (if the notice is received by 
the PBGC within two regular business days) the date of deposit with a 
commercial delivery service. The final regulation provides further 
flexibility in situations where the postmark was made by a private 
postage meter or is illegible.
    For filings by commercial delivery service, the final regulation 
supplements the two-day receipt rule with IRS rules under section 
7502(f) of the Internal Revenue Code. Under the IRS rules, a document 
is generally considered filed on the date it is provided to a 
``designated private delivery service'' for delivery using a specified 
type of delivery service, e.g., overnight service. (See I.R.S. Notice 
97-26, 1997-17 I.R.B. 6 (April 10, 1997) and I.R.S. Notice 97-50, 1997-
37 I.R.B. 21 (August 29, 1997) for relevant rules and IRS's first two 
lists of designated private delivery services.)
    The proposed regulation allowed electronic filing in certain 
circumstances and provided that the

[[Page 60426]]

date of electronic filing is the date of receipt by the PBGC. The final 
regulation liberalizes these rules by generally providing that the date 
of electronic filing is the date of electronic transmission to the 
PBGC.
    The final regulation, like the proposed regulation, allows the plan 
administrator to issue a notice to an affected party by electronic 
means reasonably calculated to ensure actual receipt. The PBGC received 
comments relating to confirmation of receipt of electronically-issued 
notices. Confirmation of receipt is not required. However, the final 
rule provides that, if there is reason to believe that a notice was not 
delivered, the plan administrator must reissue the notice promptly in 
order for the transmission date to be treated as the issuance date. (A 
similar rule applies to documents filed electronically with the PBGC.)
    The final regulation makes clear that plan administrators are not 
required to issue notices to persons they cannot locate after making 
reasonable efforts, as long as they issue the notice promptly in the 
event the person is located.
    In response to a comment, the final regulation provides that plan 
administrators may provide additional information with any notice only 
if the information is not misleading.

Miscellaneous

Definitions

    In response to a comment, the PBGC has clarified the definition of 
``plan benefits.'' The final regulation also ties this definition to 
the rules governing post-termination amendments.
    A commenter questioned the inclusion of PBGC premiums as a plan 
liability in the ``residual assets'' definition. The proposed 
regulation merely conformed this definition to the existing requirement 
that PBGC premiums be taken into account in determining sufficiency for 
a standard termination (see existing Sec. 4041.27(b)). Distribution of 
plan benefits in a standard termination without taking into account the 
plan's premium obligation may result in nullification of the 
termination or imposition of personal liability on the plan 
administrator (see 57 FR 59206, 59214 (December 14, 1992); PBGC Op. 
Ltr. 94-6 (September 28, 1994)).
    The PBGC has rejected as unnecessary the suggestions of another 
commenter to change two definitions. The commenter requested that the 
definition of ``participant'' exclude individuals who have received a 
``deemed'' zero-dollar cashout and that the definition of ``majority 
owner'' provide for expanded attribution rules. The definition of 
``participant'' already excludes any nonvested individual who has been 
cashed out under the terms of the plan and in accordance with 
applicable law and regulations (see section 411(a)(7) of the Code and 
Treas. Reg. Sec. 1.411(a)-7) because the individual is no longer 
``earning or retaining'' credited service. Similarly, the ``majority 
owner'' definition already incorporates Code attribution rules, which 
provide for attribution of ownership to spouses, ascendants, and 
descendants in certain circumstances. The PBGC sees no reason to 
provide for greater attribution in its termination regulations.

Facilitating Plan Sufficiency

    In response to a comment seeking clarification of the election and 
consent requirements governing alternative treatment of a majority 
owner's benefit, the final regulation makes clear that the election and 
consent may be made at any time during the termination process.
    The Taxpayer Relief Act of 1997 (which was enacted after the 
publication of the proposed rule) amends section 206(d) of ERISA to 
provide for the offset of a participant's benefit against the amount 
the participant owes to a plan as a result of settlement or other 
resolution of certain fiduciary breach or criminal actions. Because 
this offset reduces the benefits that must be taken into account in a 
voluntary termination, there is no need to revise the regulation to 
reflect this legislation.

Qualified Domestic Relations Orders

    A participant organization asked the PBGC to address the 
relationship between the termination process and qualified domestic 
relations orders (QDRO's). A standard termination has no effect on the 
ability to obtain a QDRO or on benefits received under a QDRO. (Of 
course, as is the case with an ongoing plan, a distribution from the 
plan may affect the ability to obtain benefits under a QDRO.) Plan 
administrators and annuity providers must comply with the terms of a 
QDRO. As affected parties, alternate payees under QDRO's receive all 
required notices, including the notice of plan benefits. A spouse 
contemplating a divorce (and QDRO) retains his or her spousal consent 
rights.

Post-Termination Amendments

    The proposed regulation provided that, with limited exceptions, a 
plan amendment adopted after a plan's termination date is disregarded 
with respect to a participant or beneficiary. The final regulation 
clarifies how the rule works where a share of residual assets will go 
to participants and beneficiaries based on an allocation formula.

Lump Sum Assumptions

    The final regulation clarifies the rules for determining the 
valuation date for a lump sum distribution.

Participating Annuity Contracts

    In response to a comment, the PBGC notes that its change in the 
rules governing purchase of participating annuity contracts (from 
existing Sec. 4041.6(d) to proposed and final Sec. 4041.28(c)(2)) is 
merely clarifying, not substantive.

Deadlines and Extensions

    Commenters approved of the proposed regulation's provision giving 
the PBGC discretionary authority to extend standard termination 
deadlines. The final regulation extends this discretionary authority to 
distress termination and missing participants deadlines.
    One commenter recommended that the PBGC eliminate intermediate 
deadlines. The PBGC believes that intermediate deadlines are useful in 
managing the termination process, in particular, in coordinating with 
the IRS determination letter process. The combination of extended 
deadlines and the ability to obtain discretionary extensions should 
result in the intermediate deadlines causing few, if any, difficulties.
    The PBGC has not incorporated a suggestion that the final 
regulation include more specific criteria for discretionary extensions. 
The grounds for granting a discretionary extension will vary with the 
facts and circumstances of the particular case. The final regulation, 
like the proposed regulation, includes factors (e.g., length of the 
delay) that the PBGC will consider.

Record Retention and Availability

    In response to a comment, the final regulation allows records to be 
retained in any format that reasonably ensures the integrity of the 
original information, as long as the records can be converted to 
hardcopy if requested by the PBGC. (This provision addresses only the 
record retention requirements under section 4041 of ERISA and part 4041 
of the PBGC's regulations; it does not address record retention 
requirements under Title I of ERISA or the Code.) The final regulation 
also clarifies that the plan administrator must make available to the 
PBGC upon request any records

[[Page 60427]]

necessary to demonstrate compliance with the termination requirements 
under section 4041 of ERISA and part 4041 of the PBGC's regulations, 
and applies this same test to the record retention requirement.

Missing Participants

    The final rule gives the PBGC authority to grant discretionary 
extensions and makes technical changes to (1) the deadline for payment 
of residual assets for a participant or beneficiary who cannot be 
located; and (2) the rules governing post-age 70\1/2\ PBGC payments.

Other

    In response to comments, the PBGC (1) has reviewed its model notice 
of intent to terminate and model state guaranty notice for readability 
and made simplifying changes, and (2) has added a standard termination 
time line to the forms and instructions package.
    The PBGC has not adopted suggestions to change the requirements for 
calculating lump sum distributions (because they are prescribed by the 
Code and IRS regulations) or the deadline for filing the post-
distribution certification (because it is prescribed by Title IV of 
ERISA). (As discussed in Applicability of Final Rule below, the PBGC 
has provided penalty relief for late filing of the post-distribution 
certification.) The PBGC also has not adopted suggestions to change 
certain existing requirements and interpretations.
    The final rule makes other clarifying, conforming, or editorial 
changes from the proposed rule in the PBGC's termination, missing 
participants, and benefit payment regulations.

Applicability of Final Rule

    This rule is applicable to terminations for which the first notice 
of intent to terminate is issued on or after January 1, 1998. As 
explained below, certain provisions of the rule apply to terminations 
for which the first notice of intent to terminate is issued before 
January 1, 1998.

Deadline Extensions

    Any deadline that has not passed as of January 1, 1998 is extended 
to the deadline that applies under this final rule, including a 
deadline extended under the PBGC's discretionary authority under 
Sec. 4041.30.

Filing and Issuance Rules

    The filing rules in Sec. 4041.3(b) and issuance rules in 
Sec. 4041.3(c)(1) through (c)(4) apply to any information (except for 
the notice under Sec. 4041.31(g) that a termination is nullified) 
required to be filed or issued on or after January 1, 1998.

Notice of Noncompliance

    The rules in Sec. 4041.31 that (1) address the PBGC's discretion 
not to issue a notice of noncompliance for failure to meet a 
distribution requirement (Sec. 4041.31(b)), and (2) deem a termination 
valid if the plan administrator files a post-distribution certification 
and the PBGC does not issue a notice of noncompliance 
(Sec. 4041.31(f)(2)) apply to any termination for which, as of January 
1, 1998, the distribution deadline has not passed.

Late Filing of Post-Distribution Certification

    The final regulation provides penalty relief for late filing of the 
post-distribution certification and certain information under the 
missing participants program. It also eliminates two other potential 
consequences for late post-distribution certification filings: (1) the 
loss of part or all of the plan's premium refund for its final short 
plan year; and (2) the loss of the interest-free grace period for late 
payment of a designated benefit for a missing participant. The relevant 
amendments `` in Sec. 4041.29(b) (regarding assessment of penalties for 
late filing of the post-distribution certification), Sec. 4050.6(b)(2) 
(regarding assessment of interest for late payment of a designated 
benefit for a missing participant and penalties for late filing of 
information), and Sec. 4006.5(f)(3) (regarding the plan's premium 
refund for its final short plan year)--are applicable to terminations 
for which, as of January 1, 1998, the statutory deadline for filing the 
post-distribution certification has not passed.
    The penalty relief described in the PBGC's March 14, 1997, policy 
statement (62 FR 12521) `` which does not eliminate the other potential 
consequences of a late post-distribution certification `` will continue 
for pending terminations for which the post-distribution certification 
is statutorily due before January 1, 1998.

Forms and Instructions Packages

    The PBGC will issue new forms and instructions packages for 
terminations for which the first notice of intent to terminate is 
issued on or after January 1, 1998.
    The PBGC will also issue revised forms and instructions packages 
for terminations for which the first notice of intent to terminate is 
issued before January 1, 1998. These packages explain in detail which 
provisions of the final rule apply to pending terminations. As 
discussed in Applicability of Final Rule, the only changes that apply 
provide increased flexibility for plan administrators; plan 
administrators may therefore complete pending terminations by complying 
with existing requirements.
    After the new and revised forms and instructions packages are 
approved by the Office of Management and Budget (see Compliance with 
Rulemaking and Paperwork Reduction Act Guidelines), the PBGC intends to 
mail the revised packages to persons with pending terminations on file 
with the PBGC and to mail the new and revised packages to practitioners 
who have requested that they be placed on a mailing list to receive 
policy and technical updates from the PBGC. Persons may also obtain the 
packages by contacting the PBGC's Customer Service Center, 1200 K 
Street, NW., Washington, D.C. 20005-4026 ((202) 326-4000) or by 
accessing the PBGC's home page at http://www.pbgc.gov.

Compliance With Rulemaking and Paperwork Reduction Act Guidelines

    The PBGC has determined that this action is not a ``significant 
regulatory action'' under the criteria set forth in Executive Order 
12866.
    The PBGC certifies under section 605(b) of the Regulatory 
Flexibility Act that this rule will not have a significant economic 
impact on a substantial number of small entities. While this rule 
simplifies procedures and extends deadlines, the actions required to 
terminate a plan are essentially unchanged. Accordingly, sections 603 
and 604 of the Regulatory Flexibility Act do not apply.
    This rule contains information collection requirements. As required 
by the Paperwork Reduction Act of 1995, the PBGC has submitted a copy 
of this information collection, including the implementing forms and 
instructions, to the Office of Management and Budget for its review. 
Persons do not have to comply with the revised information collection 
requirements of this rule until the PBGC publishes in the Federal 
Register a notice announcing OMB's approval of this collection of 
information along with a currently valid OMB control number.

List of Subjects

29 CFR Part 4001

    Pension insurance, Pensions, Reporting and Recordkeeping 
requirements.

[[Page 60428]]

29 CFR Part 4006

    Penalties, Pension insurance, Pensions, Reporting and Recordkeeping 
requirements.

29 CFR Part 4022

    Pension insurance, Pensions, Reporting and Recordkeeping 
requirements.

29 CFR Part 4041

    Pension insurance, Pensions, Reporting and Recordkeeping 
requirements.

29 CFR Part 4050

    Pensions, Reporting and Recordkeeping requirements.

    For the reasons set forth above, the PBGC is amending parts 4001, 
4006, 4022, 4041, and 4050 of 29 CFR chapter XL as follows:

PART 4001--TERMINOLOGY

    1. The authority citation for Part 4001 continues to read as 
follows:

    Authority: 29 U.S.C. 1301, 1302(b)(3).


Sec. 4001.2  [Amended]

    2. In Sec. 4001.2, paragraph (2) of the definition of Distribution 
date is amended by removing the words ``Other than for purposes of 
determining the interest rate to be used in calculating the value of a 
benefit to be paid as a lump sum to a late-discovered participant, 
the'' and adding in their place ``The''; and by removing the words 
``PBGC, a benefit provided after the deemed distribution date to a 
late-discovered participant, or an irrevocable commitment purchased 
from an insurer after the deemed distribution date for a recently-
missing participant'' and adding in their place the word ``PBGC''.

PART 4006--PREMIUM RATES

    3. The authority citation for Part 4006 continues to read as 
follows:

    Authority: 29 U.S.C. 1302(b)(3), 1306, 1307.


Sec. 4006.5  [Amended]

    4. In Sec. 4006.5, paragraph (f)(3) is amended by removing the 
words ``or, if later (in the case of a single-employer plan), the date 
30 days prior to the date the PBGC receives the plan's post-
distribution certification''.

PART 4022--BENEFITS PAYABLE IN TERMINATED SINGLE-EMPLOYER PLANS

    5. The authority citation for Part 4022 continues to read as 
follows:

    Authority: 29 U.S.C. 1302, 1322, 1322b, 1341(c)(3)(D), and 1344.


Sec. 4022.61  [Amended]

    6. In Sec. 4022.61, paragraph (a) is amended by replacing 
``4041.4'' with ``4041.42''.
    7. Part 4041 is revised to read as follows:

PART 4041--TERMINATION OF SINGLE-EMPLOYER PLANS

Subpart A--General Provisions

Sec.
4041.1  Purpose and scope.
4041.2  Definitions.
4041.3  Computation of time; filing and issuance rules.
4041.4  Disaster relief.
4041.5  Record retention and availability.
4041.6  Effect of failure to provide required information.
4041.7  Challenges to plan termination under collective bargaining 
agreement.
4041.8  Post-termination amendments.

Subpart B--Standard Termination Process

4041.21  Requirements for a standard termination.
4041.22  Administration of plan during pendency of termination 
process.
4041.23  Notice of intent to terminate.
4041.24  Notices of plan benefits.
4041.25  Standard termination notice.
4041.26  PBGC review of standard termination notice.
4041.27  Notice of annuity information.
4041.28  Closeout of plan.
4041.29  Post-distribution certification.
4041.30  Requests for deadline extensions.
4041.31  Notice of noncompliance.

Subpart C--Distress Termination Process

4041.41  Requirements for a distress termination.
4041.42  Administration of plan during termination process.
4041.43  Notice of intent to terminate.
4041.44  PBGC review of notice of intent to terminate.
4041.45  Distress termination notice.
4041.46  PBGC determination of compliance with requirements for 
distress termination.
4041.47  PBGC determination of plan sufficiency/insufficiency.
4041.48  Sufficient plans; notice requirements.
4041.49  Verification of plan sufficiency prior to closeout.
4041.50  Closeout of plan.

    Authority: 29 U.S.C. 1302(b)(3), 1341, 1344, 1350.

Subpart A--General Provisions


Sec. 4041.1  Purpose and scope.

    This part sets forth the rules and procedures for terminating a 
single-employer plan in a standard or distress termination under 
section 4041 of ERISA, the exclusive means of voluntarily terminating a 
plan.


Sec. 4041.2  Definitions.

    The following terms are defined in Sec. 4001.2 of this chapter: 
affected party, annuity, benefit liabilities, Code, contributing 
sponsor, controlled group, distress termination, distribution date, 
EIN, employer, ERISA, guaranteed benefit, insurer, irrevocable 
commitment, IRS, mandatory employee contributions, normal retirement 
age, notice of intent to terminate, PBGC, person, plan administrator, 
plan year, PN, single-employer plan, standard termination, termination 
date, and title IV benefit. In addition, for purposes of this part:
    Distress termination notice means the notice filed with the PBGC 
pursuant to Sec. 4041.45.
    Distribution notice means the notice issued to the plan 
administrator by the PBGC pursuant to Sec. 4041.47(c) upon the PBGC's 
determination that the plan has sufficient assets to pay at least 
guaranteed benefits.
    Majority owner means, with respect to a contributing sponsor of a 
single-employer plan, an individual who owns, directly or indirectly, 
50 percent or more (taking into account the constructive ownership 
rules of section 414(b) and (c) of the Code) of--
    (1) An unincorporated trade or business;
    (2) The capital interest or the profits interest in a partnership; 
or
    (3) Either the voting stock of a corporation or the value of all of 
the stock of a corporation.
    Notice of noncompliance means a notice issued to a plan 
administrator by the PBGC pursuant to Sec. 4041.31 advising the plan 
administrator that the requirements for a standard termination have not 
been satisfied and that the plan is an ongoing plan.
    Notice of plan benefits means the notice to each participant and 
beneficiary required by Sec. 4041.24.
    Participant means--
    (1) Any individual who is currently in employment covered by the 
plan and who is earning or retaining credited service under the plan, 
including any individual who is considered covered under the plan for 
purposes of meeting the minimum participation requirements but who, 
because of offset or similar provisions, does not have any accrued 
benefits;
    (2) Any nonvested individual who is not currently in employment 
covered by the plan but who is earning or retaining credited service 
under the plan; and
    (3) Any individual who is retired or separated from employment 
covered by the plan and who is receiving benefits under the plan or is 
entitled to begin receiving benefits under the plan in the future, 
excluding any such individual to whom an insurer has made an 
irrevocable commitment to pay all the

[[Page 60429]]

benefits to which the individual is entitled under the plan.
    Plan benefits means benefit liabilities determined as of the 
termination date (taking into account the rules in Sec. 4041.8(a)).
    Proposed termination date means the date specified as such by the 
plan administrator in the notice of intent to terminate or, if later, 
in the standard or distress termination notice.
    Residual assets means the plan assets remaining after all plan 
benefits and other liabilities (e.g., PBGC premiums) of the plan have 
been satisfied (taking into account the rules in Sec. 4041.8(b)).
    Standard termination notice means the notice filed with the PBGC 
pursuant to Sec. 4041.25.
    State guaranty association means an association of insurers created 
by a State, the District of Columbia, or the Commonwealth of Puerto 
Rico to pay benefits and to continue coverage, within statutory limits, 
under life and health insurance policies and annuity contracts when an 
insurer fails.


Sec. 4041.3  Computation of time; filing and issuance rules.

    (a) Computation of time. In computing any period of time under this 
part, the day of the event from which the period begins is not counted. 
The last day of the period is counted. If the last day falls on a 
Saturday, Sunday, or Federal holiday, the period runs until the end of 
the next regular business day. A proposed termination date may be any 
day, including a Saturday, Sunday, or Federal holiday.
    (b) Filing with the PBGC. Any document to be filed under this part 
must be filed with the PBGC in the manner described in the applicable 
forms and instructions package. The document is deemed filed on the 
date described in paragraph (b)(1), (b)(2), (b)(3) or (b)(4) of this 
section, as applicable, or such earlier date as is provided in the 
applicable forms and instructions package. For purposes of this 
paragraph (b), information received by the PBGC on a weekend or Federal 
holiday or after 5:00 p.m. on a weekday is considered filed on the next 
regular business day.
    (1) Filing by mail. If the document is mailed with the United 
States Postal Service by first class mail postage prepaid to the PBGC, 
the document is filed on--
    (i) The date of the legible United States Postal Service postmark;
    (ii) If there is no legible United States Postal Service postmark, 
the date of the legible postmark made by a private postage meter, 
provided that the document is received by the PBGC not later than the 
date when a document sent by first class mail would ordinarily be 
received if it were postmarked at the same point of origin by the 
United States Postal Service on the last date prescribed for filing the 
document; or
    (iii) In any other case, the date that the plan administrator can 
establish the document was deposited in the mail before the last 
collection of mail from the place of deposit.
    (2) Filing by commercial delivery service. If the document is 
deposited with a commercial delivery service, the document is filed on 
the earlier of--
    (i) The date that would be considered the postmark date under 
section 7502(f) of the Code; or
    (ii) The date it is deposited for delivery with the commercial 
delivery service, provided it is received by the PBGC within two 
regular business days.
    (3) Electronic filings. If the document is filed electronically, 
the document is filed on the date on which it is transmitted 
electronically to the PBGC, provided that, if there is reason to 
believe the document was not delivered, the plan administrator promptly 
refiles the document in accordance with the applicable forms and 
instructions package.
    (4) Other filings. If a filing date is not established under 
paragraphs (b)(1) through (b)(3) of this section, the document is filed 
on the date on which it is received by the PBGC.
    (c) Issuance to other parties. The following rules apply to 
affected parties (other than the PBGC). For purposes of this paragraph 
(c), a person entitled to notice under the spin-off/termination 
transaction rules of Secs. 4041.23(c) or 4041.24(f) is treated as an 
affected party.
    (1) Permissible methods of issuance. The plan administrator must 
issue any notice to an affected party individually--
    (i) By hand delivery;
    (ii) By first-class mail or commercial delivery service to the 
affected party's last known address; or
    (iii) By electronic means reasonably calculated to ensure actual 
receipt by the affected party.
    (2) Date of issuance. Any notice is deemed issued to an affected 
party on the date on which it is--
    (i) Handed to the affected party;
    (ii) Deposited in the mail;
    (iii) Deposited with a commercial delivery service; or
    (iv) Transmitted electronically to the affected party, provided 
that, if there is reason to believe the notice was not delivered, the 
plan administrator promptly reissues the notice in accordance with the 
applicable forms and instructions package.
    (3) Omission of affected parties. The failure to issue any notice 
to an affected party (other than any employee organization) within the 
specified time period will not cause the notice to be untimely if--
    (i) After-discovered affected parties. The plan administrator could 
not reasonably have been expected to know of the affected party, and 
issues the notice promptly after discovering the affected party;
    (ii) De minimis administrative errors. The failure was due to 
administrative error involving only a de minimis percentage of affected 
parties, and the plan administrator issues the notice to each such 
affected party promptly after discovering the error; or
    (iii) Unlocated participants. The plan administrator could not 
locate the affected party after making reasonable efforts, and issues 
the notice promptly in the event the affected party is located.
    (4) Deceased participants. In the case of a deceased participant, 
the plan administrator need not issue a notice to the participant's 
estate if the estate is not entitled to a distribution.
    (5) Form of notices to affected parties. All notices to affected 
parties must be readable and written in a manner calculated to be 
understood by the average plan participant. The plan administrator may 
provide additional information with a notice only if the information is 
not misleading.
    (6) Foreign languages. The plan administrator of a plan that (as of 
the proposed termination date) covers the numbers or percentages in 
Sec. 2520.104b-10(e) of this title of participants literate only in the 
same non-English language must, for any notice to affected parties--
    (i) Include a prominent legend in that common non-English language 
advising them how to obtain assistance in understanding the notice; or
    (ii) Provide the notice in that common non-English language to 
those affected parties literate only in that language.


Sec. 4041.4  Disaster relief.

    When the President of the United States declares that, under the 
Disaster Relief Act (42 U.S.C. 5121, 5122(2), 5141(b)), a major 
disaster exists, the Executive Director of the PBGC (or his or her 
designee) may, by issuing one or more notices of disaster relief, 
extend by up to 180 days any due date under this part.


Sec. 4041.5  Record retention and availability.

    (a) Retention requirement. (1) Persons subject to requirement. Each 
contributing sponsor and the plan administrator of a plan terminating 
in a standard termination, or in a distress

[[Page 60430]]

termination that closes out in accordance with Sec. 4041.50, must 
maintain all records necessary to demonstrate compliance with section 
4041 of ERISA and this part. A record may be maintained in any format 
that reasonably ensures the integrity of the original information and 
that allows the record to be converted to hardcopy if necessary under 
paragraph (b) of this section. If a contributing sponsor or the plan 
administrator maintains information in accordance with this paragraph 
(a)(1), the other(s) need not maintain that information.
    (2) Retention period. The records described in paragraph (a)(1) of 
this section must be preserved for six years after the date when the 
post-distribution certification under this part is filed with the PBGC.
    (b) Availability of records. The contributing sponsor or plan 
administrator must make all records needed to determine compliance with 
section 4041 of ERISA and this part available to the PBGC upon request 
for inspection and photocopying, and must submit such records to the 
PBGC within 30 days after the date of a written request by the PBGC or 
by a later date specified therein. Unless the PBGC agrees to a 
different format, records must be submitted in hardcopy.


Sec. 4041.6  Effect of failure to provide required information.

    If a plan administrator fails to provide any information required 
under this part within the specified time limit, the PBGC may assess a 
penalty under section 4071 of ERISA of up to $1,100 a day for each day 
that the failure continues. The PBGC may also pursue any other 
equitable or legal remedies available to it under the law, including, 
if appropriate, the issuance of a notice of noncompliance under 
Sec. 4041.31.


Sec. 4041.7  Challenges to plan termination under collective bargaining 
agreement.

    (a) Suspension upon formal challenge to termination (1) Notice of 
formal challenge. (i) If the PBGC is advised, before its review period 
under Sec. 4041.26(a) ends, or before issuance of a notice of inability 
to determine sufficiency or a distribution notice under Sec. 4041.47(b) 
or (c), that a formal challenge to the termination has been initiated 
as described in paragraph (c) of this section, the PBGC will suspend 
the termination proceeding and so advise the plan administrator in 
writing.
    (ii) If the PBGC is advised of a challenge described in paragraph 
(a)(1)(i) of this section after the time specified therein, the PBGC 
may suspend the termination proceeding and will so advise the plan 
administrator in writing.
    (2) Standard terminations. During any period of suspension in a 
standard termination --
    (i) The running of all time periods specified in ERISA or this part 
relevant to the termination will be suspended; and
    (ii) The plan administrator must comply with the prohibitions in 
Sec. 4041.22.
    (3) Distress terminations. During any period of suspension in a 
distress termination --
    (i) The issuance by the PBGC of any notice of inability to 
determine sufficiency or distribution notice will be stayed or, if any 
such notice was previously issued, its effectiveness will be stayed;
    (ii) The plan administrator must comply with the prohibitions in 
Sec. 4041.42; and
    (iii) The plan administrator must file a distress termination 
notice with the PBGC pursuant to Sec. 4041.45.
    (b) Existing collective bargaining agreement. For purposes of this 
section, an existing collective bargaining agreement means a collective 
bargaining agreement that has not been made inoperative by a judicial 
ruling and, by its terms, either has not expired or is extended beyond 
its stated expiration date because neither of the collective bargaining 
parties took the required action to terminate it. When a collective 
bargaining agreement no longer meets these conditions, it ceases to be 
an ``existing collective bargaining agreement,'' whether or not any or 
all of its terms may continue to apply by operation of law.
    (c) Formal challenge to termination. A formal challenge to a plan 
termination asserting that the termination would violate the terms and 
conditions of an existing collective bargaining agreement is initiated 
when --
    (1) Any procedure specified in the collective bargaining agreement 
for resolving disputes under the agreement commences; or
    (2) Any action before an arbitrator, administrative agency or 
board, or court under applicable labor-management relations law 
commences.
    (d) Resolution of challenge. Immediately upon the final resolution 
of the challenge, the plan administrator must notify the PBGC in 
writing of the outcome of the challenge, provide the PBGC with a copy 
of any award or order, and, if the validity of the proposed termination 
has been upheld, advise the PBGC whether the proposed termination is to 
proceed. The final resolution ends the suspension period under 
paragraph (a) of this section.
    (1) Challenge sustained. If the final resolution is that the 
proposed termination violates an existing collective bargaining 
agreement, the PBGC will dismiss the termination proceeding, all 
actions taken to effect the plan termination will be null and void, and 
the plan will be an ongoing plan. In this event, in a distress 
termination, Sec. 4041.42(d) will apply as of the date of the dismissal 
by the PBGC.
    (2) Termination sustained. If the final resolution is that the 
proposed termination does not violate an existing collective bargaining 
agreement and the plan administrator has notified the PBGC that the 
termination is to proceed, the PBGC will reactivate the termination 
proceeding by sending a written notice thereof to the plan 
administrator, and --
    (i) The termination proceeding will continue from the point where 
it was suspended;
    (ii) All actions taken to effect the termination before the 
suspension will be effective;
    (iii) Any time periods that were suspended will resume running from 
the date of the PBGC's notice of the reactivation of the proceeding;
    (iv) Any time periods that had fewer than 15 days remaining will be 
extended to the 15th day after the date of the PBGC's notice, or such 
later date as the PBGC may specify; and
    (v) In a distress termination, the PBGC will proceed to issue a 
notice of inability to determine sufficiency or a distribution notice 
(or reactivate any such notice stayed under paragraph (a)(3) of this 
section), either with or without first requesting updated information 
from the plan administrator pursuant to Sec. 4041.45(c).
    (e) Final resolution of challenge. A formal challenge to a proposed 
termination is finally resolved when--
    (1) The parties involved in the challenge enter into a settlement 
that resolves the challenge;
    (2) A final award, administrative decision, or court order is 
issued that is not subject to review or appeal; or
    (3) A final award, administrative decision, or court order is 
issued that is not appealed, or review or enforcement of which is not 
sought, within the time for filing an appeal or requesting review or 
enforcement.
    (f) Involuntary termination by the PBGC. Notwithstanding any other 
provision of this section, the PBGC retains the authority in any case 
to initiate a plan termination in accordance with the provisions of 
section 4042 of ERISA.

[[Page 60431]]

Sec. 4041.8  Post-termination amendments.

    (a) Plan benefits. A participant's or beneficiary's plan benefits 
are determined under the plan's provisions in effect on the plan's 
termination date. Notwithstanding the preceding sentence, an amendment 
that is adopted after the plan's termination date is taken into account 
with respect to a participant's or beneficiary's plan benefits to the 
extent the amendment--
    (1) Does not decrease the value of the participant's or 
beneficiary's plan benefits under the plan's provisions in effect on 
the termination date; and
    (2) Does not eliminate or restrict any form of benefit available to 
the participant or beneficiary on the plan's termination date.
    (b) Residual assets. In a plan in which participants or 
beneficiaries will receive some or all of the plan's residual assets 
based on an allocation formula, the amount of the plan's residual 
assets and each participant's or beneficiary's share thereof is 
determined under the plan's provisions in effect on the plan's 
termination date. Notwithstanding the preceding sentence, an amendment 
adopted after the plan's termination date is taken into account with 
respect to a participant's or beneficiary's allocation of residual 
assets to the extent the amendment does not decrease the value of the 
participant's or beneficiary's allocation of residual assets under the 
plan's provisions in effect on the termination date.
    (c) Permitted decreases. For purposes of this section, an amendment 
shall not be treated as decreasing the value of a participant's or 
beneficiary's plan benefits or allocation of residual assets to the 
extent--
    (1) The decrease is necessary to meet a qualification requirement 
under section 401 of the Code;
    (2) The participant's or beneficiary's allocation of residual 
assets is paid in the form of an increase in the participant's or 
beneficiary's plan benefits; or
    (3) The decrease is offset by assets that would otherwise revert to 
the contributing sponsor or by additional contributions.
    (d) Distress terminations. In the case of a distress termination, a 
participant's or beneficiary's benefit liabilities are determined as of 
the termination date in the same manner as plan benefits under this 
section.

Subpart B--Standard Termination Process


Sec. 4041.21  Requirements for a standard termination.

    (a) Notice and distribution requirements. A standard termination is 
valid if the plan administrator--
    (1) Issues a notice of intent to terminate to all affected parties 
(other than the PBGC) in accordance with Sec. 4041.23;
    (2) Issues notices of plan benefits to all affected parties 
entitled to plan benefits in accordance with Sec. 4041.24;
    (3) Files a standard termination notice with the PBGC in accordance 
with Sec. 4041.25;
    (4) Distributes the plan's assets in satisfaction of plan benefits 
in accordance with Sec. 4041.28(a) and (c); and
    (5) In the case of a spin-off/termination transaction (as defined 
in Sec. 4041.23(c)), issues the notices required by Sec. 4041.23(c), 
Sec. 4041.24(f), and Sec. 4041.27(a)(2) in accordance with such 
sections.
    (b) Plan sufficiency. (1) Commitment to make plan sufficient. A 
contributing sponsor of a plan or any other member of the plan's 
controlled group may make a commitment to contribute any additional 
sums necessary to enable the plan to satisfy plan benefits in 
accordance with Sec. 4041.28. A commitment will be valid only if--
    (i) It is made to the plan;
    (ii) It is in writing, signed by the contributing sponsor or 
controlled group member(s); and
    (iii) In any case in which the person making the commitment is the 
subject of a bankruptcy liquidation or reorganization proceeding, as 
described in Sec. 4041.41(c)(1) or (c)(2), the commitment is approved 
by the court before which the liquidation or reorganization proceeding 
is pending or a person not in bankruptcy unconditionally guarantees to 
meet the commitment at or before the time distribution of assets is 
required.
    (2) Alternative treatment of majority owner's benefit. A majority 
owner may elect to forgo receipt of his or her plan benefits to the 
extent necessary to enable the plan to satisfy all other plan benefits 
in accordance with Sec. 4041.28. Any such alternative treatment of the 
majority owner's plan benefits is valid only if--
    (i) The majority owner's election is in writing;
    (ii) In any case in which the plan would require the spouse of the 
majority owner to consent to distribution of the majority owner's 
receipt of his or her plan benefits in a form other than a qualified 
joint and survivor annuity, the spouse consents in writing to the 
election;
    (iii) The majority owner makes the election and the spouse consents 
during the time period beginning with the date of issuance of the first 
notice of intent to terminate and ending with the date of the last 
distribution; and
    (iv) Neither the majority owner's election nor the spouse's consent 
is inconsistent with a qualified domestic relations order (as defined 
in section 206(d)(3) of ERISA).


Sec. 4041.22  Administration of plan during pendency of termination 
process.

    (a) In general. A plan administrator may distribute plan assets in 
connection with the termination of the plan only in accordance with the 
provisions of this part. From the first day the plan administrator 
issues a notice of intent to terminate to the last day of the PBGC's 
review period under Sec. 4041.26(a), the plan administrator must 
continue to carry out the normal operations of the plan. During that 
time period, except as provided in paragraph (b) of this section, the 
plan administrator may not--
    (1) Purchase irrevocable commitments to provide any plan benefits; 
or
    (2) Pay benefits attributable to employer contributions, other than 
death benefits, in any form other than an annuity.
    (b) Exception. The plan administrator may pay benefits attributable 
to employer contributions either through the purchase of irrevocable 
commitments or in a form other than an annuity if--
    (1) The participant has separated from active employment or is 
otherwise permitted under the Code to receive the distribution;
    (2) The distribution is consistent with prior plan practice; and
    (3) The distribution is not reasonably expected to jeopardize the 
plan's sufficiency for plan benefits.


Sec. 4041.23  Notice of intent to terminate.

    (a) Notice requirement. (1) In general. At least 60 days and no 
more than 90 days before the proposed termination date, the plan 
administrator must issue a notice of intent to terminate to each person 
(other than the PBGC) that is an affected party as of the proposed 
termination date. In the case of a beneficiary of a deceased 
participant or an alternate payee, the plan administrator must issue a 
notice of intent to terminate promptly to any person that becomes an 
affected party after the proposed termination date and on or before the 
distribution date.

[[Page 60432]]

    (2) Early issuance of NOIT. The PBGC may consider a notice of 
intent to terminate to be timely under paragraph (a)(1) of this section 
if the notice was early by a de minimis number of days and the PBGC 
finds that the early issuance was the result of administrative error.
    (b) Contents of notice. The PBGC's standard termination forms and 
instructions package includes a model notice of intent to terminate. 
The notice of intent to terminate must include --
    (1) Identifying information. The name and PN of the plan, the name 
and EIN of each contributing sponsor, and the name, address, and 
telephone number of the person who may be contacted by an affected 
party with questions concerning the plan's termination;
    (2) Intent to terminate plan. A statement that the plan 
administrator intends to terminate the plan in a standard termination 
as of a specified proposed termination date and will notify the 
affected party if the proposed termination date is changed to a later 
date or if the termination does not occur;
    (3) Sufficiency requirement. A statement that, in order to 
terminate in a standard termination, plan assets must be sufficient to 
provide all plan benefits under the plan;
    (4) Cessation of accruals. A statement (as applicable) that--
    (i) Benefit accruals will cease as of the termination date, but 
will continue if the plan does not terminate;
    (ii) A plan amendment has been adopted under which benefit accruals 
will cease, in accordance with section 204(h) of ERISA, as of the 
proposed termination date or a specified date before the proposed 
termination date, whether or not the plan is terminated; or
    (iii) Benefit accruals ceased, in accordance with section 204(h) of 
ERISA, as of a specified date before the notice of intent to terminate 
was issued;
    (5) Annuity information. If required under Sec. 4041.27, the 
annuity information described therein;
    (6) Benefit information. A statement that each affected party 
entitled to plan benefits will receive a written notification regarding 
his or her plan benefits;
    (7) Summary plan description. A statement as to how an affected 
party entitled to receive the latest updated summary plan description 
under section 104(b) of ERISA can obtain it.
    (8) Continuation of monthly benefits. For persons who are, as of 
the proposed termination date, in pay status, a statement (as 
applicable) --
    (i) That their monthly (or other periodic) benefit amounts will not 
be affected by the plan's termination; or
    (ii) Explaining how their monthly (or other periodic) benefit 
amounts will be affected under plan provisions); and
    (9) Extinguishment of guarantee. A statement that after plan assets 
have been distributed in full satisfaction of all plan benefits under 
the plan with respect to a participant or a beneficiary of a deceased 
participant, either by the purchase of irrevocable commitments (annuity 
contracts) or by an alternative form of distribution provided for under 
the plan, the PBGC no longer guarantees that participant's or 
beneficiary's plan benefits.
    (c) Spin-off/termination transactions. In the case of a transaction 
in which a single defined benefit plan is split into two or more plans 
and there is a reversion of residual assets to an employer upon the 
termination of one or more but fewer than all of the resulting plans (a 
``spin-off/termination transaction''), the plan administrator must, 
within the time period specified in paragraph (a) of this section, 
provide a notice describing the transaction to all participants, 
beneficiaries of deceased participants, and alternate payees in the 
original plan who are, as of the proposed termination date, covered by 
an ongoing plan.


Sec. 4041.24  Notices of plan benefits.

    (a) Notice requirement. The plan administrator must, no later than 
the time the plan administrator files the standard termination notice 
with the PBGC, issue a notice of plan benefits to each person (other 
than the PBGC and any employee organization) who is an affected party 
as of the proposed termination date. In the case of a beneficiary of a 
deceased participant or an alternate payee, the plan administrator must 
issue a notice of plan benefits promptly to any person that becomes an 
affected party after the proposed termination date and on or before the 
distribution date.
    (b) Contents of notice. The plan administrator must include in each 
notice of plan benefits--
    (1) The name and PN of the plan, the name and EIN of each 
contributing sponsor, and the name, address, and telephone number of an 
individual who may be contacted to answer questions concerning plan 
benefits;
    (2) The proposed termination date given in the notice of intent to 
terminate and any extended proposed termination date under 
Sec. 4041.25(b);
    (3) If the amount of plan benefits set forth in the notice is an 
estimate, a statement that the amount is an estimate and that plan 
benefits paid may be greater than or less than the estimate;
    (4) Except in the case of an affected party in pay status for more 
than one year as of the proposed termination date--
    (i) The personal data (if available) needed to calculate the 
affected party's plan benefits, along with a statement requesting that 
the affected party promptly correct any information he or she believes 
to be incorrect; and
    (ii) If any of the personal data needed to calculate the affected 
party's plan benefits is not available, the best available data, along 
with a statement informing the affected party of the data not available 
and affording him or her the opportunity to provide it; and
    (5) The information in paragraphs (c) through (e) of this section, 
as applicable.
    (c) Benefits of persons in pay status. For an affected party in pay 
status as of the proposed termination date, the plan administrator must 
include in the notice of plan benefits --
    (1) The amount and form of the participant's or beneficiary's plan 
benefits payable as of the proposed termination date;
    (2) The amount and form of plan benefits, if any, payable to a 
beneficiary upon the participant's death and the name of the 
beneficiary; and
    (3) The amount and date of any increase or decrease in the benefit 
scheduled to occur (or that has already occurred) after the proposed 
termination date and an explanation of the increase or decrease, 
including, where applicable, a reference to the pertinent plan 
provision.
    (d) Benefits of persons with valid elections or de minimis 
benefits. For an affected party who, as of the proposed termination 
date, has validly elected a form and starting date with respect to plan 
benefits not yet in pay status, or with respect to whom the plan 
administrator has determined that a nonconsensual lump sum distribution 
will be made, the plan administrator must include in the notice of plan 
benefits--
    (1) The amount and form of the person's plan benefits payable as of 
the projected benefit starting date, and what that date is;
    (2) The information in paragraphs (c)(2) and (c)(3) of this 
section;
    (3) If the plan benefits will be paid in any form other than a lump 
sum and the age at which, or form in which, the plan benefits will be 
paid differs from the normal retirement benefit--
    (i) The age or form stated in the plan; and
    (ii) The age or form adjustment factors; and

[[Page 60433]]

    (4) If the plan benefits will be paid in a lump sum --
    (i) An explanation of when a lump sum may be paid without the 
consent of the participant or the participant's spouse;
    (ii) A description of the mortality table used to convert to the 
lump sum benefit (e.g., the mortality table published by the IRS in 
Revenue Ruling 95-6, 1995-1 C.B. 80) and a reference to the pertinent 
plan provisions;
    (iii) A description of the interest rate to be used to convert to 
the lump sum benefit (e.g., the 30-year Treasury rate for the third 
month before the month in which the lump sum is distributed), a 
reference to the pertinent plan provision, and (if known) the 
applicable interest rate;
    (iv) An explanation of how interest rates are used to calculate 
lump sums;
    (v) A statement that the use of a higher interest rate results in a 
smaller lump sum amount; and
    (vi) A statement that the applicable interest rate may change 
before the distribution date.
    (e) Benefits of all other persons not in pay status. For any other 
affected party not described in paragraph (c) or (d) of this section 
(or described therein only with respect to a portion of the affected 
party's plan benefits), the plan administrator must include in the 
notice of plan benefits--
    (1) The amount and form of the person's plan benefits payable at 
normal retirement age in any one form permitted under the plan;
    (2) Any alternative benefit forms, including those payable to a 
beneficiary upon the person's death either before or after benefits 
commence;
    (3) If the person is or may become entitled to a benefit that would 
be payable before normal retirement age, the amount and form of benefit 
that would be payable at the earliest benefit commencement date (or, if 
more than one such form is payable at the earliest benefit commencement 
date, any one of those forms) and whether the benefit commencing on 
such date would be subject to future reduction; and
    (4) If the plan benefits may be paid in a lump sum, the information 
in paragraph (d)(4) of this section.
    (f) Spin-off/termination transactions. In the case of a spin-off/
termination transaction (as defined in Sec. 4041.23(c)), the plan 
administrator must, no later than the time the plan administrator files 
the standard termination notice for any terminating plan, provide all 
participants, beneficiaries of deceased participants, and alternate 
payees in the original plan who are (as of the proposed termination 
date) covered by an ongoing plan with a notice of plan benefits 
containing the information in paragraphs (b) through (e) of this 
section.


Sec. 4041.25  Standard termination notice.

    (a) Notice requirement. The plan administrator must file with the 
PBGC a standard termination notice, consisting of the PBGC Form 500, 
completed in accordance with the instructions thereto, on or before the 
180th day after the proposed termination date.
    (b) Change of proposed termination date. The plan administrator 
may, in the standard termination notice, select a proposed termination 
date that is later than the date specified in the notice of intent to 
terminate, provided it is not later than 90 days after the earliest 
date on which a notice of intent to terminate was issued to any 
affected party.
    (c) Request for IRS determination letter. To qualify for the 
distribution deadline in Sec. 4041.28(a)(1)(ii), the plan administrator 
must submit to the IRS a valid request for a determination of the 
plan's qualification status upon termination (``determination letter'') 
by the time the standard termination notice is filed.


Sec. 4041.26  PBGC review of standard termination notice.

    (a) Review period. (1) In general. The PBGC will notify the plan 
administrator in writing of the date on which it received a complete 
standard termination notice at the address provided in the PBGC's 
standard termination forms and instructions package. If the PBGC does 
not issue a notice of noncompliance under Sec. 4041.31 during its 60-
day review period following such date, the plan administrator must 
proceed to close out the plan in accordance with Sec. 4041.28.
    (2) Extension of review period. The PBGC and the plan administrator 
may, before the expiration of the PBGC review period in paragraph 
(a)(1) of this section, agree in writing to extend that period.
    (b) If standard termination notice is incomplete. (1) For purposes 
of timely filing. If the standard termination notice is incomplete, the 
PBGC may, based on the nature and extent of the omission, provide the 
plan administrator an opportunity to complete the notice. In such a 
case, the standard termination notice will be deemed to have been 
complete as of the date when originally filed for purposes of 
Sec. 4041.25(a), provided the plan administrator provides the missing 
information by the later of--
    (i) The 180th day after the proposed termination date; or
    (ii) The 30th day after the date of the PBGC notice that the filing 
was incomplete.
    (2) For purposes of PBGC review period. If the standard termination 
notice is completed under paragraph (b)(1) of this section, the PBGC 
will determine whether the notice will be deemed to have been complete 
as of the date when originally filed for purposes of determining when 
the PBGC's review period begins under Sec. 4041.26(a)(1).
    (c) Additional information. (1) Deadline for providing additional 
information. The PBGC may in any case require the submission of 
additional information relevant to the termination proceeding. Any such 
additional information becomes part of the standard termination notice 
and must be submitted within 30 days after the date of a written 
request by the PBGC, or within a different time period specified 
therein. The PBGC may in its discretion shorten the time period where 
it determines that the interests of the PBGC or participants may be 
prejudiced by a delay in receipt of the information.
    (2) Effect on termination proceeding. A request for additional 
information will suspend the running of the PBGC's 60-day review 
period. The review period will begin running again on the day the 
required information is received and continue for the greater of--
    (i) The number of days remaining in the review period; or
    (ii) Five regular business days.


Sec. 4041.27  Notice of annuity information.

    (a) Notice requirement. (1) In general. The plan administrator must 
provide notices in accordance with this section to each affected party 
entitled to plan benefits other than an affected party whose plan 
benefits will be distributed in the form of a nonconsensual lump sum.
    (2) Spin-off/termination transactions. The plan administrator must 
provide the information in paragraph (d) of this section to a person 
entitled to notice under Secs. 4041.23(c) or 4041.24(f), at the same 
time and in the same manner as required for an affected party.
    (b) Content of notice. The plan administrator must include, as part 
of the notice of intent to terminate--
    (1) Identity of insurers. The name and address of the insurer or 
insurers from whom (if known), or (if not) from among whom, the plan 
administrator intends to purchase irrevocable commitments (annuity 
contracts);
    (2) Change in identity of insurers. A statement that if the plan 
administrator later decides to select a different

[[Page 60434]]

insurer, affected parties will receive a supplemental notice no later 
than 45 days before the distribution date; and
    (3) State guaranty association coverage information. A statement 
informing the affected party--
    (i) That once the plan distributes a benefit in the form of an 
annuity purchased from an insurance company, the insurance company 
takes over the responsibility for paying that benefit;
    (ii) That all states, the District of Columbia, and the 
Commonwealth of Puerto Rico have established ``guaranty associations'' 
to protect policy holders in the event of an insurance company's 
financial failure;
    (iii) That a guaranty association is responsible for all, part, or 
none of the annuity if the insurance company cannot pay;
    (iv) That each guaranty association has dollar limits on the extent 
of its guaranty coverage, along with a general description of the 
applicable dollar coverage limits;
    (v) That in most cases the policy holder is covered by the guaranty 
association for the state where he or she lives at the time the 
insurance company fails to pay; and
    (vi) How to obtain the addresses and telephone numbers of guaranty 
association offices from the PBGC (as described in the applicable forms 
and instructions package).
    (c) Where insurer(s) not known. (1) Extension of deadline for 
notice. If the identity-of-insurer information in paragraph (b)(1) of 
this section is not known at the time the plan administrator is 
required to provide it to an affected party as part of a notice of 
intent to terminate, the plan administrator must instead provide it in 
a supplemental notice under paragraph (d) of this section.
    (2) Alternative NOIT information. A plan administrator that 
qualifies for the extension in paragraph (c)(1) of this section with 
respect to a notice of intent to terminate must include therein (in 
lieu of the information in paragraph (b) of this section) a statement 
that--
    (i) Irrevocable commitments (annuity contracts) may be purchased 
from an insurer to provide some or all of the benefits under the plan;
    (ii) The insurer or insurers have not yet been identified; and
    (iii) Affected parties will be notified at a later date (but no 
later than 45 days before the distribution date) of the name and 
address of the insurer or insurers from whom (if known), or (if not) 
from among whom, the plan administrator intends to purchase irrevocable 
commitments (annuity contracts).
    (d) Supplemental notice. The plan administrator must provide a 
supplemental notice to an affected party in accordance with this 
paragraph (d) if the plan administrator did not previously notify the 
affected party of the identity of insurer(s) or, after having 
previously notified the affected party of the identity of insurer(s), 
decides to select a different insurer. A failure to provide a required 
supplemental notice to an affected party will be deemed to be a failure 
to comply with the notice of intent to terminate requirements.
    (1) Deadline for supplemental notice. The deadline for issuing the 
supplemental notice is 45 days before the affected party's distribution 
date (or, in the case of an employee organization, 45 days before the 
earliest distribution date for any affected party that it represents).
    (2) Content of supplemental notice. The supplemental notice must 
include--
    (i) The identity-of-insurer information in paragraph (b)(1) of this 
section;
    (ii) The information regarding change of identity of insurer(s) in 
paragraph (b)(2) of this section; and
    (iii) Unless the state guaranty association coverage information in 
paragraph (b)(3) of this section was previously provided to the 
affected party, such information and the extinguishment-of-guarantee 
information in Sec. 4041.23(b)(9).


Sec. 4041.28  Closeout of plan.

    (a) Distribution deadline. (1) In general. Unless a notice of 
noncompliance is issued under Sec. 4041.31(a), the plan administrator 
must complete the distribution of plan assets in satisfaction of plan 
benefits (through priority category 6 under section 4044 of ERISA and 
part 4044 of this chapter) by the later of--
    (i) 180 days after the expiration of the PBGC's 60-day (or 
extended) review period under Sec. 4041.26(a); or
    (ii) If the plan administrator meets the requirements of 
Sec. 4041.25(c), 120 days after receipt of a favorable determination 
from the IRS.
    (2) Revocation of notice of noncompliance. If the PBGC revokes a 
notice of noncompliance issued under Sec. 4041.31(a), the distribution 
deadline is extended until the 180th day after the date of the 
revocation.
    (b) Assets insufficient to satisfy plan benefits. If, at the time 
of any distribution, the plan administrator determines that plan assets 
are not sufficient to satisfy all plan benefits (with assets determined 
net of other liabilities, including PBGC premiums), the plan 
administrator may not make any further distribution of assets to effect 
the plan's termination and must promptly notify the PBGC.
    (c) Method of distribution. (1) In general. The plan administrator 
must, in accordance with all applicable requirements under the Code and 
ERISA, distribute plan assets in satisfaction of all plan benefits by 
purchase of an irrevocable commitment from an insurer or in another 
permitted form.
    (2) Lump sum calculations. In the absence of evidence establishing 
that another date is the ``annuity starting date'' under the Code, the 
distribution date is the ``annuity starting date'' for purposes of--
    (i) Calculating the present value of plan benefits that may be 
provided in a form other than by purchase of an irrevocable commitment 
from an insurer (e.g., in selecting the interest rate(s) to be used to 
value a lump sum distribution); and
    (ii) Determining whether plan benefits will be paid in such other 
form.
    (3) Selection of insurer. In the case of plan benefits that will be 
provided by purchase of an irrevocable commitment from an insurer, the 
plan administrator must select the insurer in accordance with the 
fiduciary standards of Title I of ERISA.
    (4) Participating annuity contracts. In the case of a plan in which 
any residual assets will be distributed to participants, a 
participating annuity contract may be purchased to satisfy the 
requirement that annuities be provided by the purchase of irrevocable 
commitments only if the portion of the price of the contract that is 
attributable to the participation feature--
    (i) Is not taken into account in determining the amount of residual 
assets; and
    (ii) Is not paid from residual assets allocable to participants.
    (5) Missing participants. The plan administrator must distribute 
plan benefits to missing participants in accordance with part 4050.
    (d) Provision of annuity contract. If plan benefits are provided 
through the purchase of irrevocable commitments--
    (1) Either the plan administrator or the insurer must, within 30 
days after it is available, provide each participant and beneficiary 
with a copy of the annuity contract or certificate showing the 
insurer's name and address and clearly reflecting the insurer's 
obligation to provide the participant's or beneficiary's plan benefits; 
and
    (2) If such a contract or certificate is not provided to the 
participant or beneficiary by the date on which the post-distribution 
certification is

[[Page 60435]]

required to be filed in order to avoid the assessment of penalties 
under Sec. 4041.29(b), the plan administrator must, no later than that 
date, provide the participant and beneficiary with a notice that 
includes--
    (i) A statement that the obligation for providing the participant's 
or beneficiary's plan benefits has transferred to the insurer;
    (ii) The name and address of the insurer;
    (iii) The name, address, and telephone number of the person 
designated by the insurer to answer questions concerning the annuity; 
and
    (iv) A statement that the participant or beneficiary will receive 
from the plan administrator or insurer a copy of the annuity contract 
or a certificate showing the insurer's name and address and clearly 
reflecting the insurer's obligation to provide the participant's or 
beneficiary's plan benefits.


Sec. 4041.29  Post-distribution certification.

    (a) Deadline. Within 30 days after the last distribution date for 
any affected party, the plan administrator must file with the PBGC a 
post-distribution certification consisting of the PBGC Form 501, 
completed in accordance with the instructions thereto.
    (b) Assessment of penalties. The PBGC will assess a penalty for 
late filing of a post-distribution certification only to the extent the 
certification is filed more than 90 days after the distribution 
deadline (including extensions) under Sec. 4041.28(a).


Sec. 4041.30  Requests for deadline extensions.

    (a) In general. The PBGC may in its discretion extend a deadline 
for taking action under this subpart to a later date. The PBGC will 
grant such an extension where it finds compelling reasons why it is not 
administratively feasible for the plan administrator (or other persons 
acting on behalf of the plan administrator) to take the action until 
the later date and the delay is brief. The PBGC will consider--
    (1) The length of the delay; and
    (2) Whether ordinary business care and prudence in attempting to 
meet the deadline is exercised.
    (b) Time of extension request. Any request for an extension under 
paragraph (a) of this section that is filed later than the 15th day 
before the applicable deadline must include a justification for not 
filing the request earlier.
    (c) IRS determination letter requests. Any request for an extension 
under paragraph (a) of this section of the deadline in Sec. 4041.25(c) 
for submitting a determination letter request to the IRS (in order to 
qualify for the distribution deadline in Sec. 4041.28(a)(1)(ii)) will 
be deemed to be granted unless the PBGC notifies the plan administrator 
otherwise within 60 days after receipt of the request (or, if later, by 
the end of the PBGC's review period under Sec. 4041.26(a)). The PBGC 
will notify the plan administrator in writing of the date on which it 
receives such request.
    (d) Statutory deadlines not extendable. The PBGC will not--
    (1) Pre-distribution deadlines. (i) Extend the 60-day time limit 
under Sec. 4041.23(a) for issuing the notice of intent to terminate; or
    (ii) Waive the requirement in Sec. 4041.24(a) that the notice of 
plan benefits be issued by the time the plan administrator files the 
standard termination notice with the PBGC; or
    (2) Post-distribution deadlines. Extend the deadline under 
Sec. 4041.29(a) for filing the post-distribution certification. 
However, the PBGC will assess a penalty for late filing of a post-
distribution certification only under the circumstances described in 
Sec. 4041.29(b).


Sec. 4041.31  Notice of noncompliance.

    (a) Failure to meet pre-distribution requirements. (1) In general. 
Except as provided in paragraphs (a)(2) and (c) of this section, the 
PBGC will issue a notice of noncompliance within the 60-day (or 
extended) time period prescribed by Sec. 4041.26(a) whenever it 
determines that--
    (i) The plan administrator failed to issue the notice of intent to 
terminate to all affected parties (other than the PBGC) in accordance 
with Sec. 4041.23;
    (ii) The plan administrator failed to issue notices of plan 
benefits to all affected parties entitled to plan benefits in 
accordance with Sec. 4041.24;
    (iii) The plan administrator failed to file the standard 
termination notice in accordance with Sec. 4041.25;
    (iv) As of the distribution date proposed in the standard 
termination notice, plan assets will not be sufficient to satisfy all 
plan benefits under the plan; or
    (v) In the case of a spin-off/termination transaction (as described 
in Sec. 4041.23(c)), the plan administrator failed to issue any notice 
required by Sec. 4041.23(c), Sec. 4041.24(f), or Sec. 4041.27(a)(2) in 
accordance with such section.
    (2) Interests of participants. The PBGC may decide not to issue a 
notice of noncompliance based on a failure to meet a requirement under 
paragraphs (a)(1)(i) through (a)(1)(iii) or (a)(1)(v) of this section 
if it determines that issuance of the notice would be inconsistent with 
the interests of participants and beneficiaries.
    (3) Continuing authority. The PBGC may issue a notice of 
noncompliance or suspend the termination proceeding based on a failure 
to meet a requirement under paragraphs (a)(1)(i) through (a)(1)(v) of 
this section after expiration of the 60-day (or extended) time period 
prescribed by Sec. 4041.26(a) (including upon audit) if the PBGC 
determines such action is necessary to carry out the purposes of Title 
IV.
    (b) Failure to meet distribution requirements. (1) In general. If 
the PBGC determines, as part of an audit or otherwise, that the plan 
administrator has not satisfied any distribution requirement of 
Sec. 4041.28(a) or (c), it may issue a notice of noncompliance.
    (2) Criteria. In deciding whether to issue a notice of 
noncompliance under paragraph (b)(1) of this section, the PBGC may 
consider--
    (i) The nature and extent of the failure to satisfy a requirement 
of Sec. 4041.28(a) or (c);
    (ii) Any corrective action taken by the plan administrator; and
    (iii) The interests of participants and beneficiaries.
    (3) Late distributions. The PBGC will not issue a notice of 
noncompliance for failure to distribute timely based on any facts 
disclosed in the post-distribution certification if 60 or more days 
have passed from the PBGC's receipt of the post-distribution 
certification. The 60-day period may be extended by agreement between 
the plan administrator and the PBGC.
    (c) Correction of errors. The PBGC will not issue a notice of 
noncompliance based solely on the plan administrator's inclusion of 
erroneous information (or omission of correct information) in a notice 
required to be provided to any person under this part if --
    (1) The PBGC determines that the plan administrator acted in good 
faith in connection with the error;
    (2) The plan administrator corrects the error no later than --
    (i) In the case of an error in the notice of plan benefits under 
Sec. 4041.24, the latest date an election notice may be provided to the 
person; or
    (ii) In any other case, as soon as practicable after the plan 
administrator knows or should know of the error, or by any later date 
specified by the PBGC; and
    (3) The PBGC determines that the delay in providing the correct 
information will not substantially harm any person.
    (d) Reconsideration. A plan administrator may request 
reconsideration of a notice of

[[Page 60436]]

noncompliance in accordance with the rules prescribed in part 4003, 
subpart C.
    (e) Consequences of notice of noncompliance. (1) Effect on 
termination. A notice of noncompliance ends the standard termination 
proceeding, nullifies all actions taken to terminate the plan, and 
renders the plan an ongoing plan. A notice of noncompliance is 
effective upon the expiration of the period within which the plan 
administrator may request reconsideration under paragraph (d) of this 
section or, if reconsideration is requested, a decision by the PBGC 
upholding the notice. However, once a notice is issued, the running of 
all time periods specified in ERISA or this part relevant to the 
termination will be suspended, and the plan administrator may take no 
further action to terminate the plan (except by initiation of a new 
termination) unless and until the notice is revoked. A plan 
administrator that still desires to terminate a plan must initiate the 
termination process again, starting with the issuance of a new notice 
of intent to terminate.
    (2) Effect on plan administration. If the PBGC issues a notice of 
noncompliance, the prohibitions in Sec. 4041.22(a)(1) and (a)(2) will 
cease to apply--
    (i) Upon expiration of the period during which reconsideration may 
be requested or, if earlier, at the time the plan administrator decides 
not to request reconsideration; or
    (ii) If reconsideration is requested, upon PBGC issuance of a 
decision on reconsideration upholding the notice of noncompliance.
    (3) Revocation of notice of noncompliance. If a notice of 
noncompliance is revoked, unless the PBGC provides otherwise, any time 
period suspended by the issuance of the notice will resume running from 
the date of the revocation. In no case will the review period under 
Sec. 4041.26(a) end less than 60 days from the date the PBGC received 
the standard termination notice.
    (f) If no notice of noncompliance is issued. A standard termination 
is deemed to be valid if--
    (1) The plan administrator files a standard termination notice 
under Sec. 4041.25 and the PBGC does not issue a notice of 
noncompliance pursuant to Sec. 4041.31(a); and
    (2) The plan administrator files a post-distribution certification 
under Sec. 4041.29 and the PBGC does not issue a notice of 
noncompliance pursuant to Sec. 4041.31(b).
    (g) Notice to affected parties. Upon a decision by the PBGC on 
reconsideration affirming the issuance of a notice of noncompliance or, 
if earlier, upon the plan administrator's decision not to request 
reconsideration, the plan administrator must notify the affected 
parties (other than the PBGC), and any persons who were provided notice 
under Sec. 4041.23(c), in writing that the plan is not going to 
terminate or, if applicable, that the termination was invalid but that 
a new notice of intent to terminate is being issued.

Subpart C--Distress Termination Process


Sec. 4041.41  Requirements for a distress termination.

    (a) Distress requirements. A plan may be terminated in a distress 
termination only if--
    (1) The plan administrator issues a notice of intent to terminate 
to each affected party in accordance with Sec. 4041.43 at least 60 days 
and (except with PBGC approval) not more than 90 days before the 
proposed termination date;
    (2) The plan administrator files a distress termination notice with 
the PBGC in accordance with Sec. 4041.45 no later than 120 days after 
the proposed termination date; and
    (3) The PBGC determines that each contributing sponsor and each 
member of its controlled group satisfy one of the distress criteria set 
forth in paragraph (c) of this section.
    (b) Effect of failure to satisfy requirements. (1) Except as 
provided in paragraph (b)(2)(i) of this section, if the plan 
administrator does not satisfy all of the requirements for a distress 
termination, any action taken to effect the plan termination is null 
and void, and the plan is an ongoing plan. A plan administrator who 
still desires to terminate the plan must initiate the termination 
process again, starting with the issuance of a new notice of intent to 
terminate.
    (2)(i) The PBGC may, upon its own motion, waive any requirement 
with respect to notices to be filed with the PBGC under paragraph 
(a)(1) or (a)(2) of this section if the PBGC believes that it will be 
less costly or administratively burdensome to the PBGC to do so. The 
PBGC will not entertain requests for waivers under this paragraph.
    (ii) Notwithstanding any other provision of this part, the PBGC 
retains the authority in any case to initiate a plan termination in 
accordance with the provisions of section 4042 of ERISA.
    (c) Distress criteria. In a distress termination, each contributing 
sponsor and each member of its controlled group must satisfy at least 
one (but not necessarily the same one) of the following criteria in 
order for a distress termination to occur:
    (1) Liquidation. This criterion is met if, as of the proposed 
termination date--
    (i) A person has filed or had filed against it a petition seeking 
liquidation in a case under title 11, United States Code, or under a 
similar federal law or law of a State or political subdivision of a 
State, or a case described in paragraph (e)(2) of this section has been 
converted to such a case; and
    (ii) The case has not been dismissed.
    (2) Reorganization. This criterion is met if--
    (i) As of the proposed termination date, a person has filed or had 
filed against it a petition seeking reorganization in a case under 
title 11, United States Code, or under a similar law of a state or a 
political subdivision of a state, or a case described in paragraph 
(e)(1) of this section has been converted to such a case;
    (ii) As of the proposed termination date, the case has not been 
dismissed;
    (iii) The person notifies the PBGC of any request to the bankruptcy 
court (or other appropriate court in a case under such similar law of a 
state or a political subdivision of a state) for approval of the plan 
termination by concurrently filing with the PBGC a copy of the motion 
requesting court approval, including any documents submitted in support 
of the request; and
    (iv) The bankruptcy court or other appropriate court determines 
that, unless the plan is terminated, such person will be unable to pay 
all its debts pursuant to a plan of reorganization and will be unable 
to continue in business outside the reorganization process and approves 
the plan termination.
    (3) Inability to continue in business. This criterion is met if a 
person demonstrates to the satisfaction of the PBGC that, unless a 
distress termination occurs, the person will be unable to pay its debts 
when due and to continue in business.
    (4) Unreasonably burdensome pension costs. This criterion is met if 
a person demonstrates to the satisfaction of the PBGC that the person's 
costs of providing pension coverage have become unreasonably burdensome 
solely as a result of declining covered employment under all single-
employer plans for which that person is a contributing sponsor.
    (d) Non-duplicative efforts. (1) If a person requests approval of 
the plan termination by a court, as described in paragraph (c)(2) of 
this section, the PBGC--
    (i) Will normally enter an appearance to request that the court 
make specific findings as to whether the contributing

[[Page 60437]]

sponsor or controlled group member meets the distress test in paragraph 
(c)(3) of this section, or state that it is unable to make such 
findings;
    (ii) Will provide the court with any information it has that may be 
germane to the court's ruling;
    (iii) Will, if the person has requested, or later requests, a 
determination by the PBGC under paragraph (c)(3) of this section, defer 
action on the request until the court makes its determination; and
    (iv) Will be bound by a final and non-appealable order of the 
court.
    (2) If a person requests a determination by the PBGC under 
paragraph (c)(3) of this section, the PBGC determines that the distress 
criterion is not met, and the person thereafter requests approval of 
the plan termination by a court, as described in paragraph (c)(2) of 
this section, the PBGC will advise the court of its determination and 
make its administrative record available to the court.
    (e) Non-recognition of certain actions. If the PBGC finds that a 
person undertook any action or failed to act for the principal purpose 
of satisfying any of the distress criteria contained in paragraph (c) 
of this section, rather than for a reasonable business purpose, the 
PBGC will disregard such act or failure to act in determining whether 
the person has satisfied any of those criteria.
    (f) Requests for deadline extensions. The PBGC may extend any 
deadline under this subpart in accordance with the rules described in 
section Sec. 4041.30, except that the PBGC will not extend--
    (1) Pre-distribution deadlines. The 60-day time limit under 
Sec. 4041.43(a) for issuing the notice of intent to terminate; or
    (2) Post-distribution deadlines. The deadline under Sec. 4041.50 
for filing the post-distribution certification.


Sec. 4041.42  Administration of plan during termination process.

    (a) General rule. Except to the extent specifically prohibited by 
this section, during the pendency of termination proceedings the plan 
administrator must continue to carry out the normal operations of the 
plan, such as putting participants into pay status, collecting 
contributions due the plan, and investing plan assets.
    (b) Prohibitions after issuing notice of intent to terminate. The 
plan administrator may not make loans to plan participants beginning on 
the first day he or she issues a notice of intent to terminate, and 
from that date until a distribution is permitted pursuant to 
Sec. 4041.50, the plan administrator may not--
    (1) Distribute plan assets pursuant to, or (except as required by 
this part) take any other actions to implement, the termination of the 
plan;
    (2) Pay benefits attributable to employer contributions, other than 
death benefits, in any form other than as an annuity; or
    (3) Purchase irrevocable commitments to provide benefits from an 
insurer.
    (c) Limitation on benefit payments on or after proposed termination 
date. Beginning on the proposed termination date, the plan 
administrator must reduce benefits to the level determined under part 
4022, subpart D, of this chapter.
    (d) Failure to qualify for distress termination. In any case where 
the PBGC determines, pursuant to Sec. 4041.44(c) or Sec. 4041.46(c)(1), 
that the requirements for a distress termination are not satisfied--
    (1) The prohibitions in paragraph (b) of this section, other than 
those in paragraph (b)(1), will cease to apply--
    (i) Upon expiration of the period during which reconsideration may 
be requested under Secs. 4041.44(e) and 4041.46(e) or, if earlier, at 
the time the plan administrator decides not to request reconsideration; 
or
    (ii) If reconsideration is requested, upon PBGC issuance of its 
decision on reconsideration.
    (2) Any benefits that were not paid pursuant to paragraph (c) of 
this section will be due and payable as of the effective date of the 
PBGC's determination, together with interest from the date (or dates) 
on which the unpaid amounts were originally due until the date on which 
they are paid in full at the rate or rates prescribed under 
Sec. 4022.81(d) of this chapter.
    (e) Effect of subsequent insufficiency. If the plan administrator 
makes a finding of subsequent insufficiency for guaranteed benefits 
pursuant to Sec. 4041.49(b), or the PBGC notifies the plan 
administrator that it has made a finding of subsequent insufficiency 
for guaranteed benefits pursuant to Sec. 4041.40(d), the prohibitions 
in paragraph (b) of this section will apply in accordance with 
Sec. 4041.49(e).


Sec. 4041.43  Notice of intent to terminate.

    (a) General rules. (1) At least 60 days and (except with PBGC 
approval) no more than 90 days before the proposed termination date, 
the plan administrator must issue a written notice of intent to 
terminate to each person who is an affected party as of the proposed 
termination date.
    (2) The plan administrator must issue the notice of intent to 
terminate to all affected parties other than the PBGC at or before the 
time he or she files the notice with the PBGC.
    (3) The notice to affected parties other than the PBGC must contain 
all of the information specified in paragraph (b) of this section.
    (4) The notice to the PBGC must be filed on PBGC Form 600, Distress 
Termination, Notice of Intent to Terminate, completed in accordance 
with the instructions thereto.
    (5) In the case of a beneficiary of a deceased participant or an 
alternate payee, the plan administrator must issue a notice of intent 
to terminate promptly to any person that becomes an affected party 
after the proposed termination date and on or before the date a trustee 
is appointed for the plan pursuant to section 4042(c) of ERISA (or, in 
the case of a plan that distributes assets pursuant to Sec. 4041.50, 
the distribution date).
    (b) Contents of notice to affected parties other than the PBGC. The 
plan administrator must include in the notice of intent to terminate to 
each affected party other than the PBGC all of the following 
information:
    (1) The name of the plan and of the contributing sponsor;
    (2) The EIN of the contributing sponsor and the PN; if there is no 
EIN or PN, the notice must so state;
    (3) The name, address, and telephone number of the person who may 
be contacted by an affected party with questions concerning the plan's 
termination;
    (4) A statement that the plan administrator expects to terminate 
the plan in a distress termination on a specified proposed termination 
date;
    (5) The cessation of accruals information in Sec. 4041.23(b)(4);
    (6) A statement as to how an affected party entitled to receive the 
latest updated summary plan description under section 104(b) of ERISA 
can obtain it;
    (7) A statement of whether plan assets are sufficient to pay all 
guaranteed benefits or all benefit liabilities;
    (8) A brief description of what benefits are guaranteed by the PBGC 
(e.g., if only a portion of the benefits are guaranteed because of the 
phase-in rule, this should be explained), and a statement that 
participants and beneficiaries also may receive a portion of the 
benefits to which each is entitled under the terms of the plan in 
excess of guaranteed benefits; and
    (9) A statement, if applicable, that benefits may be subject to 
reduction because of the limitations on the amounts guaranteed by the 
PBGC or

[[Page 60438]]

because plan assets are insufficient to pay for full benefits (pursuant 
to part 4022, subparts B and D, of this chapter) and that payments in 
excess of the amount guaranteed by the PBGC may be recouped by the PBGC 
(pursuant to part 4022, subpart E, of this chapter).
    (c) Spin-off/termination transactions. In the case of a spin-off/
termination transaction (as described in Sec. 4041.23(c)), the plan 
administrator must provide all participants and beneficiaries in the 
original plan who are also participants or beneficiaries in the ongoing 
plan (as of the proposed termination date) with a notice describing the 
transaction no later than the date on which the plan administrator 
completes the issuance of notices of intent to terminate under this 
section.


Sec. 4041.44  PBGC review of notice of intent to terminate.

    (a) General. When a notice of intent to terminate is filed with it, 
the PBGC--
    (1) Will determine whether the notice was issued in compliance with 
Sec. 4041.43; and
    (2) Will advise the plan administrator of its determination, in 
accordance with paragraph (b) or (c) of this section, no later than the 
proposed termination date specified in the notice.
    (b) Tentative finding of compliance. If the PBGC determines that 
the issuance of the notice of intent to terminate appears to be in 
compliance with Sec. 4041.43, it will notify the plan administrator in 
writing that--
    (1) The PBGC has made a tentative determination of compliance;
    (2) The distress termination proceeding may continue; and
    (3) After reviewing the distress termination notice filed pursuant 
to Sec. 4041.45, the PBGC will make final, or reverse, this tentative 
determination.
    (c) Finding of noncompliance. If the PBGC determines that the 
issuance of the notice of intent to terminate was not in compliance 
with Sec. 4041.43 (except for requirements that the PBGC elects to 
waive under Sec. 4041.41(b)(2)(i) with respect to the notice filed with 
the PBGC), the PBGC will notify the plan administrator in writing--
    (1) That the PBGC has determined that the notice of intent to 
terminate was not properly issued; and
    (2) That the proposed distress termination is null and void and the 
plan is an ongoing plan.
    (d) Information on need to institute section 4042 proceedings. The 
PBGC may require the plan administrator to submit, within 20 days after 
the plan administrator's receipt of the PBGC's written request (or such 
other period as may be specified in such written request), any 
information that the PBGC determines it needs in order to decide 
whether to institute termination or trusteeship proceedings pursuant to 
section 4042 of ERISA, whenever--
    (1) A notice of intent to terminate indicates that benefits 
currently in pay status (or that should be in pay status) are not being 
paid or that this is likely to occur within the 180-day period 
following the issuance of the notice of intent to terminate;
    (2) The PBGC issues a determination under paragraph (c) of this 
section; or
    (3) The PBGC has any reason to believe that it may be necessary or 
appropriate to institute proceedings under section 4042 of ERISA.
    (e) Reconsideration of finding of noncompliance. A plan 
administrator may request reconsideration of the PBGC's determination 
of noncompliance under paragraph (c) of this section in accordance with 
the rules prescribed in part 4003, subpart C, of this chapter. Any 
request for reconsideration automatically stays the effectiveness of 
the determination until the PBGC issues its decision on 
reconsideration, but does not stay the time period within which 
information must be submitted to the PBGC in response to a request 
under paragraph (d) of this section.
    (f) Notice to affected parties. Upon a decision by the PBGC 
affirming a finding of noncompliance or upon the expiration of the 
period within which the plan administrator may request reconsideration 
of a finding of noncompliance (or, if earlier, upon the plan 
administrator's decision not to request reconsideration), the plan 
administrator must notify the affected parties (and any persons who 
were provided notice under Sec. 4041.43(e)) in writing that the plan is 
not going to terminate or, if applicable, that the termination is 
invalid but that a new notice of intent to terminate is being issued.


Sec. 4041.45  Distress termination notice.

    (a) General rule. The plan administrator must file with the PBGC a 
PBGC Form 601, Distress Termination Notice, Single-Employer Plan 
Termination, with Schedule EA-D, Distress Termination Enrolled Actuary 
Certification, that has been completed in accordance with the 
instructions thereto, on or before the 120th day after the proposed 
termination date.
    (b) Participant and benefit information. (1) Plan insufficient for 
guaranteed benefits. Unless the enrolled actuary certifies, in the 
Schedule EA-D filed in accordance with paragraph (a) of this section, 
that the plan is sufficient either for guaranteed benefits or for 
benefit liabilities, the plan administrator must file with the PBGC the 
participant and benefit information described in PBGC Form 601 and the 
instructions thereto by the later of--
    (i) 120 days after the proposed termination date, or
    (ii) 30 days after receipt of the PBGC's determination, pursuant to 
Sec. 4041.46(b), that the requirements for a distress termination have 
been satisfied.
    (2) Plan sufficient for guaranteed benefits or benefit liabilities. 
If the enrolled actuary certifies that the plan is sufficient either 
for guaranteed benefits or for benefit liabilities, the plan 
administrator need not submit the participant and benefit information 
described in PBGC Form 601 and the instructions thereto unless 
requested to do so pursuant to paragraph (c) of this section.
    (3) Effect of failure to provide information. The PBGC may void the 
distress termination if the plan administrator fails to provide 
complete participant and benefit information in accordance with this 
section.
    (c) Additional information. The PBGC may in any case require the 
submission of any additional information that it needs to make the 
determinations that it is required to make under this part or to pay 
benefits pursuant to section 4061 or 4022(c) of ERISA. The plan 
administrator must submit any information requested under this 
paragraph within 30 days after receiving the PBGC's written request (or 
such other period as may be specified in such written request).


Sec. 4041.46  PBGC determination of compliance with requirements for 
distress termination.

    (a) General. Based on the information contained and submitted with 
the PBGC Form 600 and the PBGC Form 601, with Schedule EA-D, and on any 
information submitted by an affected party or otherwise obtained by the 
PBGC, the PBGC will determine whether the requirements for a distress 
termination set forth in Sec. 4041.41(c) have been met and will notify 
the plan administrator in writing of its determination, in accordance 
with paragraph (b) or (c) of this section.
    (b) Qualifying termination. If the PBGC determines that all of the 
requirements of Sec. 4041.41(c) have been satisfied, it will so advise 
the plan administrator and will also advise the plan administrator of 
whether participant and benefit information must be submitted in 
accordance with Sec. 4041.45(b).

[[Page 60439]]

    (c) Non-qualifying termination. (1) Except as provided in paragraph 
(c)(2) of this section, if the PBGC determines that any of the 
requirements of Sec. 4041.41 have not been met, it will notify the plan 
administrator of its determination, the basis therefor, and the effect 
thereof (as provided in Sec. 4041.41(b)).
    (2) If the only basis for the PBGC's determination described in 
paragraph (c)(1) of this section is that the distress termination 
notice is incomplete, the PBGC will advise the plan administrator of 
the missing item(s) of information and that the information must be 
filed with the PBGC no later than the 120th day after the proposed 
termination date or the 30th day after the date of the PBGC's notice of 
its determination, whichever is later.
    (d) Reconsideration of determination of non-qualification. A plan 
administrator may request reconsideration of the PBGC's determination 
under paragraph (c)(1) of this section in accordance with the rules 
prescribed in part 4003, subpart C, of this chapter. The filing of a 
request for reconsideration automatically stays the effectiveness of 
the determination until the PBGC issues its decision on 
reconsideration.
    (e) Notice to affected parties. Upon a decision by the PBGC 
affirming a determination of non-qualification or upon the expiration 
of the period within which the plan administrator may request 
reconsideration of a determination of non-qualification (or, if 
earlier, upon the plan administrator's decision not to request 
reconsideration), the plan administrator must notify the affected 
parties (and any persons who were provided notice under 
Sec. 4041.43(e)) in writing that the plan is not going to terminate or, 
if applicable, that the termination is invalid but that a new notice of 
intent to terminate is being issued.


Sec. 4041.47  PBGC determination of plan sufficiency/insufficiency.

    (a) General. Upon receipt of participant and benefit information 
filed pursuant to Sec. 4041.45 (b)(1) or (c), the PBGC will determine 
the degree to which the plan is sufficient and notify the plan 
administrator in writing of its determination in accordance with 
paragraph (b) or (c) of this section.
    (b) Insufficiency for guaranteed benefits. If the PBGC finds that 
it is unable to determine that a plan is sufficient for guaranteed 
benefits, it will issue a ``notice of inability to determine 
sufficiency'' notifying the plan administrator of this finding and 
advising the plan administrator that--
    (1) The plan administrator must continue to administer the plan 
under the restrictions imposed by Sec. 4041.42; and
    (2) The termination will be completed under section 4042 of ERISA.
    (c) Sufficiency for guaranteed benefits or benefit liabilities. If 
the PBGC determines that a plan is sufficient for guaranteed benefits 
but not for benefit liabilities or is sufficient for benefit 
liabilities, the PBGC will issue to the plan administrator a 
distribution notice advising the plan administrator--
    (1) To issue notices of benefit distribution in accordance with 
Sec. 4041.48;
    (2) To close out the plan in accordance with Sec. 4041.50;
    (3) To file a timely post-distribution certification with the PBGC 
in accordance with Sec. 4041.50(b); and
    (4) That either the plan administrator or the contributing sponsor 
must preserve and maintain plan records in accordance with Sec. 4041.5.
    (d) Alternative treatment of majority owner's benefit. A majority 
owner may elect to forgo receipt of all or part of his or her plan 
benefits in connection with a distress termination. Any such 
alternative treatment--
    (1) Is valid only if the conditions in Sec. 4041.21(b)(2) (i) 
through (iv) are met (except that, in the case of a plan that does not 
distribute assets pursuant to Sec. 4041.50, the majority owner may make 
the election and the spouse may consent any time on or after the date 
of issuance of the first notice of intent to terminate); and--
    (2) Is subject to the PBGC's approval if the election--
    (i) Is made after the termination date; and
    (ii) Would result in the PBGC determining that the plan is 
sufficient for guaranteed benefits under paragraph (c).


Sec. 4041.48  Sufficient plans; notice requirements.

    (a) Notices of benefit distribution. When a distribution notice is 
issued by the PBGC pursuant to Sec. 4041.47, the plan administrator 
must issue notices of benefit distribution in accordance with the rules 
regarding notices of plan benefits in Sec. 4041.24, except that--
    (1) The deadline for issuing the notices of benefit distribution is 
the 60th day after receipt of the distribution notice; and
    (2) With respect to the information described in Sec. 4041.24 (b) 
through (e), the term ``plan benefits'' is replaced with ``title IV 
benefits'' and the term ``proposed termination date'' is replaced with 
``termination date''.
    (b) Certification to PBGC. No later than 15 days after the date on 
which the plan administrator completes the issuance of the notices of 
benefit distribution, the plan administrator must file with the PBGC a 
certification that the notices were so issued in accordance with the 
requirements of this section.
    (c) Notice of annuity information. (1) In general. Unless all title 
IV benefits will be distributed in the form of nonconsensual lump sums, 
the plan administrator must provide a notice of annuity information to 
each affected party other than--
    (i) An affected party whose title IV benefits will be distributed 
in the form of a nonconsensual lump sum; and
    (ii) The PBGC.
    (2) Spin-off/termination transactions. The plan administrator must 
provide the information in paragraph (c)(4) of this section to a person 
entitled to notice under Sec. 4041.43(c), at the same time and in the 
same manner as required for an affected party described in paragraph 
(c)(1) of this section.
    (3) Selection of different insurer. A plan administrator that 
decides to select a different insurer after having previously notified 
the affected party of the identity of insurer(s) under this paragraph 
must provide another notice of annuity information.
    (4) Content of notice. The notice must include--
    (i) The identity-of-insurer information in Sec. 4041.27(b)(1);
    (ii) The information regarding change in identity of insurer(s) in 
Sec. 4041.27(b)(2); and
    (iii) Unless the state guaranty coverage information in 
Sec. 4041.27(b)(3) was previously provided to the affected party, such 
information and the extinguishment-of-guaranty information in 
Sec. 4041.23(b)(9) (replacing the term ``plan benefits'' with ``title 
IV benefits'').
    (5) Deadline for notice. The plan administrator must issue the 
notice of annuity information to each affected party by the deadline in 
Sec. 4041.27(d)(1).
    (d) Request for IRS determination letter. To qualify for the 
distribution deadline in Sec. 4041.28(a)(1)(ii) (as modified and made 
applicable by Sec. 4041.50(c)), the plan administrator must submit to 
the IRS a valid request for a determination of the plan's qualification 
status upon termination (``determination letter'') by the day on which 
the plan administrator completes the issuance of the notices of benefit 
distribution.


Sec. 4041.49  Verification of plan sufficiency prior to closeout.

    (a) General rule. Before distributing plan assets pursuant to a 
closeout under

[[Page 60440]]

Sec. 4041.50, the plan administrator must verify whether the plan's 
assets are still sufficient to provide for benefits at the level 
determined by the PBGC, i.e., guaranteed benefits or benefit 
liabilities. If the plan administrator finds that the plan is no longer 
able to provide for benefits at the level determined by the PBGC, then 
paragraph (b) or (c) of this section, as appropriate, will apply.
    (b) Subsequent insufficiency for guaranteed benefits. When a plan 
administrator finds that a plan is no longer sufficient for guaranteed 
benefits, the plan administrator must promptly notify the PBGC in 
writing of that fact and may take no further action to implement the 
plan termination, pending the PBGC's determination and notice pursuant 
to paragraph (b)(1) or (b)(2) of this section.
    (1) PBGC concurrence with finding. If the PBGC concurs with the 
plan administrator's finding, the distribution notice will be void, and 
the PBGC will--
    (i) Issue the plan administrator a notice of inability to determine 
sufficiency in accordance with Sec. 4041.47(b); and
    (ii) Require the plan administrator to submit a new valuation, 
certified to by an enrolled actuary, of the benefit liabilities and 
guaranteed benefits under the plan, valued in accordance with 
Secs. 4044.41 through 4044.57 of this chapter as of the date of the 
plan administrator's notice to the PBGC.
    (2) PBGC non-concurrence with finding. If the PBGC does not concur 
with the plan administrator's finding, it will so notify the plan 
administrator in writing, and the distribution notice will remain in 
effect.
    (c) Subsequent insufficiency for benefit liabilities. When a plan 
administrator finds that a plan is sufficient for guaranteed benefits 
but is no longer sufficient for benefit liabilities, the plan 
administrator must immediately notify the PBGC in writing of this fact, 
but must continue with the distribution of assets in accordance with 
Sec. 4041.50.
    (d) Finding by PBGC of subsequent insufficiency. In any case in 
which the PBGC finds on its own initiative that a subsequent 
insufficiency for guaranteed benefits has occurred, paragraph (b)(1) of 
this section will apply, except that the guaranteed benefits must be 
revalued as of the date of the PBGC's finding.
    (e) Restrictions upon finding of subsequent insufficiency. When the 
plan administrator makes the finding described in paragraph (b) of this 
section or receives notice that the PBGC has made the finding described 
in paragraph (d) of this section, the plan administrator is (except to 
the extent the PBGC otherwise directs) subject to the prohibitions in 
Sec. 4041.42.


Sec. 4041.50  Closeout of plan.

    If a plan administrator receives a distribution notice from the 
PBGC pursuant to Sec. 4041.47 and neither the plan administrator nor 
the PBGC makes the finding described in Sec. 4041.49(b) or (d), the 
plan administrator must distribute plan assets in accordance with 
Sec. 4041.28 and file a post-distribution certification in accordance 
with Sec. 4041.29, except that--
    (a) The term ``plan benefits'' is replaced with ``title IV 
benefits'';
    (b) For purposes of applying the distribution deadline in 
Sec. 4041.28(a)(1)(i), the phrase ``after the expiration of the PBGC's 
60-day (or extended) review period under Sec. 4041.26(a)'' is replaced 
with ``the day on which the plan administrator completes the issuance 
of the notices of benefit distribution pursuant to Sec. 4041.48(a)''; 
and
    (c) For purposes of applying the distribution deadline in 
Sec. 4041.28(a)(1)(ii), the phrase ``the requirements of 
Sec. 4041.25(c)'' is replaced with ``the requirements of 
Sec. 4041.48(d)''.
    8. Part 4050 is revised to read as follows:

PART 4050--MISSING PARTICIPANTS

Sec.
4050.1  Purpose and scope.
4050.2  Definitions.
4050.3  Method of distribution for missing participants.
4050.4  Diligent search.
4050.5  Designated benefit.
4050.6  Payment and required documentation.
4050.7  Benefits of missing participants--in general.
4050.8  Automatic lump sum.
4050.9  Annuity or elective lump sum--living missing participant.
4050.10  Annuity or elective lump sum--beneficiary of deceased 
missing participant.
4050.11  Limitations.
4050.12  Special rules.
Appendix A to part 4050--Examples of designated benefit 
determinations for missing participants under Sec. 4050.5
Appendix B to part 4050--Examples of benefit payments for missing 
participants under Secs. 4050.8 through 4050.10

    Authority: 29 U.S.C. 1302(b)(3), 1350.


Sec. 4050.1  Purpose and scope.

    This part prescribes rules for distributing benefits under a 
terminating single-employer plan for any individual whom the plan 
administrator has not located when distributing benefits under 
Sec. 4041.28 of this chapter. This part applies to a plan if the plan's 
deemed distribution date (or the date of a payment made in accordance 
with Sec. 4050.12) is in a plan year beginning on or after January 1, 
1996.


Sec. 4050.2  Definitions.

    The following terms are defined in Sec. 4001.2 of this chapter: 
annuity, Code, ERISA, insurer, irrevocable commitment, mandatory 
employee contributions, normal retirement age, PBGC, person, plan, plan 
administrator, plan year and title IV benefit.
    In addition, for purposes of this part:
    Deemed distribution date means--
    (1) The last day of the period in which distribution may be made 
under part 4041 of this chapter; or
    (2) If the plan administrator selects an earlier date that is no 
earlier than the date when all benefit distributions have been made 
under the plan except for distributions to missing participants whose 
designated benefits are paid to the PBGC, such earlier date.
    Designated benefit means the amount payable to the PBGC for a 
missing participant pursuant to Sec. 4050.5.
    Designated benefit interest rate means the rate of interest 
applicable to underpayments of guaranteed benefits by the PBGC under 
Sec. 4022.81(d) of this chapter.
    Guaranteed benefit form means, with respect to a benefit, the form 
in which the PBGC would pay a guaranteed benefit to a participant or 
beneficiary in the PBGC's program for trusteed plans under subparts A 
and B of part 4022 of this chapter (treating the deemed distribution 
date as the termination date for this purpose).
    Missing participant means a participant or beneficiary entitled to 
a distribution under a terminating plan whom the plan administrator has 
not located as of the date when the plan administrator pays the 
individual's designated benefit to the PBGC (or distributes the 
individual's benefit by purchasing an irrevocable commitment from an 
insurer). In the absence of proof of death, individuals not located are 
presumed living.
    Missing participant annuity assumptions means the interest rate 
assumptions and actuarial methods (using the interest rates for annuity 
valuations in Table I of appendix B to part 4044 of this chapter) for 
valuing a benefit to be paid by the PBGC as an annuity under subpart B 
of part 4044, applied--
    (1) As if the deemed distribution date were the termination date;
    (2) Using unisex mortality rates that are a fixed blend of 50 
percent of the

[[Page 60441]]

male mortality rates and 50 percent of the female mortality rates from 
the 1983 Group Annuity Mortality Table as prescribed in Rev. Rul. 95-6, 
1995-1 C.B. 80 (Cumulative Bulletins are available from the 
Superintendent of Documents, Government Printing Office, Washington, DC 
20402);
    (3) Without using the expected retirement age assumptions in 
Secs. 4044.55 through 4044.57 of this chapter;
    (4) Without making the adjustment for expenses provided for in 
Sec. 4044.52(a)(5) of this chapter; and
    (5) By adding $300, as an adjustment (loading) for expenses, for 
each missing participant whose designated benefit without such 
adjustment would be greater than $3,500.
    Missing participant forms and instructions means PBGC Forms 501 and 
602, Schedule MP thereto, and related forms, and their instructions.
    Missing participant lump sum assumptions means the interest rate 
assumptions and actuarial methods (using the interest rates for lump 
sum valuations in Table II of appendix B to part 4044 of this chapter) 
for valuing a benefit to be paid by the PBGC as a lump sum under 
subpart B of part 4044 of this chapter, applied--
    (1) As if the deemed distribution date were the termination date;
    (2) Using mortality assumptions from Table 3 of appendix A to part 
4044 of this chapter; and
    (3) Without using the expected retirement age assumptions in 
Secs. 4044.55 through 4044.57 of this chapter.
    Pay status means, with respect to a benefit under a plan, that the 
plan administrator has made or (except for administrative delay or a 
waiting period) would have made one or more benefit payments.
    Post-distribution certification means the post-distribution 
certification required by Sec. 4041.29 or Sec. 4041.50 of this chapter.
    Unloaded designated benefit means the designated benefit reduced by 
$300; except that the reduction does not apply in the case of a 
designated benefit determined using the missing participant annuity 
assumptions without adding the $300 load described in paragraph (5) of 
the definition of ``missing participant annuity assumptions.''


Sec. 4050.3  Method of distribution for missing participants.

    The plan administrator of a terminating plan must distribute 
benefits for each missing participant by--
    (a) Purchasing from an insurer an irrevocable commitment that 
satisfies the requirements of Sec. 4041.28(c) or Sec. 4041.50 of this 
chapter (whichever is applicable); or
    (b) Paying the PBGC a designated benefit in accordance with 
Secs. 4050.4 through 4050.6 (subject to the special rules in 
Sec. 4050.12).


Sec. 4050.4  Diligent search.

    (a) Search required. A diligent search must be made for each 
missing participant before information about the missing participant or 
payment is submitted to the PBGC pursuant to Sec. 4050.6.
    (b) Diligence. A search is a diligent search only if the search --
    (1) Begins not more than 6 months before notices of intent to 
terminate are issued and is carried on in such a manner that if the 
individual is found, distribution to the individual can reasonably be 
expected to be made on or before the deemed distribution date;
    (2) Includes inquiry of any plan beneficiaries (including alternate 
payees) of the missing participant whose names and addresses are known 
to the plan administrator; and
    (3) Includes use of a commercial locator service to search for the 
missing participant (without charge to the missing participant or 
reduction of the missing participant's plan benefit).


Sec. 4050.5  Designated benefit.

    (a) Amount of designated benefit. The amount of the designated 
benefit is the amount determined under paragraph (a)(1), (a)(2), 
(a)(3), or (a)(4) of this section (whichever is applicable) or, if 
less, the maximum amount that could be provided under the plan to the 
missing participant in the form of a single sum in accordance with 
section 415 of the Code.
    (1) Mandatory lump sum. The designated benefit of a missing 
participant required under a plan to receive a mandatory lump sum as of 
the deemed distribution date is the lump sum payment that the plan 
administrator would have distributed to the missing participant as of 
the deemed distribution date.
    (2) De minimis lump sum. The designated benefit of a missing 
participant not described in paragraph (a)(1) of this section whose 
benefit is not in pay status as of the deemed distribution date and 
whose benefit has a de minimis actuarial present value ($3,500 or less) 
as of the deemed distribution date under the missing participant lump 
sum assumptions is such value.
    (3) No lump sum. The designated benefit of a missing participant 
not described in paragraph (a)(1) or (a)(2) of this section who, as of 
the deemed distribution date, cannot elect an immediate lump sum under 
the plan is the actuarial present value of the missing participant's 
benefit as of the deemed distribution date under the missing 
participant annuity assumptions.
    (4) Elective lump sum. The designated benefit of a missing 
participant not described in paragraph (a)(1), (a)(2), or (a)(3) of 
this section is the greater of the amounts determined under the 
methodologies of paragraph (a)(1) or (a)(3) of this section.
    (b) Assumptions. When the plan administrator uses the missing 
participant annuity assumptions or the missing participant lump sum 
assumptions for purposes of determining the designated benefit under 
paragraph (a) of this section, the plan administrator must value the 
most valuable benefit, as determined under paragraph (b)(1) of this 
section, using the assumptions described in paragraph (b)(2) or (b)(3) 
of this section (whichever is applicable).
    (1) Most valuable benefit. For a missing participant whose benefit 
is in pay status as of the deemed distribution date, the most valuable 
benefit is the pay status benefit. For a missing participant whose 
benefit is not in pay status as of the deemed distribution date, the 
most valuable benefit is the benefit payable at the age on or after the 
deemed distribution date (beginning with the participant's earliest 
early retirement age and ending with the participant's normal 
retirement age) for which the present value as of the deemed 
distribution date is the greatest. The present value as of the deemed 
distribution date with respect to any age is determined by multiplying:
    (i) The monthly (or other periodic) benefit payable under the plan; 
by
    (ii) The present value (determined as of the deemed distribution 
date using the missing participant annuity assumptions) of a $1 monthly 
(or other periodic) annuity beginning at the applicable age.
    (2) Participant. A missing participant who is a participant, and 
whose benefit is not in pay status as of the deemed distribution date, 
is assumed to be married to a spouse the same age, and the form of 
benefit that must be valued is the qualified joint and survivor annuity 
benefit that would be payable under the plan. If the participant's 
benefit is in pay status as of the deemed distribution date, the form 
and beneficiary of the participant's benefit

[[Page 60442]]

are the form of benefit and beneficiary of the pay status benefit.
    (3) Beneficiary. A missing participant who is a beneficiary, and 
whose benefit is not in pay status as of the deemed distribution date, 
is assumed not to be married, and the form of benefit that must be 
valued is the survivor benefit that would be payable under the plan. If 
the beneficiary's benefit is in pay status as of the deemed 
distribution date, the form and beneficiary of the beneficiary's 
benefit are the form of benefit and beneficiary of the pay status 
benefit.
    (4) Examples. See Appendix A to this part for examples illustrating 
the provisions of this section.
    (c) Missed payments. In determining the designated benefit, the 
plan administrator must include the value of any payments that were due 
before the deemed distribution date but that were not made.
    (d) Payment of designated benefits. Payment of designated benefits 
must be made in accordance with Sec. 4050.6 and will be deemed made on 
the deemed distribution date.


Sec. 4050.6  Payment and required documentation.

    (a) Time of payment and filing. The plan administrator must pay 
designated benefits, and file the information and certifications (of 
the plan administrator and the plan's enrolled actuary) specified in 
the missing participant forms and instructions, by the time the post-
distribution certification is due. Except as otherwise provided in the 
missing participant forms and instructions, the plan administrator must 
submit the designated benefits, information, and certifications with 
the post-distribution certification.
    (b) Late charges. (1) Interest on late payments. Except as provided 
in paragraph (b)(2) of this section, if the plan administrator does not 
pay a designated benefit by the time specified in paragraph (a) of this 
section, the plan administrator must pay interest as assessed by the 
PBGC for the period beginning on the deemed distribution date and 
ending on the date when the payment is received by the PBGC. Interest 
will be assessed at the rate provided for late premium payments in 
Sec. 4007.7 of this chapter. Interest assessed under this paragraph 
will be deemed paid in full if payment of the amount assessed is 
received by the PBGC within 30 days after the date of a PBGC bill for 
such amount.
    (2) Assessment of interest and penalties. The PBGC will assess 
interest for late payment of a designated benefit or a penalty for late 
filing of information only to the extent paid or filed beyond the time 
provided in Sec. 4041.29(b).
    (c) Supplemental information. Within 30 days after the date of a 
written request from the PBGC, a plan administrator required to provide 
the information and certifications described in paragraph (a) of this 
section must file supplemental information, as requested, for the 
purpose of verifying designated benefits, determining benefits to be 
paid by the PBGC under this part, and substantiating diligent searches.
    (d) Filing with the PBGC. The rules described in Sec. 4041.3(b) of 
this chapter apply to filings with the PBGC under this part.


Sec. 4050.7  Benefits of missing participants--in general.

    (a) If annuity purchased. If a plan administrator distributes a 
missing participant's benefit by purchasing an irrevocable commitment 
from an insurer, and the missing participant (or his or her beneficiary 
or estate) later contacts the PBGC, the PBGC will inform the person of 
the identity of the insurer, the relevant policy number, and (to the 
extent known) the amount or value of the benefit.
    (b) If designated benefit paid. If the PBGC locates or is contacted 
by a missing participant (or his or her beneficiary or estate) for whom 
a plan administrator paid a designated benefit to the PBGC, the PBGC 
will pay benefits in accordance with Secs. 4050.8 through 4050.10 
(subject to the limitations and special rules in Secs. 4050.11 and 
4050.12).
    (c) Examples. See Appendix B to this part for examples illustrating 
the provisions of Secs. 4050.8 through 4050.10.


Sec. 4050.8  Automatic lump sum.

    This section applies to a missing participant whose designated 
benefit was determined under Sec. 4050.5(a)(1) (mandatory lump sum) or 
Sec. 4050.5(a)(2) (de minimis lump sum).
    (a) General rule. (1) Benefit paid. The PBGC will pay a single sum 
benefit equal to the designated benefit plus interest at the designated 
benefit interest rate from the deemed distribution date to the date on 
which the PBGC pays the benefit.
    (2) Payee. Payment will be made--
    (i) To the missing participant, if located;
    (ii) If the missing participant died before the deemed distribution 
date, and if the plan so provides, to the missing participant's 
beneficiary or estate; or
    (iii) If the missing participant dies on or after the deemed 
distribution date, to the missing participant's estate.
    (b) De minimis annuity alternative. If the guaranteed benefit form 
for a missing participant whose designated benefit was determined under 
Sec. 4050.5(a)(2) (de minimis lump sum) (or the guaranteed benefit form 
for a beneficiary of such a missing participant) would provide for the 
election of an annuity, the missing participant (or the beneficiary) 
may elect to receive an annuity. If such an election is made --
    (1) The PBGC will pay the benefit in the elected guaranteed benefit 
form, beginning on the annuity starting date elected by the missing 
participant (or the beneficiary), which may not be before the later of 
the date of the election or the earliest date on which the missing 
participant (or the beneficiary) could have begun receiving benefits 
under the plan; and
    (2) The benefit paid will be actuarially equivalent to the 
designated benefit, i.e., each monthly (or other periodic) benefit 
payment will equal the designated benefit divided by the present value 
(determined as of the deemed distribution date under the missing 
participant lump sum assumptions) of a $1 monthly (or other periodic) 
annuity beginning on the annuity starting date.


Sec. 4050.9  Annuity or elective lump sum--living missing participant.

    This section applies to a missing participant whose designated 
benefit was determined under Sec. 4050.5(a)(3) (no lump sum) or 
Sec. 4050.5(a)(4) (elective lump sum) and who is living on the date as 
of which the PBGC begins paying benefits.
    (a) Missing participant whose benefit was not in pay status as of 
the deemed distribution date. The PBGC will pay the benefit of a 
missing participant whose benefit was not in pay status as of the 
deemed distribution date as follows.
    (1) Time and form of benefit. The PBGC will pay the missing 
participant's benefit in the guaranteed benefit form, beginning on the 
annuity starting date elected by the missing participant (which may not 
be before the later of the date of the election or the earliest date on 
which the missing participant could have begun receiving benefits under 
the plan).
    (2) Amount of benefit. The PBGC will pay a benefit that is 
actuarially equivalent to the unloaded designated benefit, i.e., each 
monthly (or other periodic) benefit payment will equal the unloaded 
designated benefit divided by the present value (determined as of the 
deemed distribution date under the missing participant annuity 
assumptions) of a $1 monthly (or other periodic) annuity beginning on 
the annuity starting date.

[[Page 60443]]

    (b) Missing participant whose benefit was in pay status as of the 
deemed distribution date. The PBGC will pay the benefit of a missing 
participant whose benefit was in pay status as of the deemed 
distribution date as follows.
    (1) Time and form of benefit. The PBGC will pay the benefit in the 
form that was in pay status, beginning when the missing participant is 
located.
    (2) Amount of benefit. The PBGC will pay the monthly (or other 
periodic) amount of the pay status benefit, plus a lump sum equal to 
the payments the missing participant would have received under the 
plan, plus interest on the missed payments (at the plan rate up to the 
deemed distribution date and thereafter at the designated benefit 
interest rate) to the date as of which the PBGC pays the lump sum.
    (c) Payment of lump sum. If a missing participant whose designated 
benefit was determined under Sec. 4050.5(a)(4) (elective lump sum) so 
elects, the PBGC will pay his or her benefit in the form of a single 
sum. This election is not effective unless the missing participant's 
spouse consents (if such consent would be required under section 205 of 
ERISA). The single sum equals the designated benefit plus interest (at 
the designated benefit interest rate) from the deemed distribution date 
to the date as of which the PBGC pays the benefit.


Sec. 4050.10  Annuity or elective lump sum--beneficiary of deceased 
missing participant.

    This section applies to a beneficiary of a deceased missing 
participant whose designated benefit was determined under 
Sec. 4050.5(a)(3) (no lump sum) or Sec. 4050.5(a)(4) (elective lump 
sum) and whose benefit is not payable under Sec. 4050.9.
    (a) If deceased missing participant's benefit was not in pay status 
as of the deemed distribution date. The PBGC will pay a benefit with 
respect to a deceased missing participant whose benefit was not in pay 
status as of the deemed distribution date as follows.
    (1) General rule. (i) Beneficiary. The PBGC will pay a benefit to 
the surviving spouse of a missing participant who was a participant 
(unless the surviving spouse has properly waived a benefit in 
accordance with section 205 of ERISA).
    (ii) Form and amount of benefit. The PBGC will pay the survivor 
benefit in the form of a single life annuity. Each monthly (or other 
periodic) benefit payment will equal 50 percent of the quotient that 
results when the unloaded designated benefit is divided by the present 
value (determined as of the deemed distribution date under the missing 
participant annuity assumptions, and assuming that the missing 
participant survived to the deemed distribution date) of a $1 monthly 
(or other periodic) joint and 50 percent survivor annuity beginning on 
the annuity starting date, under which reduced payments (at the 50 
percent level) are made only after the death of the missing participant 
during the life of the spouse (and not after the death of the spouse 
during the missing participant's life).
    (iii) Time of benefit. The PBGC will pay the survivor benefit 
beginning at the time elected by the surviving spouse (which may not be 
before the later of the date of the election or the earliest date on 
which the surviving spouse could have begun receiving benefits under 
the plan).
    (2) If missing participant died before deemed distribution date. 
Notwithstanding the provisions of paragraph (a)(1) of this section, if 
a beneficiary of a missing participant who died before the deemed 
distribution date establishes to the PBGC's satisfaction that he or she 
is the proper beneficiary or would have received benefits under the 
plan in a form, at a time, or in an amount different from the benefit 
paid under paragraph (a)(1)(ii) or (a)(1)(iii) of this section, the 
PBGC will make payments in accordance with the facts so established, 
but only in the guaranteed benefit form.
    (3) Elective lump sum. Notwithstanding the provisions of paragraphs 
(a)(1) and (a)(2) of this section, if the beneficiary of a missing 
participant whose designated benefit was determined under 
Sec. 4050.5(a)(4) (elective lump sum) so elects, the PBGC will pay his 
or her benefit in the form of a single sum. The single sum will be 
equal to the actuarial present value (determined as of the deemed 
distribution date under the missing participant annuity assumptions) of 
the death benefit payable on the annuity starting date, plus interest 
(at the designated benefit interest rate) from the deemed distribution 
date to the date as of which the PBGC pays the benefit.
    (b) If deceased missing participant's benefit was in pay status as 
of the deemed distribution date. The PBGC will pay a benefit with 
respect to a deceased missing participant whose benefit was in pay 
status as of the deemed distribution date as follows.
    (1) Beneficiary. The PBGC will pay a benefit to the beneficiary (if 
any) of the benefit that was in pay status as of the deemed 
distribution date.
    (2) Form and amount of benefit. The PBGC will pay a monthly (or 
other periodic) amount equal to the monthly (or other periodic) amount, 
if any, that the beneficiary would have received under the form of 
payment in effect, plus a lump sum payment equal to the payments the 
beneficiary would have received under the plan after the missing 
participant's death and before the date as of which the benefit is paid 
under paragraph (b)(4) of this section, plus interest on the missed 
payments (at the plan rate up to the deemed distribution date and 
thereafter at the designated benefit interest rate) to the date as of 
which the benefit is paid under paragraph (b)(4) of this section.
    (3) Lump sum payment to estate. The PBGC will make a lump sum 
payment to the missing participant's estate equal to the payments that 
the missing participant would have received under the plan for the 
period before the missing participant's death, plus interest on the 
missed payments (at the plan rate up to the deemed distribution date 
and thereafter at the designated benefit interest rate) to the date 
when the lump sum is paid. Notwithstanding the preceding sentence, if a 
beneficiary of a missing participant other than the estate establishes 
to the PBGC's satisfaction that the beneficiary is entitled to the lump 
sum payment, the PBGC will pay the lump sum to such beneficiary.
    (4) Time of benefit. The PBGC will pay the survivor benefit 
beginning when the beneficiary is located.
    (5) Spouse deceased. If the PBGC locates the estate of the deceased 
missing participant's spouse under circumstances where a benefit would 
have been paid under this paragraph (b) if the spouse had been located 
while alive, the PBGC will pay to the spouse's estate a lump sum 
payment computed in the same manner as provided for in paragraph (b)(2) 
of this section based on the period from the missing participant's 
death to the death of the spouse.


Sec. 4050.11  Limitations.

    (a) Exclusive benefit. The benefits provided for under this part 
will be the only benefits payable by the PBGC to missing participants 
or to beneficiaries based on the benefits of deceased missing 
participants.
    (b) Limitation on benefit value. The total actuarial present value 
of all benefits paid with respect to a missing participant under 
Secs. 4050.8 through 4050.10, determined as of the deemed distribution 
date, will not exceed the missing participant's designated benefit.
    (c) Guaranteed benefit. If a missing participant or his or her 
beneficiary establishes to the PBGC's satisfaction that the benefit 
under Secs. 4050.8 through

[[Page 60444]]

4050.10 (based on the designated benefit actually paid to the PBGC) is 
less than the minimum benefit in this paragraph (c), the PBGC will 
instead pay the minimum benefit. The minimum benefit is the lesser of:
    (1) The benefit as determined under the PBGC's rules for paying 
guaranteed benefits in trusteed plans under subparts A and B of part 
4022 of this chapter (treating the deemed distribution date as the 
termination date for this purpose); or
    (2) The benefit based on the designated benefit that should have 
been paid under Sec. 4050.5.
    (d) Limitation on annuity starting date. A missing participant (or 
his or her survivor) may not elect an annuity starting date after the 
later of--
    (1) The required beginning date under section 401(a)(9) of the 
Code; or
    (2) The date when the missing participant (or the survivor) is 
notified of his or her right to a benefit.


Sec. 4050.12  Special rules.

    (a) Missing participants located quickly. Notwithstanding the 
provisions of Secs. 4050.8 through 4050.10, if the PBGC or the plan 
administrator locates a missing participant within 30 days after the 
PBGC receives the missing participant's designated benefit, the PBGC 
may in its discretion return the missing participant's designated 
benefit to the plan administrator, and the plan administrator must make 
distribution to the individual in such manner as the PBGC will direct.
    (b) Qualified domestic relations orders. Plan administrators must 
and the PBGC will take the provisions of qualified domestic relations 
orders (QDROs) under section 206(d)(3) of ERISA or section 414(p) of 
the Code into account in determining designated benefits and benefit 
payments by the PBGC, including treating an alternate payee under an 
applicable QDRO as a missing participant or as a beneficiary of a 
missing participant, as appropriate, in accordance with the terms of 
the QDRO. For purposes of calculating the amount of the designated 
benefit of an alternate payee, the plan administrator must use the 
assumptions for a missing participant who is a beneficiary under 
Sec. 4050.5(b).
    (c) Employee contributions. (1) Mandatory employee contributions. 
Notwithstanding the provisions of Sec. 4050.5, if a missing participant 
made mandatory contributions (within the meaning of section 4044(a)(2) 
of ERISA), the missing participant's designated benefit may not be less 
than the sum of the missing participant's mandatory contributions and 
interest to the deemed distribution date at the plan's rate or the rate 
under section 204(c) of ERISA (whichever produces the greater amount).
    (2) Voluntary employee contributions. (i) Applicability. This 
paragraph (c)(2) applies to any employee contributions that were not 
mandatory (within the meaning of section 4044(a)(2) of ERISA) to which 
a missing participant is entitled in connection with the termination of 
a defined benefit plan.
    (ii) Payment to PBGC. A plan administrator, in accordance with the 
missing participant forms and instructions, must pay the employee 
contributions described in paragraph (c)(2)(i) of this section 
(together with any earnings thereon) to the PBGC, and must file 
Schedule MP with the PBGC, by the time the designated benefit is due 
under Sec. 4050.6. Any such amount must be in addition to the 
designated benefit and must be separately identified.
    (iii) Payment by PBGC. In addition to any other amounts paid by the 
PBGC under Secs. 4050.8 through 4050.10, the PBGC will pay any amount 
paid to it under paragraph (c)(2)(ii) of this section, with interest at 
the designated benefit interest rate from the date of receipt by the 
PBGC to the date of payment by the PBGC, in the same manner as 
described in Sec. 4050.8 (automatic lump sums), except that if the 
missing participant died before the deemed distribution date and there 
is no beneficiary, payment will be made to the missing participant's 
estate.
    (d) Residual assets. The PBGC will determine, in a manner 
consistent with the purposes of this part and section 4050 of ERISA, 
how the provisions of this part apply to any distribution (to 
participants and beneficiaries who cannot be located) of residual 
assets remaining after the satisfaction of plan benefits (as defined in 
Sec. 4041.2 of this chapter) in connection with the termination of a 
defined benefit plan. Unless the PBGC otherwise determines, the payment 
of residual assets for a participant or beneficiary who cannot be 
located, and the submission to the PBGC of the related Schedule MP (or 
amended Schedule MP), must be made no earlier than the date when the 
post-distribution certification is filed with the PBGC, and no later 
than the later of--
    (1) The 30th day after the date on which all residual assets have 
been distributed to all participants and beneficiaries other than those 
who cannot be located and for whom payment of residual assets is made 
to the PBGC, and
    (2) The date when the post-distribution certification is filed with 
the PBGC.
    (e) Sufficient distress terminations. In the case of a plan 
undergoing a distress termination (under section 4041(c) of ERISA) that 
is sufficient for at least all guaranteed benefits and that distributes 
its assets in the manner described in section 4041(b)(3) of ERISA, the 
benefit assumed to be payable by the plan for purposes of determining 
the amount of the designated benefit under Sec. 4050.5 is limited to 
the title IV benefit plus any benefit to which funds under section 
4022(c) of ERISA have been allocated.
    (f) Similar rules for later payments. If the PBGC determines that 
one or more persons should receive benefits (which may be in addition 
to benefits already provided) in order for a plan termination to be 
valid (e.g., upon audit of the termination), and one or more of such 
individuals cannot be located, the PBGC will determine, in a manner 
consistent with the purposes of this part and section 4050 of ERISA, 
how the provisions of this part apply to such benefits.
    (g) Discretionary extensions. Any deadline under this part may be 
extended in accordance with the rules described in Sec. 4041.30 of this 
chapter.
    (h) Payments beginning after required beginning date. If the PBGC 
begins paying an annuity under Sec. 4050.9(a) or 4050.10(a) to a 
participant or a participant's spouse after the required beginning date 
under section 401(a)(9)(C) of the Code, the PBGC will pay to the 
participant or the spouse (or their respective estates) or both, as 
appropriate, the lump sum equivalent of the past annuity payments the 
participant and spouse would have received if the PBGC had begun making 
payments on the required beginning date. The PBGC will also pay lump 
sum equivalents under this paragraph (g) if the PBGC locates the estate 
of the participant or spouse after both are deceased. (Nothing in this 
paragraph (g) will increase the total value of the benefits payable 
with respect to a missing participant.)

Appendix A to Part 4050--Examples of Designated Benefit Determinations 
for Missing Participants Under Sec. 4050.5

    The calculation of the designated benefit under Sec. 4050.5 is 
illustrated by the following examples.
    Example 1. Plan A provides that any participant whose benefit 
has a value at distribution of $1,750 or less will be paid a lump 
sum, and that no other lump sums will be paid. P, Q, and R are 
missing participants.
    (1) As of the deemed distribution date, the value of P's benefit 
is $1,700 under plan A's assumptions. Under Sec. 4050.5(a)(1), the 
plan administrator pays the PBGC $1,700 as P's designated benefit.

[[Page 60445]]

    (2) As of the deemed distribution date, the value of Q's benefit 
is $3,700 under plan A's assumptions and $3,200 under the missing 
participant lump sum assumptions. Under Sec. 4050.5(a)(2), the plan 
administrator pays the PBGC $3,200 as Q's designated benefit.
    (3) As of the deemed distribution date, the value of R's benefit 
is $3,400 under plan A's assumptions, $3,600 under the missing 
participant lump sum assumptions, and $3,450 under the missing 
participant annuity assumptions. Under Sec. 4050.5(a)(3), the plan 
administrator pays the PBGC $3,450 as R's designated benefit.
    Example 2. Plan B provides for a normal retirement age of 65 and 
permits early commencement of benefits at any age between 60 and 65, 
with benefits reduced by 5 percent for each year before age 65 that 
the benefit begins. The qualified joint and 50 percent survivor 
annuity payable under the terms of the plan requires in all cases a 
16 percent reduction in the benefit otherwise payable. The plan does 
not provide for elective lump sums.
    (1) M is a missing participant who separated from service under 
plan B with a deferred vested benefit. M is age 50 at the deemed 
distribution date, and has a normal retirement benefit of $1,000 per 
month payable at age 65 in the form of a single life annuity. M's 
benefit as of the deemed distribution date has a value greater than 
$3,500 using either plan assumptions or the missing participant lump 
sum assumptions. Accordingly, M's designated benefit is to be 
determined under Sec. 4050.5(a)(3).
    (2) For purposes of determining M's designated benefit, M is 
assumed to be married to a spouse who is also age 50 on the deemed 
distribution date. M's monthly benefit in the form of the qualified 
joint and survivor annuity under the plan varies from $840 at age 65 
(the normal retirement age) ($1,000 x (1-.16)) to $630 at age 60 
(the earliest retirement age) ($1,000 x (1-5 x (.05)) x (1-.16)).
    (3) Under Sec. 4050.5(a)(3), M's benefit is to be valued using 
the missing participant annuity assumptions. The select and ultimate 
interest rates on Plan B's deemed distribution date are 7.50 percent 
for the first 20 years and 5.75 percent thereafter. Using these 
rates and the blended mortality table described in paragraph (2) of 
the definition of ``missing participant annuity assumptions'' in 
Sec. 4050.2, the plan administrator determines that the benefit 
commencing at age 60 is the most valuable benefit (i.e., the benefit 
at age 60 is more valuable than the benefit at ages 61, 62, 63, 64 
or 65). The present value as of the deemed distribution date of each 
dollar of annual benefit (payable monthly as a joint and 50 percent 
survivor annuity) is $5.4307 if the benefit begins at age 60. 
(Because a new spouse may succeed to the survivor benefit, the 
mortality of the spouse during the deferral period is ignored.) 
Thus, without adjustment (loading) for expenses, the value of the 
benefit beginning at age 60 is $41,056 (12 x $630 x 5.4307). The 
designated benefit is equal to this value plus an expense adjustment 
of $300, or a total of $41,356.

Appendix B to Part 4050--Examples of Benefit Payments for Missing 
Participants Under Secs. 4050.8 Through 4050.10

    The provisions of Secs. 4050.8 through 4050.10 are illustrated 
by the following examples.
    Example 1. Participant M from Plan B (see Example 2 in Appendix 
A of this part) is located. M's spouse is ten years younger than M. 
M elects to receive benefits in the form of a joint and 50 percent 
survivor annuity commencing at age 62.
    (1) M's designated benefit was $41,356. The unloaded designated 
benefit was $41,056. As of Plan B's deemed distribution date (and 
using the missing participant annuity assumptions), the present 
value per dollar of annual benefit (payable monthly as a joint and 
50 percent survivor annuity commencing at age 62 and reflecting the 
actual age of M's spouse) is $4.7405. Thus, the monthly benefit to M 
at age 62 is $722 ($41,056 / (4.7405 x 12)). M's spouse will receive 
$361 (50 percent of $722) per month for life after the death of M.
    (2) If M had instead been found to have died on or after the 
deemed distribution date, and M's spouse wanted benefits to commence 
when M would have attained age 62, the same calculation would be 
performed to arrive at a monthly benefit of $361 to M's spouse.
    Example 2. Participant P is a missing participant from Plan C, a 
plan that allows elective lump sums upon plan termination. Plan C's 
administrator pays a designated benefit of $10,000 to the PBGC on 
behalf of P, who was age 30 on the deemed distribution date.
    (1) P's spouse, S, is located and has a death certificate 
showing that P died on or after the deemed distribution date with S 
as spouse. S is the same age as P, and would like survivor benefits 
to commence immediately, at age 55 (as permitted by the plan). S's 
benefit is the survivor's share of the joint and 50 percent survivor 
annuity which is actuarially equivalent, as of the deemed 
distribution date, to $9,700 (the unloaded designated benefit).
    (2) The select and ultimate interest rates on Plan C's deemed 
distribution date were 7.50 percent for the first 20 years and 5.75 
percent thereafter. Using these rates and the blended mortality 
table described in paragraph (2) of the definition of ``missing 
participant annuity assumptions'' in Sec. 4050.2, the present value 
as of the deemed distribution date of each dollar of annual benefit 
(payable monthly as a joint and 50 percent survivor annuity) is 
$2.4048 if the benefit begins when S and P would have been age 55. 
Thus, the monthly benefit to S commencing at age 55 is $168 (50 
percent of $9,700 / (2.4048 x 12)). Since P could have elected a 
lump sum upon plan termination, S may elect a lump sum. S's lump sum 
is the present value as of the deemed distribution date (using the 
missing participant annuity assumptions) of the monthly benefit of 
$168, accumulated with interest at the designated benefit interest 
rate to the date paid.

    Issued in Washington, DC, this 3rd day of November, 1997.
Alexis M. Herman,
Chairman, Board of Directors, Pension Benefit Guaranty Corporation.

    Issued on the date set forth above pursuant to a resolution of 
the Board of Directors authorizing its Chairman to issue this final 
rule.
James J. Keightley,
Secretary, Board of Directors, Pension Benefit Guaranty Corporation.
[FR Doc. 97-29500 Filed 11-6-97; 8:45 am]
BILLING CODE 7708-01-P