[Federal Register Volume 63, Number 83 (Thursday, April 30, 1998)]
[Proposed Rules]
[Pages 23693-23695]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-11519]



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PENSION BENEFIT GUARANTY CORPORATION

29 CFR Parts 4011, 4022, 4041A, 4044, 4050, 4281

RIN 1212-AA88


Valuation and Payment of Lump Sum Benefits

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Proposed rule.

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SUMMARY: The Pension Benefit Guaranty Corporation proposes to amend its 
regulations to increase the maximum value of benefits that the PBGC may 
pay in lump sum form, and certain other lump sum thresholds, from 
$3,500 to $5,000. The proposed amendments do not affect lump sum 
benefits paid by ongoing plans.

DATES: Comments must be received on or before June 1, 1998.

ADDRESSES: Comments may be mailed to the Office of the General Counsel, 
Pension Benefit Guaranty Corporation, 1200 K Street, NW., Washington, 
DC 20005-4026, or delivered to Suite 340 at the above address. Comments 
also may be sent by Internet e-mail to [email protected]. Comments 
will be available for inspection at the PBGC's Communications and 
Public Affairs Department in Suite 240 at the above address during 
normal business hours.

FOR FURTHER INFORMATION CONTACT: Harold J. Ashner, Assistant General 
Counsel, or Marc L. Jordan, Attorney, Pension Benefit Guaranty 
Corporation, Office of the General Counsel, Suite 340, 1200 K Street, 
NW., Washington, DC 20005-4026, 202-326-4024. (For TTY/TTD users, call 
the Federal relay service toll-free at 1-800-877-8339 and ask to be 
connected to 202-326-4024.)

SUPPLEMENTARY INFORMATION: Section 203(e) of ERISA specifies the 
maximum value that a plan may provide it will pay in a lump sum (i.e., 
single installment) to a participant or surviving spouse without 
consent. The Taxpayer Relief Act of 1997 increased the section 203(e) 
maximum from $3,500 to $5,000 effective for plan years beginning after 
August 5, 1997.
    The PBGC proposes to amend its regulations to increase various 
$3,500 thresholds to $5,000 and to make other changes relating to lump 
sum payments:
     Under the amendment, the PBGC may make a lump sum payment 
of a benefit that has a value of $5,000 or less as of the plan's 
termination date. The amendment provides rules for applying the lump 
sum threshold where the PBGC issues a determination on title IV 
benefits before it issues a determination on benefits payable under 
ERISA section 4022(c). Consistent with its current practice, the PBGC 
will give the participant the option to receive the benefit in the form 
of an annuity if the monthly benefit (at normal retirement age in the 
normal form for an unmarried participant) is equal to or greater than 
$25.
    Applicability: The amendment will apply to any initial 
determination issued on or after the amendment's effective date. For 
any initial determination issued before the amendment's effective date, 
the PBGC may make a lump sum payment of a benefit with a value of 
$5,000 or less, provided (1) the benefit is not yet in pay status, and 
(2) the participant (with spousal consent) or beneficiary elects the 
lump sum payment.
     Under the amendment, the lump sum threshold under 
Sec. 4044.52(b), which is used for determining whether lump sum or 
annuity assumptions are used to value benefits for purposes of 
allocating assets to benefits under ERISA section 4044, is $5,000.
    Applicability: The amendment will apply to any plan with a 
termination date on or after the amendment's effective date.
     The reference to the lump sum threshold in the PBGC's 
Model Participant Notice (29 CFR part 4011) is changed from $3,500 to 
$5,000.
    Applicability: This amendment will apply to any Participant Notice 
issued on or after the amendment's effective date. However, for a 
reasonable time period, the PBGC will not treat a Participant Notice as 
failing to satisfy the Participant Notice requirements merely because 
it refers to the $3,500 threshold.
     The dollar thresholds in the Missing Participants 
regulation are increased from $3,500 to $5,000. See Secs. 4050.2 
(definition of missing participant annuity assumptions) and 
4050.5(a)(2) (de minimis lump sum).
    Applicability: This amendment will apply to missing participants 
for whom the deemed distribution date is on or after the amendment's 
effective date.
     The dollar threshold up to which the plan sponsor of a 
terminated multiemployer plan that is closing out may make a lump sum 
payment of nonforfeitable benefits is increased from $3,500 to $5,000.
    Applicability: This amendment will apply to any distribution made 
on or after the amendment's effective date.
     In the case of participant deaths after the termination 
date, the amendment allows the PBGC to make a lump sum payment of a 
qualified preretirement survivor annuity with a value of $5,000 or less 
if the surviving spouse elects a lump sum.
    Applicability: This amendment will apply to any lump sum payment 
made on or after the amendment's effective date.
     The amendment allows the PBGC to make a lump sum payment, 
without regard to amount, of any benefits due to an estate (e.g., under 
a certain and continuous benefit where the designated beneficiary 
predeceases the participant) if the estate elects a lump sum.
    Applicability: This amendment will apply to any payment made on or 
after the amendment's effective date.
    Finally, the amendment (1) eliminates, as unnecessary, two 
provisions in its multiemployer valuation regulation that refer to the 
$3,500 limit, and (2) makes clear that the lump sum value of a benefit 
is calculated by valuing the monthly annuity benefit (which excludes 
the value of certain preretirement death benefits, such as a qualified 
preretirement survivor annuity).

E.O. 12866 and the Regulatory Flexibility Act

    The PBGC has determined that this proposed rule is not a 
``significant regulatory action'' under the criteria set forth in 
Executive Order 12866. The PBGC certifies that, if adopted, the 
amendment will not have a significant economic effect on a substantial 
number of small entities. The amendments will affect only de minimis 
benefits and will have an immaterial effect on liabilities associated 
with plan termination. Accordingly, as provided in section 605(b) of 
the Regulatory Flexibility Act, sections 603 and 604 do not apply.

List of Subjects

29 CFR Part 4022, 4041A

    Pension insurance, Pensions, Reporting and recordkeeping 
requirements.

29 CFR Part 4044

    Pension insurance, Pensions.

29 CFR Part 4011, 4050, 4281

    Pensions, Reporting and recordkeeping requirements.

    For the reasons set forth above, the PBGC proposes to amend parts 
4011, 4022, 4041A, 4044, 4050, and 4281 of 29 CFR chapter XL as 
follows:

PART 4011--DISCLOSURE TO PARTICIPANTS

    1. The authority citation for part 4011 continues to read as 
follows:


[[Page 23694]]


    Authority: 29 U.S.C. 1302(b)(3) and 1311.

Appendix A to Part 4011 [Amended]

    2. Appendix A to Part 4011 is amended by removing the sentence 
``The PBGC does not pay lump sums exceeding $3,500.'' which immediately 
precedes the heading ``WHERE TO GET MORE INFORMATION'', and adding in 
its place the sentence ``The PBGC generally does not pay lump sums 
exceeding $5,000.''

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

    3. The authority citation for part 4022 continues to read as 
follows:

    Authority: 29 U.S.C. 1302 and 1322.

    4. In Sec. 4022.7, paragraph (b)(1) is revised, and new paragraph 
(d) is added, to read as follows:


Sec. 4022.7  Benefits payable in a single installment.

* * * * *
    (b)(1) Payment in lump sum. Notwithstanding paragraph (a) of this 
section:
    (i) In general. If the lump sum value of a benefit payable by the 
PBGC is $5,000 or less and the benefit is not yet in pay status, the 
benefit may be paid in a lump sum. In determining whether the lump sum 
value of a benefit is $5,000 or less, the value of any amounts returned 
under paragraph (b)(2) of this section is disregarded. If the PBGC 
determines a title IV benefit before it determines the benefit payable 
under section 4022(c) of ERISA, the $5,000 threshold shall apply 
separately to the title IV benefit. The section 4022(c) benefit shall 
be paid in annuity form if the title IV benefit is paid in annuity 
form, and otherwise shall be separately subject to the $5,000 
threshold.
    (ii) Annuity option. If the PBGC would otherwise make a lump sum 
payment in accordance with paragraph (b)(1)(i) of this section and the 
monthly benefit is equal to or greater than $25 (at normal retirement 
age and in the normal form for an unmarried participant), the PBGC 
shall provide the participant (or the beneficiary of a participant who 
is deceased as of the termination date) the option to receive the 
benefit in the form of an annuity.
    (iii) Election of QPSA lump sum. If the lump sum value of a 
qualified preretirement survivor annuity is $5,000 or less, the benefit 
is not yet in pay status, and the participant dies after the 
termination date, the benefit may be paid in a lump sum if so elected 
by the surviving spouse.
    (iv) Certain and continuous payments to estates. The PBGC may pay 
any benefits payable to an estate (e.g., in the case of benefits under 
a certain and continuous annuity where the designated beneficiary 
predeceases the participant) in a lump sum without regard to the 
threshold in paragraph (b)(1)(i) of this section if so elected by the 
estate. The payments shall be discounted using the immediate interest 
rate that would be applicable to the plan under Sec. 4044.52(b) if the 
termination date had been the date of death (or, if later, [effective 
date of final rule]).
* * * * *
    (d) Determination of lump sum amount. The lump sum value of a 
benefit shall be determined in accordance with Sec. 4044.52(b).

PART 4041A--TERMINATION OF MULTIEMPLOYER PLANS

    5. The authority citation for part 4041A continues to read as 
follows:

    Authority: 29 U.S.C. 1302(b)(3), 1341a, 1441.


Sec. 4041A.43  [Amended]

    6. In Sec. 4041A.43, paragraph (b)(1) is amended by removing 
``$3,500'' and adding, in its place, ``$5,000''.

PART 4044--ALLOCATION OF ASSETS IN SINGLE-EMPLOYER PLANS

    7. The authority citation for part 4044 continues to read as 
follows:

    Authority: 29 U.S.C. 1301(a), 1302(b)(3), 1341, 1344, 1362.


Sec. 4044.52  [Amended]

    8. In section 4044.52, the introductory text to paragraph (b) is 
revised to read as follows:


Sec. 4044.52  Valuation of benefits.

* * * * *
    (b) Benefits payable as lump sums. For valuing benefits payable as 
lump sums (including the return of accumulated employee contributions 
upon death), and for determining whether the lump sum value of a 
benefit exceeds $5,000, the plan administrator shall determine the lump 
sum value of a benefit by valuing, in accordance with paragraph (a) of 
this section, the monthly annuity benefits payable in the form 
determined under Sec. 4044.51(a) and commencing at the time determined 
under Sec. 4044.51(b), except that--
* * * * *


Sec. 4044.54  [Amended]

    9. Section 4044.54 is amended by removing ``$3,500'' and adding, in 
its place, ``$5,000''.

PART 4050--MISSING PARTICIPANTS

    10. The authority citation for part 4050 continues to read as 
follows:

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


Sec. 4050.2  [Amended]

    11. In Sec. 4050.2, paragraph (5) of the definition of Missing 
participant annuity assumptions is amended by removing ``$3,500'' and 
adding, in its place, ``$5,000''.


Sec. 4050.5  [Amended]

    12. In Sec. 4050.5, paragraph (a)(2) is amended by removing 
``$3,500'' and adding, in its place, ``$5,000''.

Appendix A to Part 4050  [Amended]

    13. In Appendix A, the heading is amended by adding at the end, the 
words ``in Plans With Deemed Distribution Dates on and After [effective 
date of final rule]''; the introductory text to Example 1 is amended by 
removing ``$1,750'' and adding, in its place, ``$3,500''; paragraph (1) 
to Example 1 is amended by removing ``$1,700'' each time it appears and 
adding, in each place, ``$3,000''; paragraph (2) to Example 1 is 
amended by removing ``$3,700'' and adding, in its place, ``$5,200'' and 
removing ``$3,200'' each time it appears and adding, in each place, 
``$4,700''; paragraph (3) to Example 1 is amended by removing 
``$3,400'' and adding, in its place, ``$4,900'' and removing ``$3,450'' 
each time it appears and adding, in each place, ``$4,950''; and 
paragraph (1) of Example 2 is amended by removing ``$3,500'' and 
adding, in its place, ``$5,000''.

PART 4281--DUTIES OF PLAN SPONSOR FOLLOWING MASS WITHDRAWAL

    14. The authority citation for part 4281 continues to read as 
follows:

    Authority: 29 U.S.C. 1302(b)(3), 1341a, 1399(c)(1)(D), and 1441.


Sec. 4281.13  [Amended]

    15. In section 4281.13, paragraph (b) is removed, the introductory 
text to paragraph (a) is amended by removing the paragraph designation, 
the heading, and the words ``paragraph (b) of this section (regarding 
the valuations of benefits payable as lump sums under trusteed plans) 
and'', and paragraphs (a)(1) through (a)(5) are redesignated as 
paragraphs (a) through (e).


Sec. 4281.14  [Amended]

    16. In section 4281.14, the section heading is amended by removing 
the phrase ``--in general'', and paragraph (a) is amended by removing 
the words

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``Except as otherwise provided in Sec. 4281.15 (regarding the valuation 
of benefits payable as lump sums under trusteed plans), and subject'' 
and adding, in their place, the word ``Subject''.


Sec. 4281.15  [Removed and Reserved]

    17. Section 4281.15 is removed and reserved.

    Issued in Washington, D.C. this 24th day of April, 1998.
David M. Strauss,
Executive Director, Pension Benefit Guaranty Corporation.
[FR Doc. 98-11519 Filed 4-29-98; 8:45 am]
BILLING CODE 7708-01-P