[Federal Register Volume 63, Number 103 (Friday, May 29, 1998)]
[Rules and Regulations]
[Pages 29353-29355]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14448]


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PENSION BENEFIT GUARANTY CORPORATION

29 CFR Part 4022, 4041, 4050

RIN: 1212-AA87


PBGC Recoupment and Reimbursement of Benefit Overpayments and 
Underpayments

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Final rule.

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SUMMARY: The Pension Benefit Guaranty Corporation is amending its 
regulation governing recoupment of benefit overpayments in trusteed 
plans to stop the reduction of monthly benefits under its actuarial 
recoupment method once the amount of the benefit overpayment is repaid. 
The amendment also makes other related changes.

EFFECTIVE DATE: May 29, 1998.

FOR FURTHER INFORMATION CONTACT: Harold J. Ashner, Assistant General 
Counsel, or James L. Beller, Attorney, Office of the General Counsel, 
PBGC, 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: On December 18, 1997, the PBGC published a 
proposed rule in the Federal Register (62 FR 66319) amending its 
benefit payments regulation to provide that recoupment will cease when 
the amount of the overpayment is repaid. The amendment also gives the 
PBGC flexibility to waive recoupment of de minimis amounts and to 
accept repayment ahead of the recoupment schedule, and modifies the 
rules governing calculation of net overpayments and underpayments.
    The PBGC received comments on the proposed rule from two 
commenters: the American Association of Retired Persons (``AARP'') and 
the Association of Former Pan Am Employees, Inc. (``AFPAE''). AARP 
supported the proposed regulation and commended the PBGC for its 
action. AFPAE, which also commended the PBGC for proposing changes, 
recommended a number of revisions.
    The final regulation follows the proposed regulation with the 
following modifications:
     As requested by AFPAE, the final rule clarifies that in 
determining whether the net overpayment has been fully repaid, interest 
on the net overpayment is disregarded.
     In response to an inquiry in a pending case in which 
participants received both underpayments and overpayments, the final 
regulation provides that the PBGC will always pay interest on 
underpayments to the extent they exceed overpayments. In addition, for 
months beginning after May 29, 1998, the PBGC will pay interest at the 
applicable federal mid-term rate. For earlier months, the PBGC will 
continue to pay interest using the immediate annuity rate established 
for lump sum valuations.
     Consistent with an AFPAE suggestion, the final regulation 
provides that the PBGC generally will not seek recovery from the estate 
of a participant who dies post-termination. (The existing regulation 
precludes recovery from the estate only for a participant who dies 
after the PBGC initiates recoupment.)
     For administrative convenience, the final regulation 
provides that the PBGC will not collect any final partial monthly 
installment.
     AFPAE expressed concerns about the provision allowing 
repayment ahead of the recoupment schedule, arguing that, because the 
PBGC charges no interest under the recoupment schedule, early repayment 
will never be advantageous to the participant. The PBGC will 
discontinue its current practice of routinely offering a lump sum 
repayment option as part of its recoupment notice. However, the PBGC 
will retain the early repayment option for those participants who, for 
whatever reason, want to eliminate debt. As suggested by AFPAE, the 
PBGC intends to explain to those participants who ask about the early 
repayment option that there may be financial disadvantages to early 
repayment.
    The PBGC has carefully considered AFPAE's other comments and has 
decided not to adopt them.
     AFPAE suggested that the PBGC not seek recoupment from a 
surviving beneficiary unless recoupment has been initiated before the 
participant's death. AFPAE offered no reason why the PBGC's recoupment 
rules should distinguish in this manner between a survivorship benefit 
and the underlying benefit from which the survivorship benefit derives. 
The regulation minimizes hardship in the case of recoupment from a 
survivorship benefit because the monthly recoupment amount is reduced 
in proportion to any other applicable reduction in the deceased 
participant's benefit (e.g., a 50% reduction under a joint and survivor 
annuity) and is generally capped at 10% of the survivorship payment.
     AFPAE suggested that the PBGC eliminate its discretion to 
recover overpayments by methods other than recoupment. The regulation 
provides that the PBGC will normally exercise its discretion only where 
net benefits paid exceed plan entitlements (e.g., where a participant 
entitled to $1,200 per month as the full plan benefit and $1,000 per 
month under Title IV has received clearly erroneous payments of $5,000 
per month). Any further limitation on the PBGC's discretion could 
result in unacceptably large losses in particular cases.
     AFPAE suggested that recoupment be permitted only if (1) 
the participant is notified of the possibility of recoupment no later 
than 30 days after the PBGC makes a final decision to seek an 
involuntary termination, and (2) recoupment begins no more than one 
year after the termination date. This suggestion is impracticable. The 
PBGC often encounters significant delays in obtaining the participant 
information needed to provide notice and the benefit and asset 
information needed to complete the complex and time-consuming process 
of determining final benefit entitlements. The PBGC will continue to 
provide notice to participants, and to initiate recoupments, as soon as 
possible.
     In response to the provision in the proposed rule giving 
the PBGC discretion to waive de minimis amounts, AFPAE suggested that 
the regulation specify a dollar threshold under which recoupment is 
automatically waived. The PBGC has decided to retain the discretion 
provided in the proposed rule in order to allow maximum flexibility. 
After gaining experience under the de minimis waiver provision, the 
PBGC may decide to specify a fixed dollar threshold in the regulation.
     AFPAE suggested broadening the scope of the recoupment and 
reimbursement regulation to cover underpayments made before the plan 
termination date. The Title IV single-employer insurance program does 
not cover pre-termination underpayments. These underpayments represent 
a claim on plan assets that are satisfied before those assets are used 
to satisfy Title IV benefits under the allocation rules of ERISA 
section 4044 and 29 CFR Part 4044. Thus, to the extent assets are 
available, pre-termination underpayments are fully reimbursed.
    AFPAE made several other comments suggesting revisions to the 
benefit

[[Page 29354]]

determination and appeals process. These comments are beyond the scope 
of this rulemaking proceeding.

Applicability of New Rules

    The new rules will apply to all initial determinations that become 
effective on or after May 29, 1998. For earlier initial determinations, 
if a participant (or beneficiary) is subject to recoupment under the 
actuarial reduction method, the new rules will apply except that the 
PBGC will not redetermine the amount of the net overpayment or the 
amount of the monthly reduction. Thus, for these cases, the PBGC will 
stop recoupment once the amount of the net overpayment (as previously 
determined) is repaid. If the amount of that net overpayment has been 
fully repaid prior to May 29, 1998, the PBGC will stop recoupment 
effective as of May 29, 1998.
    Example 1. Ms. X is entitled to a monthly benefit of $500 under 
Title IV. For the last 11 years the PBGC has been recouping $25 each 
month to repay a series of overpayments totaling $3,000. Recoupment 
will cease as of May 29, 1998 because as of that date Ms. X will have 
repaid the overpayments. No amounts recouped prior to May 29, 1998 will 
be refunded.
    Example 2. Same facts as example 1, except recoupment began nine 
years ago. Recoupment will cease in one year, i.e., when the full 
$3,000 is repaid.

Rulemaking Requirements

    The PBGC has determined that good cause exists to make this final 
rule effective immediately because the changes impose requirements only 
on the PBGC. See 5 U.S.C. Sec. 553(d)(3).

E.O. 12866 and the Regulatory Flexibility Act

    The Office of Management and Budget has determined that this final 
rule is a ``significant regulatory action'' under the criteria set 
forth in Executive Order 12866 and has completed its review of the 
final rule under that order.
    This rule affects only individuals. Therefore, the PBGC certifies 
that, if adopted, the amendment will not have a significant economic 
effect on a substantial number of small entities. 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, 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 amends parts 4022, 4041, 
and 4050 of 29 CFR chapter XL as follows:

PART 4022--BENEFITS PAYABLE IN TERMINATED SINGLE EMPLOYER PLANS

    1. 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.

    2. Section 4022.81 is revised to read as follows:


Sec. 4022.81  General rules.

    (a) Recoupment of benefit overpayments. If at any time the PBGC 
determines that net benefits paid with respect to any participant in a 
PBGC-trusteed plan exceed the total amount to which the participant 
(and any beneficiary) is entitled up to that time under title IV of 
ERISA, and the participant (or beneficiary) is, as of the termination 
date, entitled to receive future benefit payments, the PBGC will recoup 
the net overpayment in accordance with paragraph (c) of this section 
and Sec. 4022.82. Notwithstanding the previous sentence, the PBGC may, 
in its discretion, recover overpayments by methods other than recouping 
in accordance with the rules in this subpart. The PBGC will not 
normally do so unless net benefits paid after the termination date 
exceed those to which a participant (and any beneficiary) is entitled 
under the terms of the plan before any reductions under subpart D.
    (b) Reimbursement of benefit underpayments. If at any time the PBGC 
determines that net benefits paid with respect to a participant in a 
PBGC-trusteed plan are less than the amount to which the participant 
(and any beneficiary) is entitled up to that time under title IV of 
ERISA, the PBGC will reimburse the participant or beneficiary for the 
net underpayment in accordance with paragraph (c) of this section and 
Sec. 4022.83.
    (c) Amount to be recouped or reimbursed. In order to determine the 
amount to be recouped from, or reimbursed to, a participant (or 
beneficiary), the PBGC will calculate a monthly account balance for 
each month ending after the termination date. The PBGC will start with 
a balance of zero as of the end of the calendar month ending 
immediately prior to the termination date and determine the account 
balance as of the end of each month thereafter as follows:
    (1) Debit for overpayments. The PBGC will subtract from the account 
balance the amount of overpayments made in that month. Only 
overpayments made on or after the latest of the proposed termination 
date, the termination date, or, if no notice of intent to terminate was 
issued, the date on which proceedings to terminate the plan are 
instituted pursuant to section 4042 of ERISA will be included.
    (2) Credit for underpayments. The PBGC will add to the account 
balance the amount of underpayments made in that month. Only 
underpayments made on or after the termination date will be included.
    (3) Credit for interest on net underpayments. If at the end of a 
month there is a positive account balance (a net underpayment), the 
PBGC will add to the account balance interest thereon for that month 
using--
    (i) For months after May 1998, the applicable federal mid-term rate 
(as determined by the Secretary of the Treasury pursuant to section 
1274(d)(1)(C)(ii) of the Code) for that month (or, where the rate for a 
month is not available at the time the PBGC calculates the amount to be 
recouped or reimbursed, the most recent month for which the rate is 
available) based on monthly compounding; and
    (ii) For May 1998 and earlier months, the immediate annuity rate 
established for lump sum valuations as set forth in Table II of 
Appendix B of part 4044 of this chapter.
    (4) No interest on net overpayments. If at the end of a month, 
there is a negative account balance (a net overpayment), there will be 
no interest adjustment for that month.
    3. Section 4022.82 is revised to read as follows:


Sec. 4022.82  Method of recoupment.

    (a) Future benefit reduction. The PBGC will recoup net overpayments 
of benefits by reducing the amount of each future benefit payment to 
which the participant or any beneficiary is entitled by the fraction 
determined under paragraphs (a)(1) and (a)(2) of this section, except 
that benefit reduction will cease when the amount (without interest) of 
the net overpayment is recouped. Notwithstanding the preceding 
sentence, the PBGC may accept repayment ahead of the recoupment 
schedule.
    (1) Computation. The PBGC will determine the fractional multiplier 
by dividing the amount of the net overpayment by the present value of 
the benefit payable with respect to the participant under title IV of 
ERISA. The PBGC will determine the present value

[[Page 29355]]

of the benefit to which a participant or beneficiary is entitled under 
title IV of ERISA as of the termination date, using the PBGC interest 
rates and factors in effect on that date. The PBGC may, however, 
utilize a different date of determination if warranted by the facts and 
circumstances of a particular case.
    (2) Limitation on benefit reduction. Except as provided in 
paragraph (a)(1) of this section, the PBGC will reduce benefits with 
respect to a participant or beneficiary by no more than the greater 
of--
    (i) Ten percent per month; or
    (ii) The amount of benefit per month in excess of the maximum 
guaranteeable benefit payable under section 4022(b)(3)(B) of ERISA, 
determined without adjustment for age and benefit form.
    (3) PBGC notice to participant or beneficiary. Before effecting a 
benefit reduction pursuant to this paragraph, the PBGC will notify the 
participant or beneficiary in writing of the amount of the net 
overpayment and of the amount of the reduced benefit computed under 
this section.
    (4) Waiver of de minimis amounts. The PBGC may, in its discretion, 
decide not to recoup net overpayments that it determines to be de 
minimis.
    (5) Final installment. The PBGC will cease recoupment one month 
early if the amount remaining to be recouped in the final month is less 
than the amount of the monthly reduction.
    (b) Full repayment through recoupment. Recoupment under this 
section constitutes full repayment of the net overpayment.


Sec. 4022.83.  [Amended]

    4. Section 4022.83 is amended by removing the reference to 
Sec. 4022.81(d) and adding, in its place, a reference to 
Sec. 4022.81(c).

PART 4041--TERMINATION OF SINGLE-EMPLOYER PLANS

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

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


Sec. 4041.42  [Amended]

    6. Section 4041.42(d)(2) is amended by removing the reference to 
Sec. 4022.81(d) and adding, in its place, a reference to 
Sec. 4022.81(c)(3).

PART 4050--MISSING PARTICIPANTS

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

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


Sec. 4050.2  [Amended]

    8. The definition of ``Designated benefit interest rate'' in 
Section 4050.2, is amended by removing the reference to Sec. 4022.81(d) 
and adding, in its place, a reference to Sec. 4022.81(c).

    Issued in Washington, DC, this 27th day of May, 1998.
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. 98-14448 Filed 5-28-98; 8:45 am]
BILLING CODE 7708-01-P