[Federal Register Volume 63, Number 136 (Thursday, July 16, 1998)]
[Rules and Regulations]
[Pages 38305-38307]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-18995]


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PENSION BENEFIT GUARANTY CORPORATION

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

RIN 1212-AA88


Valuation and Payment of Lump Sum Benefits

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Final rule.

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SUMMARY: The Pension Benefit Guaranty Corporation is amending 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 amendments do not affect lump sum benefits paid 
by ongoing plans.

DATES: The amendments to 29 CFR 4022.7, 4044.52(b), and 4044.54 are 
effective July 16, 1998. (However, except to the extent they affect 
determinations under Sec. 4022.7, the amendments to 29 CFR 4044.52(b) 
and 4044.54 apply only to a plan with a termination date on or after 
August 17, 1998.) The final rule is otherwise effective August 17, 
1998.

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.
    On April 30, 1998, the PBGC proposed to amend its regulations to 
increase various $3,500 thresholds to $5,000 and to make other changes 
relating to lump sum payments. The PBGC received no comments in 
response to the proposed rule and is issuing the final rule without 
change, as follows:
     Under the final rule, 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. (See Sec. 4022.7 and, to the extent they affect 
determinations under Sec. 4022.7, Secs. 4044.52(b), and 4044.54.) There 
are special 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: This amendment applies to any initial determination 
issued on or after July 16, 1998. For any initial determination issued 
before July 16, 1998, 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 final rule, the lump sum threshold under 
Secs. 4044.52(b) and 4044.54, 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: This amendment applies to any plan with a 
termination date on or after August 17, 1998.
     The reference to the lump sum threshold in the PBGC's 
Model Participant Notice (Part 4011, Appendix A) is changed from $3,500 
to $5,000.
    Applicability: This amendment applies to any Participant Notice 
issued on or after August 17, 1998. 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 applies to missing participants for 
whom the deemed distribution date is on or after August 17, 1998.
     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 
(see Sec. 4041A.43(b)(1)).
    Applicability: This amendment applies to any distribution made on 
or after August 17, 1998.
     In the case of participant deaths after the termination 
date, the final rule 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 (Sec. 4022.7(b)(1)(iii)).
    Applicability: This amendment applies to any lump sum payment made 
on or after July 16, 1998.
     The final rule 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 (see 
Sec. 4022.7(b)(1)(iv)).
    Applicability: This amendment applies to any payment made on or 
after July 16, 1998.
    Finally, the final rule (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).

Rulemaking Requirements

    The PBGC has determined that good cause exists to make certain 
amendments (the amendments to 29 CFR 4022.7 and, to the extent they 
affect determinations under 29 CFR 4022.7, the amendments to 
Secs. 4044.52(b) and 4044.54) effective and applicable immediately. 
These amendments impose requirements only on the PBGC. A delayed 
effective date is unnecessary because no person other than the PBGC 
needs time to prepare. See 5 U.S.C. 553(d)(3).

E.O. 12866 and the Regulatory Flexibility Act

    The PBGC has determined that this final rule is not a ``significant 
regulatory action'' under the criteria set forth in Executive Order 
12866. The PBGC certifies that the amendments will not have a 
significant economic impact on a substantial number of small entities. 
The amendments will affect only de minimis benefits and will have an 
immaterial effect on liabilities

[[Page 38306]]

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 Parts 4022 and 4041A

    Pension insurance, Pensions, Reporting and recordkeeping 
requirements.

29 CFR Part 4044

    Pension insurance, Pensions.

29 CFR Parts 4011, 4050 and 4281

    Pensions, Reporting and recordkeeping requirements.
    For the reasons set forth above, the PBGC is amending 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:

    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, July 16, 
1998).
* * * * *
    (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.

    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 August 17, 
1998''; 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

[[Page 38307]]

``$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 valuation 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 ``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, DC, this 10th day of July, 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.
Terrence Deneen,
Acting Secretary, Board of Directors, Pension Benefit Guaranty 
Corporation.
[FR Doc. 98-18995 Filed 7-15-98; 8:45 am]
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