[Federal Register Volume 65, Number 248 (Tuesday, December 26, 2000)]
[Proposed Rules]
[Pages 81456-81465]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-32706]


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PENSION BENEFIT GUARANTY CORPORATION

29 CFR Parts 4022, 4022B, 4044

RIN 1212-AA82


PBGC Benefit Payments

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Proposed rule.

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SUMMARY: The PBGC proposes to amend its regulations to make various 
changes in how it pays benefits, including giving participants more 
choices of annuity benefit forms, clarifying what it means to be able 
to ``retire'' under plan provisions for certain purposes under Title IV 
of ERISA, and adding rules on who will get certain payments the PBGC 
owes to a participant at the time of death.

DATES: Comments must be received on or before February 26, 2001.

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 public inspection at the PBGC's Communications 
and Public Affairs Department, Suite 240.

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. (For TTY/TDD users, call the Federal relay service toll-free at 
1-800-877-8339 and ask to be connected to 202-326-4024.)

SUPPLEMENTARY INFORMATION: The PBGC proposes to amend its regulations 
to address several issues under its regulations on Benefits Payable in 
Terminated Single-Employer Plans (part 4022), Aggregate Limits on 
Guaranteed Benefits (part 4022B), and Allocation of Assets in Single-
Employer Plans (part 4044).

Form of Payment by PBGC

    The PBGC pays benefits to participants when an underfunded single-
employer defined benefit plan terminates under Title IV of ERISA and 
the PBGC becomes trustee. If a participant's benefit is already in pay 
status, the PBGC continues to pay the benefit (subject to the 
limitations in Title IV of ERISA) in the form being paid. But for those 
participants whose benefits are not yet in pay status, the PBGC pays 
non-de minimis benefits (i.e., benefits with a lump-sum value exceeding 
$5,000) in the form the plan would have paid in the absence of an 
election, typically a joint-and-50% spousal survivor annuity (for 
married participants) or a straight-life annuity (for unmarried 
participants and married participants who, with spousal consent, waive 
the joint-and-survivor annuity). If a married participant dies before 
starting to receive benefits from the PBGC, the PBGC pays a qualified 
pre-retirement survivor annuity to the participant's spouse. The PBGC 
does not pay benefits in lump-sum form except in limited circumstances 
(primarily where it cashes out a de minimis benefit).
    Many participants would welcome the PBGC's offering them choices of 
other annuity benefit forms and allowing them to designate non-spouse 
beneficiaries. With today's technology, it is now feasible for the PBGC 
to offer a menu of optional forms.

New Benefit Options

    The PBGC proposes to revise its benefit payment regulation (part 
4022) to provide participants (and beneficiaries) whose benefits are 
not yet in pay status with more choices of annuity benefit forms. Under 
new Sec. 4022.8, the PBGC would be able to offer the following optional 
annuity forms: straight-life annuity, 5-year certain-and-continuous 
annuity, 10-year certain-and-continuous annuity, 15-year certain-and-
continuous annuity, joint-and-50%-survivor annuity, joint-and-75%-
survivor annuity, joint-and-100%-survivor annuity, and joint-and-50%-
survivor-``pop-up'' annuity (i.e., an annuity form under which the 
participant's benefit ``pops up'' to the unreduced level if the 
beneficiary dies before the participant). The PBGC currently intends to 
offer all of the specified forms in all plans, regardless of whether a 
particular form is available under a particular plan. The PBGC would 
have discretion under the regulation to make available other annuity 
options. The PBGC anticipates that it would exercise this discretion 
only with respect to all plans or a category of plans, not just with 
respect to a particular plan.
    A participant who is married on the annuity starting date would 
need spousal consent to elect any of the optional forms. Either a 
married participant (with spousal consent) or an unmarried participant 
could designate a non-spouse beneficiary to receive survivor benefits 
under any optional joint-life or other annuity form under which 
payments may continue after the participant's death (e.g., a 5-year 
certain-and-continuous annuity). In the case of a joint-life annuity, a 
participant could designate only a natural person (i.e., a living 
individual, not an organization or other entity) as a beneficiary.
    If a participant designated a much younger non-spouse beneficiary 
to receive survivor benefits under a joint-and-survivor annuity, the 
value of the survivor benefit might be so large relative to the value 
of the entire benefit that the survivor benefit would not be an 
``incidental death benefit'' under Treas. Reg. Sec. 1.401.1(b)(1)(i). 
If so, the PBGC would not pay the form elected, but would generally 
instead offer a modified version of that form (e.g., offer a 46% 
survivor annuity instead of the 50% survivor annuity elected) to ensure 
that the death benefit would be an ``incidental death benefit.''

Determination of Benefit Amounts

    The PBGC would determine the amount of the benefit in an optional 
form elected by a participant by first determining the annuity benefit 
that it would pay the participant under Title IV of ERISA in the 
following form:

     If the participant (regardless of marital status) 
elected to receive a joint-and-survivor optional form from the PBGC, 
the PBGC would start with the joint-and-survivor form that the plan 
would have paid to a married participant in the absence of an 
election under the plan. (The PBGC would base this starting benefit 
on the ages of the participant and of the participant's designated 
beneficiary at the annuity starting date.)
     If the participant (regardless of marital status) 
elected to receive a single-life optional form from the PBGC, the 
PBGC would start with the single-life form that the plan would have 
paid to an unmarried participant in the absence of an election under 
the plan. (For this purpose, a certain-and-continuous annuity is a 
single-life form.)

The PBGC would convert this starting benefit to the optional annuity 
form the participant or beneficiary chose, using PBGC factors based on: 
(1) the GAM-83 unisex mortality table currently specified for minimum 
lump sums

[[Page 81457]]

under IRC section 417(e)(3) and ERISA section 205 (see Rev. Rul. 95-6) 
(regardless of whether the mortality assumption is later changed under 
IRC section 417(e)(3) and ERISA section 205); and (2) a six percent 
interest rate.
    Because the starting benefit would depend on whether the 
participant chose a joint-and-survivor optional form or a single-life 
optional form--rather than on whether the participant is married or 
unmarried--an unmarried participant who elected to receive a joint-and-
survivor optional form would receive the same subsidy as a married 
participant who received a joint-and-survivor form. (This differs from 
the situation under the current regulation, where an unmarried 
participant does not receive any subsidy included in the form the plan 
would have paid, in the absence of an election, to a married 
participant.)

Beneficiaries

    For simplicity, this discussion refers to benefits the PBGC would 
pay to participants. It applies equally to benefits the PBGC would pay 
to beneficiaries of participants who die before entering pay status or 
to alternate payees with a separate interest under a qualified domestic 
relations order, except that such beneficiaries or alternate payees 
could elect only an optional single-life annuity form.

Applicability

    The PBGC would make the optional benefit forms available for 
benefits that are not yet in pay status as of the effective date of the 
amendment.

``Earliest PBGC Retirement Date''

    The earliest date a participant could ``retire'' under a plan can 
have several consequences under Title IV of ERISA:

     It can affect whether the participant's benefit is in 
priority category 3 in the asset allocation scheme under ERISA 
section 4044. (Priority category 3 gives priority to, among others, 
participants who could have ``retired'' three years before the 
plan's termination date but did not do so). See Application to 
Priority Category 3 Benefits.
     It governs when the participant is first eligible to be 
placed in pay status by the PBGC. See Application to Time of 
Payment.
     It is used as part of the methodology for determining 
the ``expected retirement age'' assumption the PBGC uses to value a 
participant's benefit. See Application to Expected Retirement Age 
Assumption.

The PBGC's determination of the earliest date a participant could 
``retire'' under a plan can affect not only the participant for whom 
the determination is made, but other participants, the employer, and 
premium payers. Whether an earlier or later date favors a particular 
interest depends on the facts and circumstances of the plan 
termination.
    The PBGC has been making determinations about the earliest date a 
participant could ``retire'' under a plan on a case-by-case basis. In 
many cases, the issue is straightforward because the plan provides for 
early or normal retirement starting at a point (e.g., early retirement 
at age 55) that clearly would qualify as retirement. However, because 
plan designs have been evolving in recent years, the PBGC anticipates 
that case-by-case decision-making in this area will become increasingly 
difficult.
    A growing number of plans have been offering consensual lump sums 
upon separation regardless of age (e.g., at age 23) and are therefore 
required to offer a qualified joint-and-survivor annuity commencing 
immediately. See Treas. Reg. Sec. 1.417(e)-1(b). Some plans do not use 
the word ``retirement,'' even to describe a separation that commonly 
would be viewed as a retirement, while other plans specify ``normal 
retirement age'' as the age reached after five years of service.
    The PBGC does not believe it would be appropriate to determine the 
earliest retirement date for PBGC purposes simply by looking at the 
availability of a consensual lump sum or immediate annuity or at plan 
labels. Doing so would treat any separation that gives rise to the 
availability of a consensual lump sum or immediate annuity as if it 
were a retirement. Among other things, this would give priority 
category 3 status to many participants who are not close to retirement, 
thereby significantly diluting priority category 3 protection for those 
persons Congress intended to protect.
    On the other hand, where a participant is old enough or has enough 
service, the PBGC believes that treating a separation as a retirement 
would be consistent with the statutory scheme. Thus, it generally would 
be appropriate in a plan, such as a cash balance plan, that pays 
benefits upon any separation but never treats a separation before 
normal retirement age as a retirement, to treat some separations before 
normal retirement age as retirements.
    To provide guidance and to reduce the need for case-by-case 
decision-making, the PBGC proposes to add rules on what it means to 
retire under plan provisions for purposes of the termination insurance 
program.

Definition

    The proposed regulation introduces the concept of the Earliest PBGC 
Retirement Date. The Earliest PBGC Retirement Date for a participant 
would be the earliest date on which the participant could ``retire'' 
for certain purposes under Title IV of ERISA. It would distinguish 
between a participant who could receive an immediate annuity simply 
because he or she separated from service and a participant whose 
benefit is payable on account of retirement.
    To help explain the Earliest PBGC Retirement Date, this preamble 
uses ``earliest annuity date'' to refer to the earliest date under plan 
provisions on which the participant could separate from service with 
the right to receive an immediate annuity, including where, as 
discussed above, an immediate annuity option is required because the 
plan provides a consensual lump sum option.
    If the ``earliest annuity date'' is on or after the date the 
participant reaches age 55, the Earliest PBGC Retirement Date would be 
the ``earliest annuity date.'' For example, if the ``earliest annuity 
date'' is age 57, the Earliest PBGC Retirement Date would be the date 
the participant reaches age 57. However, if the ``earliest annuity 
date'' is before the date the participant reaches age 55, the Earliest 
PBGC Retirement Date would be the date the participant reaches age 55, 
unless the PBGC determines, under a facts and circumstances test, that 
the participant could retire on an earlier date. (The PBGC chose age 55 
both because it is a common early retirement age for plans and because 
separation at age 55 or later is frequently viewed as retirement.)
    Under the facts and circumstances test, the PBGC would consider 
whether the participant could retire for purposes of ERISA section 
4044(a)(3)(B) (which gives priority in the asset allocation upon plan 
termination to the benefits of persons who retired or could have 
retired three years before the plan's termination date). In making this 
determination, the PBGC would look at plan provisions, the age at which 
employees customarily retire (under the particular plan or in the 
particular company or industry, as appropriate), and all other relevant 
considerations. A participant's ability to receive an immediate annuity 
upon separation at a particular age or a plan's reference to a 
separation from service at a particular age as a ``retirement'' would 
not be controlling. However, in no circumstances could the Earliest 
PBGC Retirement Date determined under the facts and circumstances be 
earlier than the earliest annuity date.

Examples

     A plan's normal retirement age is age 65. The plan does 
not offer a consensual lump sum or an immediate annuity upon

[[Page 81458]]

separation before normal retirement age. The Earliest PBGC 
Retirement Date for a participant would be the date the participant 
reaches age 65.
     A plan's normal retirement age is age 65. The plan 
specifies an early retirement age of 60 but offers an immediate 
annuity upon separation regardless of age. The Earliest PBGC 
Retirement Date for a 35-year old participant would be the date the 
participant reaches age 55, unless the PBGC determines under the 
facts and circumstances that the participant could ``retire'' for 
purposes of ERISA section 4044(a)(3)(B) on an earlier date, in which 
case the earliest PBGC retirement age would be that earlier date.
     A plan's normal retirement age is age 60. The plan 
specifies an early retirement age of 50 but offers an immediate 
annuity upon separation regardless of age. The Earliest PBGC 
Retirement Date for a 35-year-old participant would be the date the 
participant reaches age 55, unless the PBGC determines under the 
facts and circumstances that the participant could retire for 
purposes of ERISA section 4044(a)(3)(B) on an earlier date, in which 
case the Earliest PBGC Retirement Date would be that earlier date. 
For example, if it were common for participants to retire at age 50, 
the PBGC could determine that the Earliest PBGC Retirement Date for 
the participant would be the date the participant reaches age 50.
     A plan's normal retirement age is age 65. The plan 
offers an immediate annuity upon separation regardless of age and a 
fully-subsidized annuity upon separation with 30 years of service. 
The Earliest PBGC Retirement Date for a 35-year-old participant 
would be the date the participant reaches age 55, unless the PBGC 
determines under the facts and circumstances that the participant 
could retire for purposes of ERISA section 4044(a)(3)(B) on an 
earlier date, in which case the Earliest PBGC Retirement Date would 
be that earlier date. In this example, the PBGC generally would 
determine under the facts and circumstances that a participant could 
retire for purposes of ERISA section 4044(a)(3)(B) on the date the 
participant becomes eligible for this ``30-and-out'' benefit, 
regardless of the participant's age (e.g., the date a 48-year-old 
participant who started work at age 18 completes 30 years of 
service). If so, that date would be the participant's Earliest PBGC 
Retirement Date (if it is before the date the participant reaches 
age 55).

Application to Priority Category 3 Benefits

    The PBGC would use the Earliest PBGC Retirement Date in determining 
what benefits are in priority category 3 of ERISA section 4044. Under 
that statutory provision, plan assets available to pay benefits under a 
terminated plan are allocated to various priority categories. ERISA 
provides that the third priority category, which comes ahead of most 
guaranteed benefits, consists of: (1) Annuity benefits that were in pay 
status before the beginning of the 3-year period ending on the 
termination date, and (2) annuity benefits that would have been in pay 
status as of the beginning of the three-year period if the participant 
had ``retired'' before the beginning of that 3-year period.
    The existing asset allocation regulation (part 4044) describes the 
second eligibility test for priority category 3 protection under ERISA 
as ``annuity benefits that could have been in pay status for 
participants who were eligible to receive annuity benefits'' before the 
beginning of the 3-year period. The PBGC's longstanding interpretation 
of this language is that it applies only to those annuity benefits that 
could have been in pay status before the beginning of the 3-year period 
because the participant could have ``retired'' within the usual meaning 
of that word. The PBGC proposes to use the Earliest PBGC Retirement 
Date for purposes of determining whether a participant could have 
retired before the beginning of the 3-year period and thus meets the 
second eligibility test for priority category 3 protection.
    Applicability: The new definition would apply to benefits in plans 
with termination dates on or after the effective date of the amendment. 
The PBGC will continue to apply its existing facts and circumstances 
test to benefits in plans with termination dates before the effective 
date of the amendment.

Application to Time of Payment

    Another area where the PBGC proposes to use the Earliest PBGC 
Retirement Date would be to determine when participants would first be 
able to receive retirement benefits in annuity form from the PBGC. 
Under new Sec. 4022.10, the PBGC would make these benefits available 
(subject to the PBGC's rules for starting payment of benefits) to a 
participant starting on his or her Earliest PBGC Retirement Date or, if 
later, on the plan's termination date.
    Applicability: The new rules would apply to participants who are 
not yet in pay status as of the effective date of the amendment.

Application to Expected Retirement Age Assumption

    Finally, the PBGC proposes to use the Earliest PBGC Retirement Date 
in determining a participant's ``expected retirement age'' assumption 
under the PBGC's valuation regulation (Secs. 4044.55-.57). Under the 
current regulation, the expected retirement age assumption and, 
therefore, the value of a participant's benefits for purposes of ERISA 
section 4044 can depend on the ``earliest age at which the participant 
can retire under the terms of the plan'' (see definition of ``earliest 
retirement age at valuation date'' in 29 CFR 4044.2). The PBGC proposes 
to use the participant's age at his or her Earliest PBGC Retirement 
Date as the age at which the participant can retire for this purpose.
    Applicability: The new rules would apply to benefits in plans with 
termination dates on or after the effective date of the amendment. The 
PBGC will continue to apply its existing facts and circumstances test 
to benefits in plans with termination dates before the effective date 
of the amendment.

Certain Payments Owed Upon Death

    When a participant dies, the PBGC occasionally may have paid too 
much of the benefit or too little of the benefit that was due the 
participant during the participant's life. If the PBGC paid too much, 
there is an overpayment owed to the PBGC at the time of the 
participant's death. If the PBGC paid too little, there is an 
underpayment owed to the participant at the time of the participant's 
death. In either case, the PBGC needs to determine not only the amount 
of the overpayment or underpayment, but the person(s) it will seek to 
collect from or will pay.
    For simplicity, this discussion refers to benefits the PBGC owes to 
a participant at the time of the participant's death. However, it 
applies equally to benefits the PBGC owes to any other person at the 
time of that person's death, such as a beneficiary of a deceased 
participant or an alternate payee.

Where There Is a Surviving Designated Beneficiary To Receive Future 
Annuity Payments

    The proposed amendment clarifies that, under the PBGC's recoupment 
and reimbursement regulation (subpart E of part 4022), the PBGC will 
recoup any overpayment to the participant from the person who is 
receiving survivor benefits under any joint-and-survivor or other 
annuity form under which payments may continue after the participant's 
death. It similarly clarifies that the PBGC will pay any underpayment 
due the participant to that same person.

Where There Is No Surviving Designated Beneficiary To Receive 
Future Annuity Payments

    Under the PBGC's current policy, if the PBGC owes benefits to a 
participant at the time of the participant's death and the benefit is 
not in the form of a joint-and-survivor or other annuity under which 
payments may continue after the participant's death or, although the 
benefit is in such a form, the person

[[Page 81459]]

designated to receive survivor benefits predeceased the participant, 
the PBGC pays the person(s) designated with the PBGC or by or under the 
plan to receive benefits owed to a participant at the time of the 
participant's death. If there is no such designation, the PBGC 
generally pays those benefits to the participant's estate.
    Issuing checks to estates has created difficulties for families of 
deceased participants and has complicated the PBGC's efforts to 
distribute benefits owed to a deceased participant. The PBGC has found 
that, in most cases, the participant has no open estate, usually 
because no estate was probated but occasionally because the estate was 
closed by the time the PBGC learns of the death and determines the 
amount of the underpayment.
    To address these difficulties, the PBGC is proposing to add new 
rules to its benefit payment regulation (Part 4022) to govern who will 
receive benefits owed to a deceased participant where the benefit is 
not in the form of a joint-and-survivor or other annuity under which 
payments may continue after the participant's death or, although the 
benefit is in such a form, the person the participant designated as a 
beneficiary to receive survivor benefits predeceased the participant. 
The new rules would apply to participant deaths on or after the date 
the PBGC becomes trustee of the participant's plan. They would also 
apply to benefits owed to participants who die before the trusteeship 
date if the plan administrator has not yet paid those benefits.
    Under new Subpart F, the PBGC would pay those benefits to the 
person(s) the participant designates with the PBGC to receive those 
benefits or--if the participant dies within 180 days after the PBGC 
becomes trustee of the participant's plan and has not made a 
designation with the PBGC--the person(s) designated by or under the 
plan. In all other cases, the PBGC would pay those benefits to the 
person(s) surviving the participant in the following order: spouse, 
children, parents, estate, and next of kin.
    The proposed order of payment generally follows the order of 
payment for death benefits used by the Thrift Savings Plan (TSP), the 
retirement savings plan for federal employees (see 5 USC 8433(e) and 
8424(d) and 5 CFR part 1651). However, the PBGC would not be adopting 
the TSP rules; rather it would be establishing its own order-of-payment 
rules and therefore would be making its own interpretations of those 
rules. The PBGC notes that the proposed order of payment generally 
conforms to state intestate law and believes, based on its experience, 
that it is also generally consistent with typical participant 
designations under a plan or will. The PBGC also expects that the 
benefit amounts that would be subject to the proposed order of payment 
will in most cases be relatively small.
    The PBGC intends to provide a form that a participant could use to 
designate the person(s) to receive benefits owed to the participant at 
the time of the participant's death. A participant would be able to 
designate with the PBGC at any time on or after the date of 
trusteeship. The PBGC intends to provide the form as soon as 
practicable after trusteeship and make information about it available 
in newsletters to participants.

Certain-and-Continuous and Similar Benefits

    The proposed amendment also addresses situations involving annuity 
forms that promise that, regardless of a participant's death, there 
will be payments for a certain period of time (e.g., a certain-and-
continuous annuity) or until a certain amount is paid (e.g., a cash-
refund annuity or installment-refund annuity). If a person dies before 
receiving all required payments and there is no surviving beneficiary 
designated to receive those payments, the PBGC would follow the same 
order-of-payment rules as for a deceased participant to whom the PBGC 
owes benefits at the time of death.
    Under its existing regulation, the PBGC may pay any annuity 
benefits payable to an estate in a single installment if the estate so 
elects; the PBGC discounts the annuity payments using the immediate 
interest rate it uses to calculate lump sums. The PBGC proposes instead 
to use the federal mid-term rate. This change is consistent with the 
PBGC's change from the immediate interest rate to the federal mid-term 
rate for crediting interest for future periods on net underpayments of 
benefits under its recoupment and reimbursement regulation (63 Fed. 
Reg. 29,353 (May 29, 1998)).

Applicability

    The new rules would apply in the case of any death on or after the 
effective date of the amendment. For deaths before the effective date 
of the amendment, the PBGC would continue to follow its current rules.

Entitlement Conditions Met on Termination Date

    Under the existing benefit payment regulation (part 4022), 
entitlement to benefits often depends on whether certain conditions 
have been met before the plan's termination date. The PBGC proposes to 
amend the regulation to provide for entitlement also where plan 
conditions relating to age, length of service, disability, or death are 
met on the plan's termination date. Under the existing regulation, the 
PBGC may find entitlement in such circumstances by exercising its 
discretion under Sec. 4022.4(b) and has done so in a number of cases. 
Because there is virtually no risk of abuse resulting from manipulation 
of these events, the PBGC is amending the regulation to provide for 
entitlement in all such cases.
    The PBGC also proposes to make several related changes so that 
other determinations affecting guaranteed benefits take into account 
conditions through and including a plan's termination date: (1) An 
annuity payable under the terms of the plan on account of the total and 
permanent disability of a participant will be considered to be a 
``pension benefit'' (and thus eligible to be guaranteed) in the case of 
a disability that began on or before the plan's termination date; (2) 
in applying the ``accrued-at-normal'' limitation (i.e., the limitation 
on guaranteed benefits to the dollar amount payable as a straight-life 
annuity commencing at normal retirement age), the PBGC will take into 
account a participant's credited service through and including the 
plan's termination date; and (3) the accrued-at-normal limitation will 
not apply to a survivor benefit payable as an annuity on account of the 
death of a participant that occurred before the participant retired and 
on or before the plan's termination date.

Applicability

    The new rules would apply to benefits in any plan with a 
termination date on or after the effective date of the amendment. For 
benefits in plans with termination dates before the effective date of 
the amendment, the PBGC would continue to follow its current rules.

Aggregate Limits on Guaranteed Benefits

    The PBGC proposes to amend its regulation on Aggregate Limits on 
Guaranteed Benefits (part 4022B). Under the current regulation, the 
PBGC aggregates benefits when applying the limitation on guaranteed 
benefits in Sec. 4022.22(b) in three ways: (1) It aggregates a person's 
benefits under two or more plans, (2) it aggregates a person's benefits 
with respect to two or more participants, and (3) it aggregates 
benefits with respect to one participant

[[Page 81460]]

when more than one person is entitled to receive a benefit with respect 
to that participant.
    Under this amendment the PBGC would not aggregate benefits with 
respect to two or more participants (the second type of aggregation in 
the previous paragraph) when applying this limitation. For example, 
suppose a participant is entitled to a $2,500 monthly benefit in her 
own right and another $1,000 survivor benefit with respect to her 
deceased husband who was covered under the same plan (or another PBGC-
trusteed plan). Assume for simplicity the maximum guaranteeable monthly 
benefit is $3,000. Under the current rule, the participant's total 
benefit would be limited to a monthly benefit of $3,000. Under the 
amendment, the participant would be entitled to the full $3,500 
benefit.
    (Under Sec. 4022.22 of this chapter, the PBGC will continue to 
aggregate benefits with respect to one participant when more than one 
person is entitled to receive a benefit with respect to that 
participant.)

Applicability

    The new rules would apply to benefit determinations that become 
effective on or after the effective date of the final rule.

Miscellaneous

    The amendment also makes conforming, clarifying, and editorial 
changes to the existing regulations. For example, the amendment 
clarifies that:

     For purposes of phasing in the guarantee of benefit 
increases, each complete 12-month period ending on or before the 
termination date during which such benefit increase was in effect 
constitutes a year. The amendment makes similar conforming changes 
to the rules governing what benefits are in priority category 3.
     In determining whether it may pay a benefit in a lump 
sum, the PBGC may apply the $5,000 threshold to an estimated benefit 
and, in certain circumstances, to a portion of a benefit that 
remains to be paid.

Paperwork Reduction Act

    The PBGC is submitting the information requirements contained in 
this proposed rule to the Office of Management and Budget for review 
and approval under the Paperwork Reduction Act of 1995. Persons may 
obtain copies of the PBGC's request free of charge by contacting the 
PBGC Communications and Public Affairs Department, suite 240, 1200 K 
Street, NW., Washington, DC 20005, 202-326-4020.
    The proposed rule makes clear that the PBGC is not required to 
accept any application for benefits not made in accordance with its 
forms and instructions. The existing benefit application forms and 
instructions were approved through November 30, 2002, under control 
number 1212-0055 (Locating and Paying Participants). The PBGC has made 
changes (related to the proposed rule) in the existing forms and 
instructions.
    The PBGC needs the information required to be submitted to enable 
it to pay benefits to participants and beneficiaries in plans covered 
by the PBGC insurance program.
    The PBGC estimates that 71,250 benefit application or information 
forms will be filed annually by individuals entitled to benefits from 
the PBGC and that the associated burden is 46,250 hours (an average of 
slightly less than 40 minutes per individual) and $24,225. The PBGC 
further estimates that 5,500 individuals annually will provide the PBGC 
with identifying information as part of an initial contact under the 
PBGC's Pension Search program and that the associated burden is 1,500 
hours (an average of about 15 minutes per individual) and $1,020. Thus, 
the total estimated annual burden associated with this collection of 
information is 47,750 hours and $25,245.
    Comments on the paperwork provisions under this proposed rule 
should be mailed to the Office of Information and Regulatory Affairs, 
Office of Management and Budget, Attention: Desk Officer for the 
Pension Benefit Guaranty Corporation, Washington, DC 20503. Comments 
may address (among other things)--

     Whether the proposed collection of information is 
needed for the proper performance of the PBGC's functions and will 
have practical utility;
     The accuracy of the PBGC's estimate of the burden of 
the proposed collection of information, including the validity of 
the methodology and assumptions used;
     Enhancement of the quality, utility, and clarity of the 
information to be collected; and
     Minimizing the burden of the collection of information 
on those who are to respond, including through the use of 
appropriate automated, electronic, mechanical, or other 
technological collection techniques or other forms of information 
technology, e.g., permitting electronic submission of responses.

Compliance With Rulemaking 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 proposed rule would not have a significant 
economic impact on a substantial number of small entities. Virtually 
all of the changes in the proposed rule would affect only the PBGC and 
persons who receive benefits from the PBGC. The only change that could 
affect small entities is the proposed application of the Earliest PBGC 
Retirement Date to the ``expected retirement age'' assumption under the 
PBGC's valuation regulation. Although this change potentially could 
affect employer liability, in most cases, the results of a valuation 
would match the results under the PBGC's current regulation. In those 
cases where the valuation results would not match, the differences 
generally would not be significant. Thus, the change would not have a 
significant economic impact on a substantial number of entities of any 
size. Accordingly, sections 603 and 604 of the Regulatory Flexibility 
Act do not apply.

List of Subjects in 29 CFR Parts 4022, 4022B, and 4044

    Pension insurance, Pensions.
    For the reasons set forth above, the PBGC proposes to amend parts 
4022, 4022B, and 4044 of 29 CFR chapter LX 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.


Sec. 4022.4  [Amended]

    2. Amend paragraph (a)(3) of Sec. 4022.4 by adding the words ``(or, 
in the case of a requirement that a participant attain a particular 
age, earn a particular amount of service, become disabled, or die, on 
or before the termination date)'' after the words ``Except for a 
benefit described in paragraph (a)(2) of this section, before the 
termination date'', and the words ``(or, in the case of a requirement 
that a participant attain a particular age, earn a particular amount of 
service, become disabled, or die, prior to or on such date)'' after the 
words ``the right to receive the benefit prior to such date''.


Sec. 4022.6  [Amended]

    3. Amend paragraph (a) of Sec. 4022.6 by adding the words ``on or'' 
before the words ``before the termination date''.


Sec. 4022.7  [Amended]

    4. Amend Sec. 4022.7 by revising paragraphs (b)(1)(i), (b)(1)(ii), 
(b)(1)(iv), and (d), and republishing the introductory text of 
paragraph (b)(1) to read as follows:

[[Page 81461]]

    (b)(1) Payment in lump sum. Notwithstanding paragraph (a) of this 
section:
    (i) In general. If the lump sum value of a benefit (or of an 
estimated benefit) payable by the PBGC is $5,000 or less and the 
benefit is not yet in pay status, the benefit (or estimated benefit) 
may be paid in a lump sum.
    (ii) Annuity option. If the PBGC would otherwise make a lump sum 
payment in accordance with paragraphs (b)(1)(i) and the monthly benefit 
(or the estimated monthly benefit) is equal to or greater than $25 (at 
normal retirement age and in the normal form for an unmarried 
participant), the PBGC will provide 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 (or of an estimated 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 (or estimated benefit) may be paid in a lump sum if so 
elected by the surviving spouse.
    (iv) Payments to estates. The PBGC may pay any annuity payments 
payable to an estate in a single installment without regard to the 
threshold in paragraph (b)(1)(i) of this section if so elected by the 
estate. The PBGC will discount the annuity payments using the federal 
mid-term rate (as determined by the Secretary of the Treasury pursuant 
to section 1274(d)(1)(C)(ii) of the Code) applicable for the month the 
participant died based on monthly compounding.
* * * * *
    (d) Determination of lump sum amount. For purposes of paragraph 
(b)(1) of this section--
    (1) Benefits disregarded. In determining whether the lump-sum value 
of a benefit is $5,000 or less, the PBGC may disregard the value of any 
benefits the plan or the PBGC previously paid in lump-sum form or the 
plan paid by purchasing an annuity contract, the value of any benefits 
returned under paragraph (b)(2) of this section, and the value of any 
benefits the PBGC has not yet determined under section 4022(c) of 
ERISA.
    (2) Actuarial assumptions. The PBGC will calculate the lump sum 
value of a benefit by valuing the monthly annuity benefits payable in 
the form determined under Sec. 4044.51(a) of this chapter and 
commencing at the time determined under Sec. 4044.51(b) of this 
chapter. The actuarial assumptions used will be those described in 
Sec. 4044.52, except that--
    (i) Loading for expenses. There will be no adjustment to reflect 
the loading for expenses;
    (ii) Mortality rates and interest assumptions. The mortality rates 
in appendix A to this part and the interest assumptions in appendix B 
to this part will apply; and
    (iii) Date for determining lump sum value. The date as of which a 
lump sum value is calculated is the termination date, except that in 
the case of a subsequent insufficiency it is the date described in 
section 4062(b)(1)(B) of ERISA.
    5. Add Sec. 4022.8 to read as follows:


Sec. 4022.8  Form of payment.

    (a) In general. This section applies where benefits are not already 
in pay status. Except as provided in Sec. 4022.7 (relating to the 
payment of lump sums), the PBGC will pay benefits--
    (1) In the automatic PBGC form described in paragraph (b) of this 
section; or
    (2) If an optional PBGC form described in paragraph (c) of this 
section is elected, in that optional form.
    (b) Automatic PBGC form.
    (1) Married participants. The automatic PBGC form with respect to a 
participant who is married at the time the benefit enters pay status is 
the form a married participant would be entitled to receive from the 
plan in the absence of an election.
    (2) Unmarried participants. The automatic PBGC form with respect to 
a participant who is unmarried at the time the benefit enters pay 
status is the form an unmarried person would be entitled to receive 
from the plan in the absence of an election.
    (3) QPSA beneficiaries. The automatic PBGC form with respect to the 
spouse of a married participant in a plan with a termination date on or 
after August 23, 1984, who dies before beginning to receive benefits 
from the PBGC is the qualified preretirement survivor annuity such a 
spouse would be entitled to receive from the plan in the absence of an 
election. The PBGC will not charge the participant or beneficiary for 
this survivor benefit coverage for the time period beginning on the 
plan's termination date (regardless of whether the plan would have 
charged).
    (4) Alternate payees. The automatic PBGC form with respect to an 
alternate payee with a separate interest under a qualified domestic 
relations order is the form an unmarried participant would be entitled 
to receive from the plan in the absence of an election.
    (c) PBGC optional forms.
    (1) Participant and beneficiary elections. A participant may elect 
any optional form described in paragraph (c)(4) or (c)(5) of this 
section. A beneficiary of a participant who dies before entering pay 
status or an alternate payee with a separate interest under a qualified 
domestic relations order may elect any optional form described in 
paragraph (c)(4) of this section. Once a benefit is in pay status, the 
benefit form cannot be changed.
    (2) Permitted designees. A participant or beneficiary, whether 
married or unmarried, who elects an optional form with a survivor 
feature (e.g., a 5-year certain-and-continuous annuity or a joint-and-
50%-survivor annuity) may designate a non-spouse beneficiary to receive 
survivor benefits. A non-spouse beneficiary under an optional joint-
life form must be a natural person.
    (3) Spousal consent. In the case of a participant who is married at 
the time he or she enters pay status, the election of an optional form 
or designation of a non-spouse beneficiary is valid only if the 
participant's spouse consents in writing.
    (4) Permitted optional single-life forms. The PBGC may offer 
benefits in the following single-life forms:
    (i) A straight-life annuity;
    (ii) A 5-year certain-and-continuous annuity;
    (iii) A 10-year certain-and-continuous annuity; and
    (iv) A 15-year certain-and-continuous annuity.
    (5) Permitted joint-life forms. The PBGC may offer benefits in the 
following joint-life forms:
    (i) A joint-and-50%-survivor annuity;
    (ii) A joint-and-50%-survivor-``pop-up'' annuity (i.e., where the 
participant's benefit ``pops up'' to the unreduced level if the 
beneficiary dies first);
    (iii) A joint-and-75%-survivor annuity; and
    (iv) A joint-and-100%-survivor annuity.
    (6) Determination of benefit amount; starting benefit. To determine 
the amount of the benefit in a PBGC optional form--
    (i) Single-life forms. In the case of a PBGC optional form under 
paragraph (c)(4) of this section, the PBGC will first determine the 
amount of the benefit in the form the plan would pay to an unmarried 
participant in the absence of an election; and
    (ii) Joint-life forms. In the case of a PBGC optional form under 
paragraph (c)(5) of this section, the PBGC will first determine the 
amount of the benefit in the form the plan would pay to a married 
participant in the absence of an election. For this purpose, the PBGC 
will treat a participant who designates

[[Page 81462]]

a non-spouse beneficiary as being married to a person who is the same 
age as that non-spouse beneficiary.
    (7) Determination of benefit amount; conversion factors. The PBGC 
will convert the benefit amount determined under paragraph (c)(6) of 
this section to the optional form elected, using PBGC factors based 
on--
    (i) Mortality. Unisex mortality rates that are a fixed blend of 50 
percent of the 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 (Internal Revenue Service 
Cumulative Bulletins are available from the Superintendent of 
Documents, Government Printing Office, Washington DC 20402); and
    (ii) Interest. An interest rate of six percent.
    (8) Incidental benefits. The PBGC will not pay a PBGC optional form 
with a death benefit (e.g., a joint-and-50%-survivor annuity) unless 
the death benefit would be an ``incidental death benefit'' under 26 CFR 
1.401-1(b)(1)(i). If the death benefit would not be an ``incidental 
death benefit,'' the PBGC may instead offer a modified version of the 
optional form under which the death benefit would be an ``incidental 
death benefit.''
    (d) PBGC discretion. The PBGC may make other optional annuity forms 
available subject to the rules in paragraph (c) of this section.
    6. Add Sec. 4022.9 to read as follows:


Sec. 4022.9  Time of payment; benefit applications.

    (a) Time of payment. A participant may start receiving an annuity 
benefit from the PBGC (subject to the PBGC's rules for starting benefit 
payments) on his or her Earliest PBGC Retirement Date as determined 
under Sec. 4044.13(b) or, if later, the plan's termination date.
    (b) Benefit applications. The PBGC is not required to accept any 
application for benefits not made in accordance with its forms and 
instructions.


Sec. 4022.21  [Amended]

    7. Amend Sec. 4022.21 as follows:
    a. In paragraph (a)(2)(i), remove the words ``before the plan 
terminates and before the participant retired'' and add in their place 
the words ``on or before the plan's termination date and before the 
participant retired'';
    b. Amend paragraph (d) by removing the words ``benefit payable to 
other than natural persons, or a trust or estate'' and adding in their 
place the words ``joint life annuity benefit except if it is payable to 
or''


Sec. 4022.25  Five-year phase-in of benefit guarantee for participants 
other than substantial owners.

    8. Amend Sec. 4022.25 by revising paragraphs (c) and (d) as 
follows:
* * * * *
    (c) Computation of years. In computing the number of years a 
benefit increase has been in effect, each complete 12-month period 
ending on or before the termination date during which such benefit 
increase was in effect constitutes one year.
    (d) Multiple benefit increases. In applying the formula contained 
in paragraph (b) of this section, multiple benefit increases within any 
12-month period ending on or before the termination date and calculated 
from that date are aggregated and treated as one benefit increase.
* * * * *
    9. Add paragraph (d) to Sec. 4022.81 to read as follows:


Sec. 4022.81  General rules.

* * * * *
    (d) Death of participant.
    (1) Benefit overpayments. If the PBGC determines that, at the time 
of a participant's death, there was a net overpayment to the 
participant, and the benefit is in the form of a joint-and-survivor or 
other annuity under which payments may continue after the participant's 
death, the PBGC, in accordance with paragraph (a) of this section, will 
recoup the overpayment from the person who is receiving survivor 
benefits.
    (2) Benefit underpayments. If the PBGC determines that, at the time 
of a participant's death, there was a net underpayment to the 
participant--
    (i) Surviving designated beneficiary to receive future annuity 
payments. If the benefit is in the form of a joint-and-survivor or 
other annuity under which payments may continue after the participant's 
death, the PBGC will pay the underpayment to the person who is 
receiving survivor benefits.
    (ii) No surviving designated beneficiary to receive future annuity 
payments. If the benefit is not in the form of a joint-and-survivor or 
other annuity under which payments may continue after the participant's 
death or, although the benefit is in such a form, there is no person 
designated to receive survivor benefits or the person designated to 
receive survivor benefits predeceased the participant, the PBGC will 
pay the underpayment to the person determined under the rules in 
subpart F of this part.
    10. Add subpart F to part 4022 to read as follows:

Subpart F--Certain Payments Due Upon Death

Sec.
4022.91  When do these rules apply?
4022.92  What definitions do I need to know for these rules?
4022.93  Who will get benefits the PBGC may owe me at the time of my 
death?
4022.94  What are the PBGC's rules on designating a person to get 
benefits the PBGC may owe me at the time of my death?
4022.95  Whom does the PBGC pay when payments under certain-and-
continuous and similar annuities are owed upon a person's death?


Sec. 4022.91  When do these rules apply?

    (a) Benefits we may owe you at the time of your death.
    (1) Timing. These rules apply if you die--
    (i) On or after the date we take over your plan (as trustee); or
    (ii) Before the date we take over your plan, to the extent that, by 
that date, the plan administrator has not paid all benefits owed to you 
at the time of your death.
    (2) Types of benefits. These rules apply to any benefits we may owe 
you at the time of your death, such as a payment of a lump-sum benefit 
that we calculated as of your plan's termination date but had not yet 
paid you or a correction for monthly underpayments.
    (3) Benefit form. These rules apply if your benefit is not in the 
form of a joint-and-survivor or other annuity under which payments may 
continue after your death or, although your benefit is in that form, 
the person you designated to receive those payments died before you. 
(If any part of your benefit is in that form, and the person you 
designated to receive those payments survives you, we will make up any 
underpayment to you at the time of your death by paying it to that 
person, under the rule in Sec. 4022.81(d)(2)(i) of this part.)
    (4) Effect of plan or will. These rules apply regardless of any 
contrary provision in a plan or will.
    (b) Certain-and-continuous and similar payments. These rules also 
apply in certain circumstances to payments we owe when a person dies 
without having received all required payments under a ``certain-and-
continuous'' or similar form of annuity. See Sec. 4022.95.


Sec. 4022.92  What definitions do I need to know for these rules?

    You need to know three definitions from Sec. 4001.2 of this chapter 
(PBGC, person, and plan) and the following definitions:
    ``We'' means the PBGC.

[[Page 81463]]

    ``You'' means the person to whom we may owe benefits at the time of 
death.


Sec. 4022.93  Who will get benefits the PBGC may owe me at the time of 
my death?

    (a) In general. Except as provided in paragraphs (b) and (c) of 
this section (which explain what happens if you die before the date we 
take over your plan or within 180 days after the date we take over your 
plan), we will pay any benefits we owe you at the time of your death to 
the person(s) surviving you in the following order--
    (1) Designee with the PBGC. The person(s) you designated with us to 
get any benefits we may owe you at the time of your death. See 
Sec. 4022.94 for information on designating with us.
    (2) Spouse. Your spouse. We will consider a person to whom you are 
married to be your spouse even if you and that person are separated, 
unless a decree of divorce or annulment has been entered in a court.
    (3) Children. Your children and descendants of your deceased 
children. A child includes an adopted child. If one of your children 
dies before you, any descendants of that deceased child at the same 
level will equally divide that deceased child's share.
    (4) Parents. Your parents. A parent includes an adoptive parent.
    (5) Estate. Your estate, provided your estate is open and there is 
an executor or administrator of your estate at the time we pay those 
benefits.
    (6) Next of kin. Your next of kin.
    (b) Pre-trusteeship deaths. If you die before the date we take over 
your plan and, by that date, the plan administrator has not paid all 
benefits owed to you at the time of your death, we will pay any 
benefits we owe you at the time of your death to the person(s) 
designated by or under the plan to get those benefits (provided the 
designation clearly applies to those benefits). If there is no such 
designation, we will pay those benefits to your spouse, children, 
parents, estate, or next of kin under the rules in paragraphs (a)(2) 
through (a)(6) of this section.
    (c) Deaths shortly after trusteeship. If you die within 180 days 
after the date we take over your plan and you have not designated 
anyone with the PBGC under paragraph (a)(1) of this section, we will 
pay any benefits we owe you at the time of your death to the person(s) 
designated by or under the plan to get those benefits (provided the 
designation clearly applies to those benefits) before paying those 
benefits to your spouse, children, parents, estate, or next of kin 
under the rules in paragraphs (a)(2) through (a)(6) of this section.


Sec. 4022.94  What are the PBGC's rules on designating a person to get 
benefits the PBGC may owe me at the time of my death?

    (a) When you may designate. At any time on or after the date we 
take over your plan, you may designate with us who will get any 
benefits we owe you at the time of your death.
    (b) Information on how you may designate. Shortly after the date we 
take over your plan, we will provide you with information on how you 
can designate with us. If you want this information earlier, you should 
contact us at the PBGC customer service center. You may also want to 
contact us for this information if--
    (1) We took over your plan before [INSERT FIRST DAY OF MONTH 
PRECEDING MONTH OF PUBLICATION OF FINAL RULE IN Federal Register]; or
    (2) You believe we might owe you benefits as a designee or payee 
under these rules.
    (c) Change of designee. If you want to change the person(s) you 
designate with us, you must submit another designation to us.
    (d) If your designee dies before you.
    (1) In general. If the person(s) you designate with us dies before 
you or at the same time as you, we will treat you as not having 
designated anyone with us (unless you named an alternate designee who 
survives you). Therefore, you should keep your designation with us 
current.
    (2) Simultaneous deaths. If you and a person you designated die as 
a result of the same event, we will treat you and that person as having 
died at the same time, provided you and that person die within 30 days 
of each other.


Sec. 4022.95  Whom does the PBGC pay when payments under certain-and-
continuous and similar annuities are owed upon a person's death?

    If a person dies without having received all required payments 
under a form of annuity that promises that, regardless of a 
participant's death, there will be annuity payments for a certain 
period of time (e.g., a certain-and-continuous annuity) or until a 
certain amount is paid (e.g., a cash-refund annuity or installment-
refund annuity), and there is no surviving beneficiary designated to 
receive such payments, we will pay the remaining benefits to the person 
determined under the rules in Secs. 4022.91 through 4022.94.

PART 4022B--AGGREGATE LIMITS ON GUARANTEED BENEFITS

    11. The authority citation for part 4022B is added to read as 
follows:


    Authority: 29 U.S.C. 1302(b)(3), 1322B.

    12. Revise Sec. 4022B.1 to read as follows:


Sec. 4022B.1  Aggregate payments limitation.

    (a) Benefits with respect to two or more plans. If a person (or 
persons) is entitled to benefits payable with respect to one 
participant in two or more plans, the aggregate benefits payable by 
PBGC from its funds is limited by Sec. 4022.22 of this chapter (without 
regard to Sec. 4022.22(a)). The PBGC will determine the limitation as 
of the date of the last plan termination.
    (b) Benefits with respect to two or more participants. The PBGC 
will not aggregate the benefits payable with respect to one participant 
with the benefits payable with respect to any other participant (e.g., 
if an individual is entitled to benefits both as a participant and as 
the spouse of a deceased participant).

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

    15. 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. 4044.2  [Amended]

    14. In Sec. 4044.2(b), amend the definition of Earliest retirement 
age at valuation date by removing the words ``earliest age at which the 
participant can retire under the terms of the plan'' and adding in 
their place the words ``participant's attained age as of his or her 
Earliest PBGC Retirement Date (as determined under Sec. 4044.13(b) of 
this chapter)''.
    15. Revise Sec. 4044.13 to read as follows:


Sec. 4044.13  Priority category 3 benefits.

    (a) Definition. The benefits in priority category 3 are those 
annuity benefits that were in pay status before the beginning of the 3-
year period ending on the termination date, and those annuity benefits 
that could have been in pay status for participants who, before the 
beginning of the 3-year period ending on the termination date, were 
eligible to receive annuity benefits and had reached their Earliest 
PBGC Retirement Date (as determined in paragraph (b) of this section 
based on plan provisions in effect on the day before the beginning of 
the 3-year period ending on the termination date). Benefit increases 
that were effective throughout the 5-year period ending on the 
termination date, including automatic benefit increases during that 
period to the extent provided in paragraph (c)(5)

[[Page 81464]]

of this section, shall be included in determining the priority category 
3 benefit. Benefits are primarily basic-type benefits, although 
nonbasic-type benefits will be included if any portion of a 
participant's priority category 3 benefit is not guaranteeable under 
the provisions of subpart A of part 4022 of this chapter.
    (b) Earliest PBGC Retirement Date. The Earliest PBGC Retirement 
Date for a participant is the earliest date on which the participant 
could retire under plan provisions for purposes of section 
4044(a)(3)(B) of ERISA. The Earliest PBGC Retirement Date is determined 
in accordance with this paragraph (b). For purposes of this paragraph 
(b), ``age'' means the participant's age as of his or her last birthday 
(unless otherwise required by the context).
    (1) Immediate annuity at or after age 55. If the earliest date on 
which a participant could separate from service with the right to 
receive an immediate annuity is on or after the date the participant 
reaches age 55, the Earliest PBGC Retirement Date for the participant 
is the earliest date on which the participant could separate from 
service with the right to receive an immediate annuity.
    (2) Immediate annuity before age 55. If the earliest date on which 
a participant could separate from service with the right to receive an 
immediate annuity is before the date the participant reaches age 55, 
the Earliest PBGC Retirement Date for the participant is the date the 
participant reaches age 55 (except as provided in paragraph (b) (3) of 
this section).
    (3) Facts and circumstances. If a participant could separate from 
service with the right to receive an immediate annuity before the date 
the participant reaches age 55, the PBGC may determine, under the facts 
and circumstances, that the participant could retire under plan 
provisions for purposes of section 4044(a)(3)(B) of ERISA on an earlier 
date, in which case that earlier date is the Earliest PBGC Retirement 
Date for the participant. In making this determination, the PBGC will 
take into account plan provisions (e.g., the general structure of the 
provisions, the extent to which the benefit is subsidized, and whether 
eligibility for the benefit is based on a substantial service or age-
and-service requirement), the age at which employees customarily retire 
(under the particular plan or in the particular company or industry, as 
appropriate), and all other relevant considerations. Neither a plan's 
reference to a separation from service at a particular age as a 
``retirement'' nor the ability of a participant to receive an immediate 
annuity at a particular age necessarily makes the date the participant 
reaches that age the Earliest PBGC Retirement Date for the participant. 
The Earliest PBGC Retirement Date determined by the PBGC under this 
paragraph (b)(3) will never be earlier than the earliest date the 
participant could separate from service and with the right to receive 
an immediate annuity.
    (4) Special rule for ``window'' provisions. For purposes of this 
paragraph (b), the PBGC will treat a participant as having been able, 
under plan provisions, to separate from service with the right to 
receive an immediate annuity on a date before the plan's termination 
date only if eligibility for that immediate annuity continues through 
the plan's termination date.
    (c) Assigning benefits. The annuity benefit that is assigned to 
priority category 3 with respect to each participant is the lowest 
annuity that was paid or payable under the rules in paragraphs (c)(2) 
through (c)(6) of this section.
    (1) Eligibility of participants and beneficiaries. A participant or 
beneficiary is eligible for a priority category 3 benefit if either of 
the following applies:
    (i) The participant's (or beneficiary's) benefit was in pay status 
before the beginning of the 3-year period ending on the termination 
date.
    (ii) Before the beginning of the 3-year period ending on the 
termination date, the participant was eligible for an annuity benefit 
that could have been in pay status and had reached his or her Earliest 
PBGC Retirement Date (as determined in paragraph (b) of this section, 
based on plan provisions in effect on the day before the beginning of 
the 3-year period ending on the termination date). Whether a 
participant was eligible to receive an annuity before the beginning of 
the 3-year period shall be determined using the plan provisions in 
effect on the day before the beginning of the 3-year period.
    (iii) If a participant described in either of the preceding two 
paragraphs died during the 3-year period ending on the date of the plan 
termination and his or her beneficiary is entitled to an annuity, the 
beneficiary is eligible for a priority category 3 benefit.
    (2) Plan provisions governing determination of benefit. In 
determining the amount of the priority category 3 annuity with respect 
to a participant, the plan administrator shall use the participant's 
age, service, actual or expected retirement age, and other relevant 
facts as of the following dates:
    (i) Except as provided in the next sentence, for a participant or 
beneficiary whose benefit was in pay status before the beginning of the 
3-year period ending on the termination date, the priority category 3 
benefit shall be determined according to plan provisions in effect on 
the date the benefit commenced. Benefit increases that were effective 
throughout the 5-year period ending on the termination date, including 
automatic benefit increases during that period to the extent provided 
in paragraph (c)(5) of this section, shall be included in determining 
the priority category 3 benefit. The form of annuity elected by a 
retiree is considered the normal form of annuity for that participant.
    (ii) For a participant who was eligible to receive an annuity 
before the beginning of the 3-year period ending on the termination 
date but whose benefit was not in pay status, the priority category 3 
benefit and the normal form of annuity shall be determined according to 
plan provisions in effect on the day before the beginning of the 3-year 
period ending on the termination date as if the benefit had commenced 
at that time.
    (3) General benefit limitations. The general benefit limitation is 
determined as follows:
    (i) If a participant's benefit was in pay status before the 
beginning of the 3-year period, the benefit assigned to priority 
category 3 with respect to that participant is limited to the lesser of 
the lowest annuity benefit in pay status during the 3-year period 
ending on the termination date and the lowest annuity benefit payable 
under the plan provisions at any time during the 5-year period ending 
on the termination date.
    (ii) Unless a benefit was in pay status before the beginning of the 
3-year period ending on the termination date, the benefit assigned to 
priority category 3 with respect to a participant is limited to the 
lowest annuity benefit payable under the plan provisions, including any 
reduction for early retirement, at any time during the 5-year period 
ending on the termination date. If the annuity form of benefit under a 
formula that appears to produce the lowest benefit differs from the 
normal annuity form for the participant under paragraph (c)(2)(ii) of 
this section, the benefits shall be compared after the differing form 
is converted to the normal annuity form, using plan factors. In the 
absence of plan factors, the factors in subpart B of part 4022 of this 
chapter shall be used.
    (iii) For purposes of this paragraph, if a terminating plan has 
been in effect less than five years on the termination

[[Page 81465]]

date, computed in accordance with paragraph (c)(6) of this section, the 
lowest annuity benefit under the plan during the 5-year period ending 
on the termination date is zero. If the plan is a successor to a 
previously established defined benefit plan within the meaning of 
section 4021(a) of ERISA, the time it has been in effect will include 
the time the predecessor plan was in effect.
    (4) Determination of beneficiary's benefit. If a beneficiary is 
eligible for a priority category 3 benefit because of the death of a 
participant during the 3-year period ending on the termination date, 
the benefit assigned to priority category 3 for the beneficiary shall 
be determined as if the participant had died the day before the 3-year 
period began.
    (5) Automatic benefit increases. If plan provisions adopted and 
effective on or before the first day of the 5-year period ending on the 
termination date provided for automatic increases in the benefit 
formula for both active participants and those in pay status or for 
participants in pay status only, the lowest annuity benefit payable 
during the 5-year period ending on the termination date determined 
under paragraph (c)(3) of this section includes the automatic increases 
scheduled during the fourth and fifth years preceding termination, 
subject to the restriction that benefit increases for active 
participants in excess of the increases for retirees shall not be taken 
into account.
    (6) Computation of time periods. For purposes of this section, a 
plan or amendment is ``in effect'' on the later of the date on which it 
is adopted or the date it becomes effective.

    Issued in Washington, DC, this day of December, 2000.
David M. Strauss,
Executive Director, Pension Benefit Guaranty Corporation.
[FR Doc. 00-32706 Filed 12-22-00; 8:45 am]
BILLING CODE 7708-01-P