[Federal Register Volume 67, Number 67 (Monday, April 8, 2002)]
[Rules and Regulations]
[Pages 16950-16959]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-8340]



[[Page 16949]]

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Part III





Pension Benefit Guaranty Corporation





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29 CFR Part 4022 et al.



PBGC Benefit Payments; Final Rule

  Federal Register / Vol. 67, No. 67 / Monday, April 8, 2002 / Rules 
and Regulations  

[[Page 16950]]


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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: Final rule.

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

EFFECTIVE DATE: June 1, 2002. For a detailed discussion of 
applicability of the amendments, see the various Applicability sections 
in SUPPLEMENTARY INFORMATION.

FOR FURTHER INFORMATION CONTACT: Harold J. Ashner, Assistant General 
Counsel, or Catherine B. Klion, Attorney, Office of the General 
Counsel, PBGC, 1200 K Street, NW., Washington, DC 20005-4026; 202-326-
4024. (TTY/TDD users may 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 26, 2000 (at 65 FR 81456), the 
PBGC published a proposed rule 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).
    The PBGC received two comments on the proposed rule and is issuing 
the final regulation substantially as proposed.

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 a participant's benefit is in 
priority category 3 in the asset allocation scheme under ERISA section 
4044 (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).
     It governs when a participant is first eligible to be 
placed in pay status by the PBGC.
     It is used as part of the methodology for determining the 
``expected retirement age'' assumption the PBGC uses to value a 
participant's benefit. Determination of this date 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 based 
on all the facts and circumstances. In many cases, the analysis 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, such as 
cash balance 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.
    To provide guidance and to reduce the need for case-by-case 
decision-making, the PBGC is introducing the concept of an ``Earliest 
PBGC Retirement Date.'' The Earliest PBGC Retirement Date for a 
participant will be the earliest date on which the participant could 
``retire'' for certain purposes under Title IV of ERISA. If the 
participant's ``earliest annuity date'' (the earliest date under plan 
provisions on which the 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 will be 
the ``earliest annuity date.'' However, if the participant's ``earliest 
annuity date'' is before the date the participant reaches age 55, the 
Earliest PBGC Retirement Date will 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. Under the 
facts-and-circumstances test, the PBGC will consider whether the 
participant could retire for purposes of ERISA section 4044(a)(3)(B). 
The proposed regulation provided that 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.
    Both commenters expressed concern about the application of the 
Earliest PBGC Retirement Date concept in plans where participants can 
separate from service with the right to receive an immediate annuity 
before reaching age 55.
    One commenter stated that the Earliest PBGC Retirement Date 
``should not be used to restrict protections that workers enjoy under 
current rules.'' The commenter went on to point out that many defined 
benefit plans permit benefit eligibility at a point earlier than age 55 
that ``clearly would qualify as a retirement for purposes of the 
statute.'' The commenter suggested that the ``PBGC should continue to 
permit the receipt of annuity benefits before age 55 when a plan 
provides for retirement earlier than age 55 and recognize pre-55 
retirement eligibility in its determination of priority category 3 
benefits.''
    The PBGC intended the adoption of the ``Earliest PBGC Retirement 
Date'' concept as a way to simplify administration for the PBGC and 
clarify the rules for participants--not as a way to ``restrict'' the 
earliest date on which a participant would be considered to be eligible 
to ``retire.'' Indeed, this new concept will have no effect on the 
PBGC's existing facts-and-circumstances approach for determining pre-
age 55 retirement dates; rather it merely clarifies and codifies that 
approach. Therefore, the date a participant could first ``retire'' 
should never be later under the new regulation than under the PBGC's 
existing facts-and-circumstances approach (although, for post-age 55

[[Page 16951]]

retirement dates, it may be earlier under the new concept).
    The other commenter, expressing particular concern about airline 
pilots' plans, urged the PBGC ``to adopt a special rule for plans 
covering participants who are legally required to retire before age 
65.'' That commenter urged the PBGC to adopt a rule that the Earliest 
PBGC Retirement Date for a participant in such a plan will never be 
later than the date the participant reaches age 50, while retaining 
discretion to determine pre-age 50 Earliest PBGC Retirement Dates based 
on the facts and circumstances.
    The PBGC recognizes the commenter's concern about airline pilots' 
plans but believes this concern can be addressed without changing the 
Earliest PBGC Retirement Date definition. The regulation provides for 
Earliest PBGC Retirement Dates before age 55 based on the PBGC's facts-
and-circumstances analysis, taking into account (among other things) 
plan provisions and the age at which participants customarily retire. 
The PBGC recognizes that plans covering airline pilots generally 
provide for early retirement before age 55 (often subject to 
substantial service or age-and-service requirements and with subsidized 
benefits) and that airline pilots customarily retire at relatively 
early ages. In the case of a typical airline pilots' plan that provides 
for a normal retirement age of 60 and an early retirement age of 50 
with 5 years of service, the PBGC generally would determine--under its 
facts-and-circumstances analysis--that a participant who has completed 
5 years of service reaches his or her Earliest PBGC Retirement Date 
upon attaining age 50. If the plan instead had provided for early 
retirement before age 50, the PBGC would consider all the facts and 
circumstances (including the plan's normal retirement age and the age 
at which employees customarily retire in the airline industry) in 
determining whether to treat the date the participant reaches the 
plan's early retirement age as the participant's Earliest PBGC 
Retirement Date. The PBGC is adding a specific example to the final 
rule to illustrate its treatment of a typical airline pilots' plan.
    The preamble to the proposed rule contained examples of Earliest 
PBGC Retirement Dates. For the convenience of the public, the PBGC is 
moving those examples to the regulatory language and is adding, along 
with the new example dealing with a typical airline pilots' plan, an 
example dealing with plans that specify early retirement requirements 
and do not offer a consensual lump sum or immediate annuity upon 
separation before those requirements are met.
    The final rule also clarifies the following:

     ``Window'' periods. For purposes of determining a 
participant's Earliest PBGC Retirement Date, the PBGC will treat the 
participant as being 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 earlier of the plan's 
termination date or the date the participant actually separates from 
service with the right to receive an immediate annuity and the 
participant satisfies the conditions for eligibility for that 
immediate annuity on or before the plan's termination date.
     Benefit start dates. For participants who had reached 
their Earliest PBGC Retirement Date before the beginning of the 3-
year period ending on the plan's termination date, the PBGC will not 
exclude annuity benefits from priority category 3 protection merely 
because, under the plan's rules for starting benefit payments, the 
payments do not start until the next payment date (e.g., the first 
day of the first month following the date of separation).

    Aside from these clarifications, the PBGC is issuing the final 
rules in this area with only structural and other editorial changes 
from the proposed regulation. For example, the PBGC is moving the 
definition of Earliest PBGC Retirement Date from part 4044 (where it 
was in the proposed regulation) to part 4022.

Applicability

    The new definition will apply to benefits in plans with termination 
dates on or after June 1, 2002.
    The new definition will also apply, for the purpose of determining 
when participants will first be able to receive retirement benefits in 
annuity form from the PBGC, to benefits not yet in pay status as of 
June 1, 2002, except that the new age-55 rule will not apply to any 
plan trusteed by the PBGC before October 1, 1998. In plans trusteed by 
the PBGC before October 1, 1998, the PBGC will continue to apply its 
facts-and-circumstances analysis (as clarified and codified in the new 
regulation), regardless of whether the participant is younger than age 
55 or is age 55 or older. The PBGC is not applying the new age-55 rule 
to plans trusteed by the PBGC before October 1, 1998, because doing so 
would require the PBGC to reopen determinations in thousands of plans 
(with little or no impact for the vast majority of participants), and 
therefore could significantly delay the PBGC's processing of new plans 
(i.e., those trusteed on or after October 1, 1998).

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 
generally 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 entering pay status, 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.
    The PBGC intends to provide participants (and beneficiaries) whose 
benefits are not yet in pay status with more choices of annuity benefit 
forms, including a straight-life annuity, certain-and-continuous 
annuities with various periods certain, joint-and-survivor annuities 
with various survivor percentages, and a joint-and-survivor-'pop-up'' 
annuity. A participant who is married on the annuity starting date will 
need spousal consent to elect any of the optional forms. Either a 
married participant (with spousal consent) or an unmarried participant 
will be able to 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.
    The PBGC will 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. If the 
participant (regardless of marital status) elects to receive a joint-
and-survivor optional form from the PBGC, the PBGC will start with the 
joint-and-survivor form that the plan would have paid to a married

[[Page 16952]]

participant in the absence of an election under the plan. If the 
participant (regardless of marital status) elects to receive a single-
life optional form from the PBGC, the PBGC will 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. The PBGC will convert this 
starting benefit to the optional annuity form the participant or 
beneficiary chooses, using specified PBGC factors.
    Both commenters commended the PBGC for proposing to offer a choice 
of optional annuity forms, and the PBGC is issuing the new rules in 
this area substantially as proposed.
    The final regulation clarifies that the form under the plan that an 
unmarried person would be entitled to receive in the absence of an 
election is available not only to an unmarried participant but also to 
a married participant. It also clarifies that the PBGC may prescribe 
the time and manner for benefit elections to be made and spousal 
consents to be provided. It also clarifies that benefit forms cannot be 
changed once payment starts and simplifies and clarifies the rules 
governing permitted designees.
    The final regulation also clarifies one technical issue that could 
arise in rare circumstances, e.g., where the form the plan would have 
paid to a married participant in the absence of an election is highly 
subsidized and the participant (whether married or unmarried) elects an 
optional PBGC form with a smaller survivor annuity percentage. In these 
circumstances, the proposed regulation could have been read as 
requiring the PBGC to pay a greater monthly benefit to a participant in 
the form of a joint-and-survivor benefit than it would have paid the 
participant in the form of a straight life annuity. The final 
regulation clarifies that the PBGC will limit its payment to avoid this 
result. For example, assume the amount of a participant's benefit is 
$1,000 a month in the form of a straight life annuity or $980 a month 
in the form of a highly-subsidized joint-and-100% survivor annuity. 
Assume the participant elects a joint-and-50% survivor annuity. Using 
the specified conversion factors, the amount of the benefit in the form 
elected would be $1,060 a month. The final rule clarifies that the PBGC 
would pay $1,000 a month in such circumstances.

Applicability

    The PBGC will make the optional benefit forms available where the 
first benefit payment is made on or after June 1, 2002.
    Where the first benefit payment is made on or after May 1, 2002, 
and the participant or beneficiary has filed an application that does 
not include the new optional benefit forms, the PBGC may make the 
optional benefit forms available to that participant or beneficiary on 
or after June 1, 2002, by providing an opportunity to change the 
election within a reasonable time period. Until the end of that time 
period, the PBGC will not apply to that participant or beneficiary the 
new rule that once payment of a benefit starts, the benefit form cannot 
be changed. If the benefit form changes, the PBGC will make appropriate 
adjustments to the benefit amount.

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 pay.
    The PBGC recoups any overpayment made to a 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. The PBGC pays any underpayment due the participant 
to that same person.
    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 payments do not continue after the 
participant's death, the PBGC pays the person(s) designated with the 
PBGC or by or under the plan to receive benefits owed to the 
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. However, 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 problems, the PBGC is adding new subpart F of part 
4022, which governs 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 payments 
do not continue after the participant's death. Under these new rules, 
the PBGC will 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 
will pay those benefits to the person(s) surviving the participant in 
the following order: spouse, children, parents, estate, and next of 
kin.
    This 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. However, the PBGC is not adopting 
the TSP rules; rather it is establishing its own order-of-payment rules 
and therefore will be making its own interpretations of those rules. 
The PBGC notes that the 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 will be 
subject to the order-of-payment rules will in most cases be relatively 
small.
    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 is amending the regulation to provide that, for 
purposes of discounting such annuity payments, it will use the federal 
mid-term rate (the same rate used for crediting interest for future 
periods on net underpayments of benefits).
    The PBGC received no comments on its proposal relating to certain 
payments owed upon death and is issuing the new rules in this area with 
only clarifying and editorial changes from the proposed regulation. The 
final regulation clarifies that the new rules will apply to benefits 
the PBGC owes to any individual at the time of the individual's death 
(including benefits the PBGC owes because the plan owed them). Thus, 
the rules will apply not only to benefits the PBGC owes to a 
participant in a terminated

[[Page 16953]]

plan, but also to benefits the PBGC owes to a beneficiary (including an 
alternate payee) at the time of the beneficiary's death or to a 
designee or other payee under subpart F (e.g., a participant's next of 
kin) at the time of the designee or other payee's death.
    The final regulation also clarifies that (1) in the case of an 
overpayment to a participant at the time of the participant's death, if 
the participant is not entitled to future annuity benefits as of the 
plan's termination date, the PBGC may seek repayment of the overpayment 
to the participant from the participant's estate, and (2) in the case 
of an underpayment to a participant at the time of the participant's 
death, if the person receiving survivor benefits is an alternate payee 
under a qualified domestic relations order, the PBGC will treat the 
benefit as if payments do not continue after the participant's death 
(i.e., the PBGC will pay the underpayment to the person determined 
under the rules in new subpart F).
    The final regulation includes structural and other editorial 
changes from the proposed regulation designed to make the new rules 
easier to understand. For example, in the proposed regulation, subpart 
F covers situations in which a person dies without having received all 
required payments for future periods under a form of annuity promising 
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. In the final regulation, these 
situations are covered in new subpart G. The final regulation includes 
examples that show how the rules in subparts F and G will apply in 
various situations.

Applicability

    The new rules will apply in the case of any death on or after June 
1, 2002.

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 is amending 
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 is also making 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.
    The PBGC received no comments on its proposal relating to 
entitlement conditions being met on the termination date and is issuing 
the new rules in this area without change from the proposed regulation.

Applicability

    The new rules will apply to benefits in any plan with a termination 
date on or after June 1, 2002.

Aggregate Limits on Guaranteed Benefits

    The PBGC is amending its regulation on Aggregate Limits on 
Guaranteed Benefits (part 4022B). Under the current regulation, when 
applying the limitation on guaranteed benefits in Sec. 4022.22(b), the 
PBGC aggregates: (1) A person's benefits under two or more plans, (2) a 
person's benefits with respect to two or more participants, and (3) 
benefits with respect to one participant when more than one person is 
entitled to receive a benefit with respect to that participant).
    Under this amendment the PBGC will not aggregate benefits with 
respect to two or more participants (the second type of aggregation 
above) 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 is 
limited to a monthly benefit of $3,000. Under the amendment, the 
participant will be entitled to the full $3,500 benefit.
    The PBGC is removing from part 4022B, as unnecessary, the language 
relating to the aggregation of benefits with respect to one participant 
when more than one person is entitled to receive a benefit with respect 
to that participant (the third type of aggregation above). (This is a 
nonsubstantive change; under Sec. 4022.22, the PBGC will continue to 
aggregate such benefits.)
    The PBGC received no comments on its proposal relating to the 
aggregate limits on guaranteed benefits and is issuing the new rules in 
this area without change from the proposed regulation.

Applicability

    The new rules will apply to benefit determinations that become 
effective on or after June 1, 2002.

Compliance With Rulemaking and Paperwork Reduction Act Guidelines

    The Office of Management and Budget has determined that this final 
rule is a ``significant regulatory action'' and has therefore reviewed 
the final rule under Executive Order 12866.
    The PBGC certifies under section 605(b) of the Regulatory 
Flexibility Act that this final rule will not have a significant 
economic impact on a substantial number of small entities. Virtually 
all of the changes in the final rule will affect only the PBGC and 
persons who receive benefits from the PBGC. The only change that could 
affect small entities is the 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 
will match the results under the PBGC's current regulation. In those 
cases where the valuation results do not match, the differences 
generally will not be significant. Thus, the change will 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.
    This rule contains information collection requirements. The Office 
of Management and Budget has approved this information collection, 
including the implementing forms and

[[Page 16954]]

instructions, under the Paperwork Reduction Act of 1995. An agency may 
not conduct or sponsor, and a person is not required to respond to, a 
collection of information unless it displays a currently valid OMB 
control number.

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

    Pension insurance, Pensions.


    For the reasons set forth above, the PBGC is amending 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 
on or before the termination date, in the case of a requirement that a 
participant attain a particular age, earn a particular amount of 
service, become disabled, or die)'' after the words ``Except for a 
benefit described in paragraph (a)(2) of this section, before the 
termination date'', and the words ``(prior to or on such date, in the 
case of a requirement that a participant attain a particular age, earn 
a particular amount of service, become disabled, or die)'' 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''.
* * * * *
    4. Amend Sec. 4022.7 by revising paragraphs (b)(1) and (d) 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 (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 paragraph (b)(1)(i) of this section 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 annuity 
payments under a qualified preretirement survivor annuity (or under 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 subpart A 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) Participants.
    (i) 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.
    (ii) 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.
    (2) Beneficiaries.
    (i) 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 his or her benefit enters pay 
status 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).
    (ii) 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) Optional PBGC forms.
    (1) Participant and beneficiary elections. A participant may elect 
any optional form described in paragraphs (c)(4) or (c)(5) of this 
section. A beneficiary described in paragraph (b)(2) of this section (a 
QPSA beneficiary or an alternate payee) may elect any optional form 
described in paragraphs (c)(4)(i) through (c)(4)(iv) of this section.
    (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, in

[[Page 16955]]

the case of a participant, a joint-and-50%-survivor annuity) may 
designate either a spouse or a non-spouse beneficiary to receive 
survivor benefits. An optional joint-life form must be payable to a 
natural person or (with the consent of the PBGC) to a trust for the 
benefit of one or more natural persons.
    (3) Spousal consent. In the case of a participant who is married at 
the time the benefit enters pay status, the election of an optional 
form or the designation of a non-spouse beneficiary is valid only if 
the participant's spouse consents.
    (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;
    (iv) A 15-year certain-and-continuous annuity; and
    (v) The form an unmarried person would be entitled to receive from 
the plan in the absence of an election.
    (5) Permitted optional 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 an optional PBGC form--
    (i) Single-life forms. In the case of an optional PBGC 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.
    (ii) Joint-life forms. In the case of an optional PBGC 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 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) Determination of benefit amount; limitation. The PBGC will 
limit the benefit amount determined under paragraph (c)(7) of this 
section to the amount of the benefit it would pay in the form of a 
straight life annuity under paragraph (c)(4)(i) of this section.
    (9) Incidental benefits. The PBGC will not pay an optional PBGC 
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) Change in benefit form. Once payment of a benefit starts, the 
benefit form cannot be changed.
    (e) 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 subpart A 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. 4022.10 of this subchapter or, if later, the plan's 
termination date.
    (b) Elections and consents. The PBGC may prescribe the time and 
manner for benefit elections to be made and spousal consents to be 
provided.
    (c) Benefit applications. The PBGC is not required to accept any 
application for benefits not made in accordance with its forms and 
instructions.

    7. Add Sec. 4022.10 to subpart A to read as follows:


Sec. 4022.10  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 Sec. 4022.10. For 
purposes of this Sec. 4022.10, ``age'' means the participant's age as 
of his or her last birthday (unless otherwise required by the context).
    (a) 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.
    (b) 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 (c) of this 
section).
    (c) 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 will make a determination, 
under the facts and circumstances, as to whether the participant could 
retire under plan provisions for purposes of section 4044(a)(3)(B) of 
ERISA on an earlier date. If the PBGC determines, under the facts and 
circumstances, that the participant could retire under plan provisions 
for those purposes on an earlier date, 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 (c) will 
never be earlier than the earliest date the participant could separate 
from

[[Page 16956]]

service with the right to receive an immediate annuity.
    (d) Examples. The following examples illustrate the operation of 
the rules in paragraphs (a) through (c) of this section.
    (1) Normal retirement age. A plan's normal retirement age is age 
65. The plan does not offer a consensual lump sum or an immediate 
annuity upon separation before normal retirement age. The Earliest PBGC 
Retirement Date for a participant who, as of the plan's termination 
date, is age 50 is the date the participant reaches age 65.
    (2) Early retirement age. A plan's normal retirement age is age 65. 
The plan specifies an early retirement age of 60 with 10 years of 
service. The plan does not offer a consensual lump sum or an immediate 
annuity upon separation before early retirement age. The Earliest PBGC 
Retirement Date for a participant who, as of the plan's termination 
date, is age 55 and has completed 10 years of service is the date the 
participant reaches age 60.
    (3) Separation at any age. 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 participant who, as of the plan's termination 
date, is age 35 is 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 participant's Earliest PBGC Retirement 
Date would be that earlier date.
    (4) Age 50 retirement common. 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 participant who, as of the plan's termination 
date, is age 35 is 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 participant's Earliest 
PBGC Retirement Date would be the date the participant reached age 50.
    (5) ``30-and-out'' benefit. 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 participant who, as of 
the plan's termination date, is age 48 and has completed 30 years of 
service is 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 participant's Earliest PBGC Retirement Date would be 
that earlier date. In this example, the PBGC generally would determine 
under the facts and circumstances that the participant's Earliest PBGC 
Retirement Date is the date the participant completed 30 years of 
service.
    (6) Typical airline pilots' plan. An airline pilots' plan has a 
normal retirement age of 60. The plan specifies an early retirement age 
of 50 (with 5 years of service). The Earliest PBGC Retirement Date for 
a participant who, as of the plan's termination date, is age 48 and has 
completed five years of service 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 
participant's Earliest PBGC Retirement Date would be that earlier date. 
In this example, the PBGC generally would determine under the facts and 
circumstances that the participant's Earliest PBGC Retirement Date is 
the date the participant reaches age 50. If the plan instead had 
provided for early retirement before age 50, the PBGC would consider 
all the facts and circumstances (including the plan's normal retirement 
age and the age at which employees customarily retire in the airline 
industry) in determining whether to treat the date the participant 
reaches the plan's early retirement age as the participant's Earliest 
PBGC Retirement Date.
    (e) Special rule for ``window'' provisions. For purposes of 
paragraphs (a), (b), and (c) of this section, the PBGC will treat a 
participant as being 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--
    (1) Eligibility for that immediate annuity continues through the 
earlier of--
    (i) The plan's termination date; or
    (ii) The date the participant actually separates from service with 
the right to receive an immediate annuity; and
    (2) The participant satisfies the conditions for eligibility for 
that immediate annuity on or before the plan's termination date.

    8. 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. Revise paragraph (d) to read as follows:


Sec. 4022.21  Limitations; in general.

* * * * *
    (d) The PBGC will not guarantee a joint-life annuity benefit 
payable to other than--
    (1) Natural persons; or
    (2) A trust or estate for the benefit of one or more natural 
persons.

    9. Amend Sec. 4022.25 by revising paragraphs (c) and (d) as 
follows:


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

* * * * *
    (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.
* * * * *

    10. 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--
    (i) Future annuity payments. If the participant was entitled to 
future annuity payments as of the plan's termination date, the PBGC 
will (except as provided in paragraph (a) of this section) recoup the 
overpayment from the person (if any) who is receiving survivor benefits 
under the annuity.
    (ii) No future annuity payments. If the participant was not 
entitled to future annuity benefits as of the plan's termination date, 
the PBGC may seek repayment of the overpayment from the participant's 
estate.
    (2) Benefit underpayments. If the PBGC determines that, at the time 
of a participant's death, there was a net underpayment to the 
participant--

[[Page 16957]]

    (i) 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; for this purpose, if the 
person receiving survivor benefits is an alternate payee under a 
qualified domestic relations order, the PBGC will treat the benefit as 
if payments do not continue after the participant's death (see 
paragraph (d)(2)(ii) of this section).
    (ii) No future annuity payments. If the benefit is not in the form 
of a joint-and-survivor or other annuity (e.g., a certain-and-
continuous annuity) under which payments may continue after the 
participant's death or although the benefit is in such a form payments 
do not continue after the participant's death (i.e., in the case of a 
joint-and-survivor annuity, the person designated to receive survivor 
benefits predeceased the participant or, in the case of another annuity 
under which payments may continue after the participant's death the 
participant died with no payments owed for future periods), the PBGC 
will pay the underpayment to the person determined under the rules in 
Secs. 4022.91 through 4022.95.

    11. Add subpart F to part 4022 to read as follows:

Subpart F--Certain Payments Owed 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   Examples.


Sec. 4022.91  When do these rules apply?

    (a) Types of benefits. Provided the conditions in paragraphs (b) 
and (c) of this section are satisfied, these rules (Secs. 4022.91 
through 4022.95) apply to any benefits we may owe you (including 
benefits we owe you because your plan owed them) 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 have not yet paid you or a back 
payment to reimburse you for monthly underpayments. We may owe you 
benefits at the time of your death if--
    (1) You are a participant in a terminated plan;
    (2) You are a beneficiary (including an alternate payee) of a 
participant; or
    (3) You are a designee or other payee (e.g., a participant's next 
of kin) under these rules, as explained in Sec. 4022.93.
    (b) Payments do not continue after death. These rules apply only if 
payments do not continue after your death. (If payments continue after 
your death, we will make up any underpayment to you at the time of your 
death under the rule in Sec. 4022.81(d)(2)(i) by paying it to the 
person who is entitled to receive those continuing payments.) Payments 
do not continue after your death if--
    (1) Your benefit is not in the form of a joint-and-survivor or 
other annuity under which payments may continue after your death (e.g., 
a certain-and-continuous annuity);
    (2) Your benefit is in the form of a joint-and-survivor annuity and 
the person designated to receive survivor benefits died before you; or
    (3) Your benefit is in the form of another type of annuity under 
which payments may continue after your death (e.g., a certain-and-
continuous annuity) but you die with no payments owed for future 
periods.
    (c) Time of death. These rules apply only if you die--
    (1) On or after the date we take over your plan (as trustee); or
    (2) 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.
    (d) Effect of plan or will. These rules apply even if there is a 
contrary provision in a plan or will.


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.
    ``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.
    (i) Adopted children. In determining who is a child or descendant, 
an adopted child is treated the same way as a natural child.
    (ii) Child dies before parent. If one of your children dies before 
you, any of your grandchildren through that deceased child will equally 
divide that deceased child's share; if one of your grandchildren 
through that deceased child dies before that deceased child, any of 
your great-grandchildren through that deceased grandchild will equally 
divide that deceased grandchild's share; and so on.
    (4) Parents. Your parents. A parent includes an adoptive parent.
    (5) Estate. Your estate, provided your estate is open.
    (6) Next of kin. Your next of kin in accordance with applicable 
state law.
    (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) Change of designee. If you want to change the person(s) you 
designate with us, you must submit another designation to us.

[[Page 16958]]

    (c) 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  Examples.

    The following examples show how the rules in Secs. 4022.91 through 
4022.94 apply. For examples on how these rules apply in the case of a 
certain-and-continuous annuity, see Sec. 4022.104.
    At the time of his death, Charlie was receiving payments under a 
joint-and-survivor annuity. Charlie designated Ellen to receive 
survivor benefits under his joint-and-survivor annuity. We underpaid 
Charlie for periods before his death. At the time of his death, we owed 
Charlie a back payment to reimburse him for those underpayments.
    (a) Example 1: where surviving beneficiary is alive at 
participant's death. Ellen survived Charlie. As explained in 
Sec. 4022.91(b), because Ellen is entitled to survivor benefits under 
the joint-and-survivor annuity, we would pay Ellen the back payment.
    (b) Example 2: where surviving beneficiary predeceases participant. 
Ellen died before Charlie. As explained in Secs. 4022.91(b) and 
4022.93, because benefits do not continue after Charlie's death under 
the joint-and-survivor annuity, we would pay the back payment to the 
person(s) Charlie designated to receive any payments we might owe him 
at the time of his death. If Charlie did not designate anyone to 
receive those payments or his designee died before him, we would pay 
the back payment to the person(s) surviving Charlie in the following 
order: spouse, children, parents, estate and next of kin.

    12. Add subpart G to part 4022 to read as follows:

Subpart G--Certain-and-Continuous and Similar Annuity Payments Owed 
for Future Periods After Death

Sec.
4022.101   When do these rules apply?
4022.102   What definitions do I need to know for these rules?
4022.103   Who will get benefits if I die when payments for future 
periods under a certain-and-continuous or similar annuity are owed 
upon my death?
4022.104   Examples.


Sec. 4022.101  When do these rules apply?

    (a) In general. These rules (Secs. 4022.101 through 4022.104) apply 
only if you die--
    (1) Required payments for future periods. Without having received 
all required payments for future periods under a form of annuity 
promising 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);
    (2) No surviving beneficiary. Without a surviving beneficiary 
designated to receive the payments described in paragraph (a)(1) of 
this section; and
    (3) Time of death.
    (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 any required payments 
for future periods.
    (b) Effect of plan or will. These rules apply even if there is a 
contrary provision in a plan or will.
    (c) Payments owed at time of death. See Secs. 4022.91 through 
4022.95 for rules that apply to benefits we may owe you at the time of 
your death, such as a correction for monthly underpayments.


Sec. 4022.102  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.
    ``You'' means the person who might die--
    (1) Without having received all required payments for future 
periods under a form of annuity promising 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
    (2) Without a surviving beneficiary designated to receive the 
payments described in paragraph (1) of this definition.


Sec. 4022.103  Who will get benefits if I die when payments for future 
periods under a certain-and-continuous or similar annuity are owed upon 
my death?

    If you die at a time when payments are owed for future periods 
under a form of annuity promising 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 payments to the person determined under the 
rules in Sec. 4022.93.


Sec. 4022.104  Examples.

    The following examples show how the rules in Secs. 4022.101 through 
4022.103 and 4022.91 through 4022.94 apply in the case of a certain-
and-continuous annuity.

    (a) C&C annuity with no underpayment. At the time of his death, 
Charlie was receiving payments (in the correct amount) under a 5-
year certain-and-continuous annuity. Charlie designated Ellen to 
receive any payments we might owe for periods after his death (but 
did not designate an alternate beneficiary to receive those payments 
in case Ellen died before him). Charlie died with three years of 
payments remaining.
    (1) Example 1: where surviving beneficiary predeceases 
participant. Ellen died before Charlie. As explained in 
Secs. 4022.103 and 4022.93, we would pay the remaining three years 
of payments to the person(s) surviving Charlie in the following 
order: spouse, children, parents, estate and next of kin.
    (2) Example 2: where surviving beneficiary dies during certain 
period. Ellen survived Charlie and lived another year. We pay Ellen 
one year of payments. As explained in Secs. 4022.103 and 4022.93, we 
would pay the remaining two years of payments to the person Ellen 
designated to receive any payments we might owe for periods after 
Ellen's death. If Ellen did not designate anyone to receive those 
payments or her designee died before her, we would pay the remaining 
year of payments to the person(s) surviving Ellen in the following 
order: spouse, children, parents, estate, next of kin.
    (b) C&C annuity with underpayment. At the time of his death, 
Charlie was receiving payments under a 5-year certain-and-continuous 
annuity. Charlie designated Ellen to receive any payments we might 
owe for periods after his death. We underpaid Charlie for periods 
before his death. At the time of his death, we owed Charlie a back 
payment to reimburse him for those underpayments.
    (1) Example 3: where participant dies during certain period. 
Charlie died with three years of payments remaining. Ellen survived 
Charlie and lived at least another three years. We pay Ellen the 
remaining three years of payments. As explained in Sec. 4022.91(b), 
because Ellen is entitled to survivor benefits under the certain-
and-continuous annuity, we would pay Ellen the back payment for the 
underpayments to Charlie (and for any underpayments to Ellen).
    (2) Example 4: where participant and surviving beneficiary die 
during certain period. Charlie died with three years of payments 
remaining. Ellen survived Charlie and lived another year. We paid 
Ellen one year of payments. Ellen designated Jean to receive any 
payments we might owe for periods after Ellen's death. Jean survived 
Ellen and lives at least another two years. We

[[Page 16959]]

pay Jean the remaining two years of payments. As explained in 
Sec. 4022.91(b), because Jean is entitled to survivor benefits under 
the certain-and-continuous annuity, we would pay Jean the back 
payment for the underpayments to Charlie (and for any underpayments 
to Ellen).
    (3) Example 5: where participant dies after certain period. 
Charlie died after receiving seven years of payments. As explained 
in Secs. 4022.91(b) and 4022.93, because benefits do not continue 
after Charlie's death under the certain-and-continuous annuity, we 
would pay the back payment to the person(s) Charlie designated to 
receive any payments we might owe him at the time of his death in 
case he died after the end of certain period. If Charlie did not 
designate anyone to receive those payments or his designee died 
before him, we would pay the back payment to the person(s) surviving 
Charlie in the following order: spouse, children, parents, estate 
and next of kin.

PART 4022B--AGGREGATE LIMITS ON GUARANTEED BENEFITS

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

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


    14. 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]

    16. 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. 4022.10 of this 
chapter)''.

    17. 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 (then or as of the next payment date 
under the plan's rules for starting benefit payments) for participants 
who, before the beginning of the 3-year period ending on the 
termination date, had reached their Earliest PBGC Retirement Date (as 
determined under Sec. 4022.10 of this chapter 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 (b)(5) 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 and 
Sec. 4022.21 of this chapter.
    (b) 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 (b)(2) 
through (b)(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 Sec. 4022.10 of this chapter, 
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.

    Issued in Washington, DC, this 2nd day of April, 2002.
Elaine L. Chao,
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. 02-8340 Filed 4-5-02; 8:45 am]
BILLING CODE 7708-01-P