Valuation and Payment of Lump Sum Benefits

PENSION BENEFIT GUARANTY CORPORATION

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

RIN 1212-AA88

Valuation and Payment of Lump Sum Benefits

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Proposed rule.

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SUMMARY: The Pension Benefit Guaranty Corporation proposes to amend its

regulations to increase the maximum value of benefits that the PBGC may

pay in lump sum form, and certain other lump sum thresholds, from

$3,500 to $5,000. The proposed amendments do not affect lump sum

benefits paid by ongoing plans.

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

ADDRESSES: Comments may be mailed to the Office of the General Counsel,

Pension Benefit Guaranty Corporation, 1200 K Street, NW., Washington,

DC 20005-4026, or delivered to Suite 340 at the above address. Comments

also may be sent by Internet e-mail to [email protected]. Comments

will be available for inspection at the PBGC's Communications and

Public Affairs Department in Suite 240 at the above address during

normal business hours.

FOR FURTHER INFORMATION CONTACT: Harold J. Ashner, Assistant General

Counsel, or Marc L. Jordan, Attorney, Pension Benefit Guaranty

Corporation, Office of the General Counsel, Suite 340, 1200 K Street,

NW., Washington, DC 20005-4026, 202-326-4024. (For TTY/TTD users, call

the Federal relay service toll-free at 1-800-877-8339 and ask to be

connected to 202-326-4024.)

SUPPLEMENTARY INFORMATION: Section 203(e) of ERISA specifies the

maximum value that a plan may provide it will pay in a lump sum (i.e.,

single installment) to a participant or surviving spouse without

consent. The Taxpayer Relief Act of 1997 increased the section 203(e)

maximum from $3,500 to $5,000 effective for plan years beginning after

August 5, 1997.

The PBGC proposes to amend its regulations to increase various

$3,500 thresholds to $5,000 and to make other changes relating to lump

sum payments:

Under the amendment, the PBGC may make a lump sum payment

of a benefit that has a value of $5,000 or less as of the plan's

termination date. The amendment provides rules for applying the lump

sum threshold where the PBGC issues a determination on title IV

benefits before it issues a determination on benefits payable under

ERISA section 4022(c). Consistent with its current practice, the PBGC

will give the participant the option to receive the benefit in the form

of an annuity if the monthly benefit (at normal retirement age in the

normal form for an unmarried participant) is equal to or greater than

$25.

Applicability: The amendment will apply to any initial

determination issued on or after the amendment's effective date. For

any initial determination issued before the amendment's effective date,

the PBGC may make a lump sum payment of a benefit with a value of

$5,000 or less, provided (1) the benefit is not yet in pay status, and

(2) the participant (with spousal consent) or beneficiary elects the

lump sum payment.

Under the amendment, the lump sum threshold under

Sec. 4044.52(b), which is used for determining whether lump sum or

annuity assumptions are used to value benefits for purposes of

allocating assets to benefits under ERISA section 4044, is $5,000.

Applicability: The amendment will apply to any plan with a

termination date on or after the amendment's effective date.

The reference to the lump sum threshold in the PBGC's

Model Participant Notice (29 CFR part 4011) is changed from $3,500 to

$5,000.

Applicability: This amendment will apply to any Participant Notice

issued on or after the amendment's effective date. However, for a

reasonable time period, the PBGC will not treat a Participant Notice as

failing to satisfy the Participant Notice requirements merely because

it refers to the $3,500 threshold.

The dollar thresholds in the Missing Participants

regulation are increased from $3,500 to $5,000. See Secs. 4050.2

(definition of missing participant annuity assumptions) and

4050.5(a)(2) (de minimis lump sum).

Applicability: This amendment will apply to missing participants

for whom the deemed distribution date is on or after the amendment's

effective date.

The dollar threshold up to which the plan sponsor of a

terminated multiemployer plan that is closing out may make a lump sum

payment of nonforfeitable benefits is increased from $3,500 to $5,000.

Applicability: This amendment will apply to any distribution made

on or after the amendment's effective date.

In the case of participant deaths after the termination

date, the amendment allows the PBGC to make a lump sum payment of a

qualified preretirement survivor annuity with a value of $5,000 or less

if the surviving spouse elects a lump sum.

Applicability: This amendment will apply to any lump sum payment

made on or after the amendment's effective date.

The amendment allows the PBGC to make a lump sum payment,

without regard to amount, of any benefits due to an estate (e.g., under

a certain and continuous benefit where the designated beneficiary

predeceases the participant) if the estate elects a lump sum.

Applicability: This amendment will apply to any payment made on or

after the amendment's effective date.

Finally, the amendment (1) eliminates, as unnecessary, two

provisions in its multiemployer valuation regulation that refer to the

$3,500 limit, and (2) makes clear that the lump sum value of a benefit

is calculated by valuing the monthly annuity benefit (which excludes

the value of certain preretirement death benefits, such as a qualified

preretirement survivor annuity).

E.O. 12866 and the Regulatory Flexibility Act

The PBGC has determined that this proposed rule is not a

``significant regulatory action'' under the criteria set forth in

Executive Order 12866. The PBGC certifies that, if adopted, the

amendment will not have a significant economic effect on a substantial

number of small entities. The amendments will affect only de minimis

benefits and will have an immaterial effect on liabilities associated

with plan termination. Accordingly, as provided in section 605(b) of

the Regulatory Flexibility Act, sections 603 and 604 do not apply.

List of Subjects

29 CFR Part 4022, 4041A

Pension insurance, Pensions, Reporting and recordkeeping

requirements.

29 CFR Part 4044

Pension insurance, Pensions.

29 CFR Part 4011, 4050, 4281

Pensions, Reporting and recordkeeping requirements.

For the reasons set forth above, the PBGC proposes to amend parts

4011, 4022, 4041A, 4044, 4050, and 4281 of 29 CFR chapter XL as

follows:

PART 4011--DISCLOSURE TO PARTICIPANTS

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

follows:

[[Page 23694]]

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

Appendix A to Part 4011 [Amended]

2. Appendix A to Part 4011 is amended by removing the sentence

``The PBGC does not pay lump sums exceeding $3,500.'' which immediately

precedes the heading ``WHERE TO GET MORE INFORMATION'', and adding in

its place the sentence ``The PBGC generally does not pay lump sums

exceeding $5,000.''

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

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

follows:

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

4. In Sec. 4022.7, paragraph (b)(1) is revised, and new paragraph

(d) is added, to read as follows:

Sec. 4022.7 Benefits payable in a single installment.

* * * * *

(b)(1) Payment in lump sum. Notwithstanding paragraph (a) of this

section:

(i) In general. If the lump sum value of a benefit payable by the

PBGC is $5,000 or less and the benefit is not yet in pay status, the

benefit may be paid in a lump sum. In determining whether the lump sum

value of a benefit is $5,000 or less, the value of any amounts returned

under paragraph (b)(2) of this section is disregarded. If the PBGC

determines a title IV benefit before it determines the benefit payable

under section 4022(c) of ERISA, the $5,000 threshold shall apply

separately to the title IV benefit. The section 4022(c) benefit shall

be paid in annuity form if the title IV benefit is paid in annuity

form, and otherwise shall be separately subject to the $5,000

threshold.

(ii) Annuity option. If the PBGC would otherwise make a lump sum

payment in accordance with paragraph (b)(1)(i) of this section and the

monthly benefit is equal to or greater than $25 (at normal retirement

age and in the normal form for an unmarried participant), the PBGC

shall provide the participant (or the beneficiary of a participant who

is deceased as of the termination date) the option to receive the

benefit in the form of an annuity.

(iii) Election of QPSA lump sum. If the lump sum value of a

qualified preretirement survivor annuity is $5,000 or less, the benefit

is not yet in pay status, and the participant dies after the

termination date, the benefit may be paid in a lump sum if so elected

by the surviving spouse.

(iv) Certain and continuous payments to estates. The PBGC may pay

any benefits payable to an estate (e.g., in the case of benefits under

a certain and continuous annuity where the designated beneficiary

predeceases the participant) in a lump sum without regard to the

threshold in paragraph (b)(1)(i) of this section if so elected by the

estate. The payments shall be discounted using the immediate interest

rate that would be applicable to the plan under Sec. 4044.52(b) if the

termination date had been the date of death (or, if later, [effective

date of final rule]).

* * * * *

(d) Determination of lump sum amount. The lump sum value of a

benefit shall be determined in accordance with Sec. 4044.52(b).

PART 4041A--TERMINATION OF MULTIEMPLOYER PLANS

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

follows:

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

Sec. 4041A.43 [Amended]

6. In Sec. 4041A.43, paragraph (b)(1) is amended by removing

``$3,500'' and adding, in its place, ``$5,000''.

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

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

follows:

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

Sec. 4044.52 [Amended]

8. In section 4044.52, the introductory text to paragraph (b) is

revised to read as follows:

Sec. 4044.52 Valuation of benefits.

* * * * *

(b) Benefits payable as lump sums. For valuing benefits payable as

lump sums (including the return of accumulated employee contributions

upon death), and for determining whether the lump sum value of a

benefit exceeds $5,000, the plan administrator shall determine the lump

sum value of a benefit by valuing, in accordance with paragraph (a) of

this section, the monthly annuity benefits payable in the form

determined under Sec. 4044.51(a) and commencing at the time determined

under Sec. 4044.51(b), except that--

* * * * *

Sec. 4044.54 [Amended]

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

its place, ``$5,000''.

PART 4050--MISSING PARTICIPANTS

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

follows:

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

Sec. 4050.2 [Amended]

11. In Sec. 4050.2, paragraph (5) of the definition of Missing

participant annuity assumptions is amended by removing ``$3,500'' and

adding, in its place, ``$5,000''.

Sec. 4050.5 [Amended]

12. In Sec. 4050.5, paragraph (a)(2) is amended by removing

``$3,500'' and adding, in its place, ``$5,000''.

Appendix A to Part 4050 [Amended]

13. In Appendix A, the heading is amended by adding at the end, the

words ``in Plans With Deemed Distribution Dates on and After [effective

date of final rule]''; the introductory text to Example 1 is amended by

removing ``$1,750'' and adding, in its place, ``$3,500''; paragraph (1)

to Example 1 is amended by removing ``$1,700'' each time it appears and

adding, in each place, ``$3,000''; paragraph (2) to Example 1 is

amended by removing ``$3,700'' and adding, in its place, ``$5,200'' and

removing ``$3,200'' each time it appears and adding, in each place,

``$4,700''; paragraph (3) to Example 1 is amended by removing

``$3,400'' and adding, in its place, ``$4,900'' and removing ``$3,450''

each time it appears and adding, in each place, ``$4,950''; and

paragraph (1) of Example 2 is amended by removing ``$3,500'' and

adding, in its place, ``$5,000''.

PART 4281--DUTIES OF PLAN SPONSOR FOLLOWING MASS WITHDRAWAL

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

follows:

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

Sec. 4281.13 [Amended]

15. In section 4281.13, paragraph (b) is removed, the introductory

text to paragraph (a) is amended by removing the paragraph designation,

the heading, and the words ``paragraph (b) of this section (regarding

the valuations of benefits payable as lump sums under trusteed plans)

and'', and paragraphs (a)(1) through (a)(5) are redesignated as

paragraphs (a) through (e).

Sec. 4281.14 [Amended]

16. In section 4281.14, the section heading is amended by removing

the phrase ``--in general'', and paragraph (a) is amended by removing

the words

[[Page 23695]]

``Except as otherwise provided in Sec. 4281.15 (regarding the valuation

of benefits payable as lump sums under trusteed plans), and subject''

and adding, in their place, the word ``Subject''.

Sec. 4281.15 [Removed and Reserved]

17. Section 4281.15 is removed and reserved.

Issued in Washington, D.C. this 24th day of April, 1998.

David M. Strauss,

Executive Director, Pension Benefit Guaranty Corporation.

[FR Doc. 98-11519 Filed 4-29-98; 8:45 am]

BILLING CODE 7708-01-P