Valuation and Payment of Lump Sum Benefits

PENSION BENEFIT GUARANTY CORPORATION

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

RIN 1212-AA88

Valuation and Payment of Lump Sum Benefits

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Final rule.

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SUMMARY: The Pension Benefit Guaranty Corporation is amending its

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

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

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

by ongoing plans.

DATES: The amendments to 29 CFR 4022.7, 4044.52(b), and 4044.54 are

effective July 16, 1998. (However, except to the extent they affect

determinations under Sec. 4022.7, the amendments to 29 CFR 4044.52(b)

and 4044.54 apply only to a plan with a termination date on or after

August 17, 1998.) The final rule is otherwise effective August 17,

1998.

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

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

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

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

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

connected to 202-326-4024.)

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

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

single installment) to a participant or surviving spouse without

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

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

August 5, 1997.

On April 30, 1998, the PBGC proposed to amend its regulations to

increase various $3,500 thresholds to $5,000 and to make other changes

relating to lump sum payments. The PBGC received no comments in

response to the proposed rule and is issuing the final rule without

change, as follows:

Under the final rule, the PBGC may make a lump sum payment

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

termination date. (See Sec. 4022.7 and, to the extent they affect

determinations under Sec. 4022.7, Secs. 4044.52(b), and 4044.54.) There

are special rules for applying the lump sum threshold where the PBGC

issues a determination on title IV benefits before it issues a

determination on benefits payable under ERISA section 4022(c).

Consistent with its current practice, the PBGC will give the

participant the option to receive the benefit in the form of an annuity

if the monthly benefit (at normal retirement age in the normal form for

an unmarried participant) is equal to or greater than $25.

Applicability: This amendment applies to any initial determination

issued on or after July 16, 1998. For any initial determination issued

before July 16, 1998, the PBGC may make a lump sum payment of a benefit

with a value of $5,000 or less, provided (1) the benefit is not yet in

pay status, and (2) the participant (with spousal consent) or

beneficiary elects the lump sum payment.

Under the final rule, the lump sum threshold under

Secs. 4044.52(b) and 4044.54, which is used for determining whether

lump sum or annuity assumptions are used to value benefits for purposes

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

Applicability: This amendment applies to any plan with a

termination date on or after August 17, 1998.

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

Model Participant Notice (Part 4011, Appendix A) is changed from $3,500

to $5,000.

Applicability: This amendment applies to any Participant Notice

issued on or after August 17, 1998. However, for a reasonable time

period, the PBGC will not treat a Participant Notice as failing to

satisfy the Participant Notice requirements merely because it refers to

the $3,500 threshold.

The dollar thresholds in the Missing Participants

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

(definition of missing participant annuity assumptions) and

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

Applicability: This amendment applies to missing participants for

whom the deemed distribution date is on or after August 17, 1998.

The dollar threshold up to which the plan sponsor of a

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

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

(see Sec. 4041A.43(b)(1)).

Applicability: This amendment applies to any distribution made on

or after August 17, 1998.

In the case of participant deaths after the termination

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

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

if the surviving spouse elects a lump sum (Sec. 4022.7(b)(1)(iii)).

Applicability: This amendment applies to any lump sum payment made

on or after July 16, 1998.

The final rule allows the PBGC to make a lump sum payment,

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

a certain and continuous benefit where the designated beneficiary

predeceases the participant) if the estate elects a lump sum (see

Sec. 4022.7(b)(1)(iv)).

Applicability: This amendment applies to any payment made on or

after July 16, 1998.

Finally, the final rule (1) eliminates, as unnecessary, two

provisions in its multiemployer valuation regulation that refer to the

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

is calculated by valuing the monthly annuity benefit (which excludes

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

preretirement survivor annuity).

Rulemaking Requirements

The PBGC has determined that good cause exists to make certain

amendments (the amendments to 29 CFR 4022.7 and, to the extent they

affect determinations under 29 CFR 4022.7, the amendments to

Secs. 4044.52(b) and 4044.54) effective and applicable immediately.

These amendments impose requirements only on the PBGC. A delayed

effective date is unnecessary because no person other than the PBGC

needs time to prepare. See 5 U.S.C. 553(d)(3).

E.O. 12866 and the Regulatory Flexibility Act

The PBGC has determined that this final rule is not a ``significant

regulatory action'' under the criteria set forth in Executive Order

12866. The PBGC certifies that the amendments will not have a

significant economic impact on a substantial number of small entities.

The amendments will affect only de minimis benefits and will have an

immaterial effect on liabilities

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associated with plan termination. Accordingly, as provided in section

605(b) of the Regulatory Flexibility Act, sections 603 and 604 do not

apply.

List of Subjects

29 CFR Parts 4022 and 4041A

Pension insurance, Pensions, Reporting and recordkeeping

requirements.

29 CFR Part 4044

Pension insurance, Pensions.

29 CFR Parts 4011, 4050 and 4281

Pensions, Reporting and recordkeeping requirements.

For the reasons set forth above, the PBGC is amending parts 4011,

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

PART 4011--DISCLOSURE TO PARTICIPANTS

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

follows:

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

Appendix A to Part 4011 [Amended]

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

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

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

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

exceeding $5,000.''

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

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

follows:

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

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

(d) is added, to read as follows:

Sec. 4022.7 Benefits payable in a single installment.

* * * * *

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

section:

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

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

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

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

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

determines a title IV benefit before it determines the benefit payable

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

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

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

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

threshold.

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

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

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

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

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

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

benefit in the form of an annuity.

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

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

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

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

by the surviving spouse.

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

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

a certain and continuous annuity where the designated beneficiary

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

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

estate. The payments shall be discounted using the immediate interest

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

termination date had been the date of death (or, if later, July 16,

1998).

* * * * *

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

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

PART 4041A--TERMINATION OF MULTIEMPLOYER PLANS

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

follows:

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

Sec. 4041A.43 [Amended]

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

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

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

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

follows:

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

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

revised to read as follows:

Sec. 4044.52 Valuation of benefits.

* * * * *

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

lump sums (including the return of accumulated employee contributions

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

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

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

this section, the monthly annuity benefits payable in the form

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

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

* * * * *

Sec. 4044.54 [Amended]

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

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

PART 4050--MISSING PARTICIPANTS

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

follows:

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

Sec. 4050.2 [Amended]

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

Participant Annuity Assumptions is amended by removing ``$3,500'' and

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

Sec. 4050.5 [Amended]

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

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

Appendix A to Part 4050 [Amended]

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

words ``in plans with deemed distribution dates on and after August 17,

1998''; the introductory text to Example 1 is amended by removing

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

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

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

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

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

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

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

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

paragraph (1) of Example 2 is amended by removing

[[Page 38307]]

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

PART 4281--DUTIES OF PLAN SPONSOR FOLLOWING MASS WITHDRAWAL

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

follows:

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

Sec. 4281.13 [Amended]

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

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

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

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

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

paragraphs (a) through (e).

Sec. 4281.14 [Amended]

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

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

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

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

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

Sec. 4281.15 [Removed and Reserved]

17. Section 4281.15 is removed and reserved.

Issued in Washington, DC, this 10th day of July, 1998.

Alexis M. Herman,

Chairman, Board of Directors, Pension Benefit Guaranty Corporation.

Issued on the date set forth above pursuant to a resolution of the

Board of Directors authorizing its Chairman to issue this final rule.

Terrence Deneen,

Acting Secretary, Board of Directors, Pension Benefit Guaranty

Corporation.

[FR Doc. 98-18995 Filed 7-15-98; 8:45 am]

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