The Pension Benefit Guaranty Corporation launched a permanent coverage assessment program, giving prospective sponsors of defined benefit pension plans a way to determine, before a new plan is established, whether a proposed plan design would fall under PBGC’s Single-Employer Insurance Program.
The initiative expands a process previously available primarily to the sponsors of existing plans that were seeking formal coverage determinations. Under the new program, an employer considering launching a defined benefit plan can request a coverage assessment letter in advance, a step the PBGC stated could be particularly useful for small businesses weighing whether and how to establish a pension plan.
The program revives an earlier PBGC pilot that expired in 2022 and makes the coverage-assessment process permanent.
The move addresses an area in which coverage can depend heavily on a plan’s structure and circumstances. The PBGC generally insures private sector defined benefit plans, but statutory exceptions apply, including certain small professional service employer plans, plans maintained exclusively for substantial owners, certain Puerto Rico-based plans and church plans.
For example, a qualified defined benefit plan maintained by a professional service employer can be exempt if it has never covered more than 25 active participants since the Employee Retirement Income Security Act was enacted in 1974, and meets the professional service requirements. Plans maintained exclusively for “substantial owners” also can be exempt from PBGC coverage.
The PBGC’s announcement noted that coverage questions are not always straightforward because determinations are controlled by law and because of specific facts and circumstances related to each plan. The agency advised sponsors that are uncertain about an existing plan’s status to request a formal coverage determination; prospective sponsors unsure whether a proposed plan would qualify for an exemption can now request an assessment letter.
The new program gives employers an opportunity to resolve those questions earlier in the plan-design process, potentially clarifying whether PBGC premiums and other agency requirements will apply before a sponsor commits to establishing the plan.
Tags: PBGC