29 C.F.R. Subpart C—Distress Termination Process
Title 29 - Labor
(a) Distress requirements. A plan may be terminated in a distress termination only if— (1) The plan administrator issues a notice of intent to terminate to each affected party in accordance with §4041.43 at least 60 days and (except with PBGC approval) not more than 90 days before the proposed termination date; (2) The plan administrator files a distress termination notice with the PBGC in accordance with §4041.45 no later than 120 days after the proposed termination date; and (3) The PBGC determines that each contributing sponsor and each member of its controlled group satisfy one of the distress criteria set forth in paragraph (c) of this section. (b) Effect of failure to satisfy requirements. (1) Except as provided in paragraph (b)(2)(i) of this section, if the plan administrator does not satisfy all of the requirements for a distress termination, any action taken to effect the plan termination is null and void, and the plan is an ongoing plan. A plan administrator who still desires to terminate the plan must initiate the termination process again, starting with the issuance of a new notice of intent to terminate. (2)(i) The PBGC may, upon its own motion, waive any requirement with respect to notices to be filed with the PBGC under paragraph (a)(1) or (a)(2) of this section if the PBGC believes that it will be less costly or administratively burdensome to the PBGC to do so. The PBGC will not entertain requests for waivers under this paragraph. (ii) Notwithstanding any other provision of this part, the PBGC retains the authority in any case to initiate a plan termination in accordance with the provisions of section 4042 of ERISA. (c) Distress criteria. In a distress termination, each contributing sponsor and each member of its controlled group must satisfy at least one (but not necessarily the same one) of the following criteria in order for a distress termination to occur: (1) Liquidation. This criterion is met if, as of the proposed termination date— (i) A person has filed or had filed against it a petition seeking liquidation in a case under title 11, United States Code, or under a similar federal law or law of a State or political subdivision of a State, or a case described in paragraph (e)(2) of this section has been converted to such a case; and (ii) The case has not been dismissed. (2) Reorganization. This criterion is met if— (i) As of the proposed termination date, a person has filed or had filed against it a petition seeking reorganization in a case under title 11, United States Code, or under a similar law of a state or a political subdivision of a state, or a case described in paragraph (e)(1) of this section has been converted to such a case; (ii) As of the proposed termination date, the case has not been dismissed; (iii) The person notifies the PBGC of any request to the bankruptcy court (or other appropriate court in a case under such similar law of a state or a political subdivision of a state) for approval of the plan termination by concurrently filing with the PBGC a copy of the motion requesting court approval, including any documents submitted in support of the request; and (iv) The bankruptcy court or other appropriate court determines that, unless the plan is terminated, such person will be unable to pay all its debts pursuant to a plan of reorganization and will be unable to continue in business outside the reorganization process and approves the plan termination. (3) Inability to continue in business. This criterion is met if a person demonstrates to the satisfaction of the PBGC that, unless a distress termination occurs, the person will be unable to pay its debts when due and to continue in business. (4) Unreasonably burdensome pension costs. This criterion is met if a person demonstrates to the satisfaction of the PBGC that the person's costs of providing pension coverage have become unreasonably burdensome solely as a result of declining covered employment under all single-employer plans for which that person is a contributing sponsor. (d) Non-duplicative efforts. (1) If a person requests approval of the plan termination by a court, as described in paragraph (c)(2) of this section, the PBGC— (i) Will normally enter an appearance to request that the court make specific findings as to whether the contributing sponsor or controlled group member meets the distress test in paragraph (c)(3) of this section, or state that it is unable to make such findings; (ii) Will provide the court with any information it has that may be germane to the court's ruling; (iii) Will, if the person has requested, or later requests, a determination by the PBGC under paragraph (c)(3) of this section, defer action on the request until the court makes its determination; and (iv) Will be bound by a final and non-appealable order of the court. (2) If a person requests a determination by the PBGC under paragraph (c)(3) of this section, the PBGC determines that the distress criterion is not met, and the person thereafter requests approval of the plan termination by a court, as described in paragraph (c)(2) of this section, the PBGC will advise the court of its determination and make its administrative record available to the court. (e) Non-recognition of certain actions. If the PBGC finds that a person undertook any action or failed to act for the principal purpose of satisfying any of the distress criteria contained in paragraph (c) of this section, rather than for a reasonable business purpose, the PBGC will disregard such act or failure to act in determining whether the person has satisfied any of those criteria. (f) Requests for deadline extensions. The PBGC may extend any deadline under this subpart in accordance with the rules described in section §4041.30, except that the PBGC will not extend— (1) Pre-distribution deadlines. The 60-day time limit under §4041.43(a) for issuing the notice of intent to terminate; or (2) Post-distribution deadlines. The deadline under §4041.50 for filing the post-distribution certification. (a) General rule. Except to the extent specifically prohibited by this section, during the pendency of termination proceedings the plan administrator must continue to carry out the normal operations of the plan, such as putting participants into pay status, collecting contributions due the plan, and investing plan assets. (b) Prohibitions after issuing notice of intent to terminate. The plan administrator may not make loans to plan participants beginning on the first day he or she issues a notice of intent to terminate, and from that date until a distribution is permitted pursuant to §4041.50, the plan administrator may not— (1) Distribute plan assets pursuant to, or (except as required by this part) take any other actions to implement, the termination of the plan; (2) Pay benefits attributable to employer contributions, other than death benefits, in any form other than as an annuity; or (3) Purchase irrevocable commitments to provide benefits from an insurer. (c) Limitation on benefit payments on or after proposed termination date. Beginning on the proposed termination date, the plan administrator must reduce benefits to the level determined under part 4022, subpart D, of this chapter. (d) Failure to qualify for distress termination. In any case where the PBGC determines, pursuant to §4041.44(c) or §4041.46(c)(1), that the requirements for a distress termination are not satisfied— (1) The prohibitions in paragraph (b) of this section, other than those in paragraph (b)(1), will cease to apply— (i) Upon expiration of the period during which reconsideration may be requested under §§4041.44(e) and 4041.46(e) or, if earlier, at the time the plan administrator decides not to request reconsideration; or (ii) If reconsideration is requested, upon PBGC issuance of its decision on reconsideration. (2) Any benefits that were not paid pursuant to paragraph (c) of this section will be due and payable as of the effective date of the PBGC's determination, together with interest from the date (or dates) on which the unpaid amounts were originally due until the date on which they are paid in full at the rate or rates prescribed under §4022.81(c)(3) of this chapter. (e) Effect of subsequent insufficiency. If the plan administrator makes a finding of subsequent insufficiency for guaranteed benefits pursuant to §4041.49(b), or the PBGC notifies the plan administrator that it has made a finding of subsequent insufficiency for guaranteed benefits pursuant to §4041.40(d), the prohibitions in paragraph (b) of this section will apply in accordance with §4041.49(e). [62 FR 60428, Nov. 7, 1997, as amended at 63 FR 29355, May 29, 1998] (a) General rules. (1) At least 60 days and (except with PBGC approval) no more than 90 days before the proposed termination date, the plan administrator must issue a written notice of intent to terminate to each person who is an affected party as of the proposed termination date. (2) The plan administrator must issue the notice of intent to terminate to all affected parties other than the PBGC at or before the time he or she files the notice with the PBGC. (3) The notice to affected parties other than the PBGC must contain all of the information specified in paragraph (b) of this section. (4) The notice to the PBGC must be filed on PBGC Form 600, Distress Termination, Notice of Intent to Terminate, completed in accordance with the instructions thereto. (5) In the case of a beneficiary of a deceased participant or an alternate payee, the plan administrator must issue a notice of intent to terminate promptly to any person that becomes an affected party after the proposed termination date and on or before the date a trustee is appointed for the plan pursuant to section 4042(c) of ERISA (or, in the case of a plan that distributes assets pursuant to §4041.50, the distribution date). (b) Contents of notice to affected parties other than the PBGC. The plan administrator must include in the notice of intent to terminate to each affected party other than the PBGC all of the following information: (1) The name of the plan and of the contributing sponsor; (2) The EIN of the contributing sponsor and the PN; if there is no EIN or PN, the notice must so state; (3) The name, address, and telephone number of the person who may be contacted by an affected party with questions concerning the plan's termination; (4) A statement that the plan administrator expects to terminate the plan in a distress termination on a specified proposed termination date; (5) The cessation of accruals information in §4041.23(b)(4); (6) A statement as to how an affected party entitled to receive the latest updated summary plan description under section 104(b) of ERISA can obtain it; (7) A statement of whether plan assets are sufficient to pay all guaranteed benefits or all benefit liabilities; (8) A brief description of what benefits are guaranteed by the PBGC (e.g., if only a portion of the benefits are guaranteed because of the phase-in rule, this should be explained), and a statement that participants and beneficiaries also may receive a portion of the benefits to which each is entitled under the terms of the plan in excess of guaranteed benefits; and (9) A statement, if applicable, that benefits may be subject to reduction because of the limitations on the amounts guaranteed by the PBGC or because plan assets are insufficient to pay for full benefits (pursuant to part 4022, subparts B and D, of this chapter) and that payments in excess of the amount guaranteed by the PBGC may be recouped by the PBGC (pursuant to part 4022, subpart E, of this chapter). (c) Spin-off/termination transactions. In the case of a spin-off/termination transaction (as described in §4041.23(c)), the plan administrator must provide all participants and beneficiaries in the original plan who are also participants or beneficiaries in the ongoing plan (as of the proposed termination date) with a notice describing the transaction no later than the date on which the plan administrator completes the issuance of notices of intent to terminate under this section. (a) General. When a notice of intent to terminate is filed with it, the PBGC— (1) Will determine whether the notice was issued in compliance with §4041.43; and (2) Will advise the plan administrator of its determination, in accordance with paragraph (b) or (c) of this section, no later than the proposed termination date specified in the notice. (b) Tentative finding of compliance. If the PBGC determines that the issuance of the notice of intent to terminate appears to be in compliance with §4041.43, it will notify the plan administrator in writing that— (1) The PBGC has made a tentative determination of compliance; (2) The distress termination proceeding may continue; and (3) After reviewing the distress termination notice filed pursuant to §4041.45, the PBGC will make final, or reverse, this tentative determination. (c) Finding of noncompliance. If the PBGC determines that the issuance of the notice of intent to terminate was not in compliance with §4041.43 (except for requirements that the PBGC elects to waive under §4041.41(b)(2)(i) with respect to the notice filed with the PBGC), the PBGC will notify the plan administrator in writing— (1) That the PBGC has determined that the notice of intent to terminate was not properly issued; and (2) That the proposed distress termination is null and void and the plan is an ongoing plan. (d) Information on need to institute section 4042 proceedings. The PBGC may require the plan administrator to submit, within 20 days after the plan administrator's receipt of the PBGC's written request (or such other period as may be specified in such written request), any information that the PBGC determines it needs in order to decide whether to institute termination or trusteeship proceedings pursuant to section 4042 of ERISA, whenever— (1) A notice of intent to terminate indicates that benefits currently in pay status (or that should be in pay status) are not being paid or that this is likely to occur within the 180-day period following the issuance of the notice of intent to terminate; (2) The PBGC issues a determination under paragraph (c) of this section; or (3) The PBGC has any reason to believe that it may be necessary or appropriate to institute proceedings under section 4042 of ERISA. (e) Reconsideration of finding of noncompliance. A plan administrator may request reconsideration of the PBGC's determination of noncompliance under paragraph (c) of this section in accordance with the rules prescribed in part 4003, subpart C, of this chapter. Any request for reconsideration automatically stays the effectiveness of the determination until the PBGC issues its decision on reconsideration, but does not stay the time period within which information must be submitted to the PBGC in response to a request under paragraph (d) of this section. (f) Notice to affected parties. Upon a decision by the PBGC affirming a finding of noncompliance or upon the expiration of the period within which the plan administrator may request reconsideration of a finding of noncompliance (or, if earlier, upon the plan administrator's decision not to request reconsideration), the plan administrator must notify the affected parties (and any persons who were provided notice under §4041.43(e)) in writing that the plan is not going to terminate or, if applicable, that the termination is invalid but that a new notice of intent to terminate is being issued. (a) General rule. The plan administrator must file with the PBGC a PBGC Form 601, Distress Termination Notice, Single-Employer Plan Termination, with Schedule EA-D, Distress Termination Enrolled Actuary Certification, that has been completed in accordance with the instructions thereto, on or before the 120th day after the proposed termination date. (b) Participant and benefit information—(1) Plan insufficient for guaranteed benefits. Unless the enrolled actuary certifies, in the Schedule EA-D filed in accordance with paragraph (a) of this section, that the plan is sufficient either for guaranteed benefits or for benefit liabilities, the plan administrator must file with the PBGC the participant and benefit information described in PBGC Form 601 and the instructions thereto by the later of— (i) 120 days after the proposed termination date, or (ii) 30 days after receipt of the PBGC's determination, pursuant to §4041.46(b), that the requirements for a distress termination have been satisfied. (2) Plan sufficient for guaranteed benefits or benefit liabilities. If the enrolled actuary certifies that the plan is sufficient either for guaranteed benefits or for benefit liabilities, the plan administrator need not submit the participant and benefit information described in PBGC Form 601 and the instructions thereto unless requested to do so pursuant to paragraph (c) of this section. (3) Effect of failure to provide information. The PBGC may void the distress termination if the plan administrator fails to provide complete participant and benefit information in accordance with this section. (c) Additional information. The PBGC may in any case require the submission of any additional information that it needs to make the determinations that it is required to make under this part or to pay benefits pursuant to section 4061 or 4022(c) of ERISA. The plan administrator must submit any information requested under this paragraph within 30 days after receiving the PBGC's written request (or such other period as may be specified in such written request). (a) General. Based on the information contained and submitted with the PBGC Form 600 and the PBGC Form 601, with Schedule EA-D, and on any information submitted by an affected party or otherwise obtained by the PBGC, the PBGC will determine whether the requirements for a distress termination set forth in §4041.41(c) have been met and will notify the plan administrator in writing of its determination, in accordance with paragraph (b) or (c) of this section. (b) Qualifying termination. If the PBGC determines that all of the requirements of §4041.41(c) have been satisfied, it will so advise the plan administrator and will also advise the plan administrator of whether participant and benefit information must be submitted in accordance with §4041.45(b). (c) Non-qualifying termination. (1) Except as provided in paragraph (c)(2) of this section, if the PBGC determines that any of the requirements of §4041.41 have not been met, it will notify the plan administrator of its determination, the basis therefor, and the effect thereof (as provided in §4041.41(b)). (2) If the only basis for the PBGC's determination described in paragraph (c)(1) of this section is that the distress termination notice is incomplete, the PBGC will advise the plan administrator of the missing item(s) of information and that the information must be filed with the PBGC no later than the 120th day after the proposed termination date or the 30th day after the date of the PBGC's notice of its determination, whichever is later. (d) Reconsideration of determination of non-qualification. A plan administrator may request reconsideration of the PBGC's determination under paragraph (c)(1) of this section in accordance with the rules prescribed in part 4003, subpart C, of this chapter. The filing of a request for reconsideration automatically stays the effectiveness of the determination until the PBGC issues its decision on reconsideration. (e) Notice to affected parties. Upon a decision by the PBGC affirming a determination of non-qualification or upon the expiration of the period within which the plan administrator may request reconsideration of a determination of non-qualification (or, if earlier, upon the plan administrator's decision not to request reconsideration), the plan administrator must notify the affected parties (and any persons who were provided notice under §4041.43(e)) in writing that the plan is not going to terminate or, if applicable, that the termination is invalid but that a new notice of intent to terminate is being issued. (a) General. Upon receipt of participant and benefit information filed pursuant to §4041.45 (b)(1) or (c), the PBGC will determine the degree to which the plan is sufficient and notify the plan administrator in writing of its determination in accordance with paragraph (b) or (c) of this section. (b) Insufficiency for guaranteed benefits. If the PBGC finds that it is unable to determine that a plan is sufficient for guaranteed benefits, it will issue a “notice of inability to determine sufficiency” notifying the plan administrator of this finding and advising the plan administrator that— (1) The plan administrator must continue to administer the plan under the restrictions imposed by §4041.42; and (2) The termination will be completed under section 4042 of ERISA. (c) Sufficiency for guaranteed benefits or benefit liabilities. If the PBGC determines that a plan is sufficient for guaranteed benefits but not for benefit liabilities or is sufficient for benefit liabilities, the PBGC will issue to the plan administrator a distribution notice advising the plan administrator— (1) To issue notices of benefit distribution in accordance with §4041.48; (2) To close out the plan in accordance with §4041.50; (3) To file a timely post-distribution certification with the PBGC in accordance with §4041.50(b); and (4) That either the plan administrator or the contributing sponsor must preserve and maintain plan records in accordance with §4041.5. (d) Alternative treatment of majority owner's benefit. A majority owner may elect to forgo receipt of all or part of his or her plan benefits in connection with a distress termination. Any such alternative treatment— (1) Is valid only if the conditions in §4041.21(b)(2) (i) through (iv) are met (except that, in the case of a plan that does not distribute assets pursuant to §4041.50, the majority owner may make the election and the spouse may consent any time on or after the date of issuance of the first notice of intent to terminate); and— (2) Is subject to the PBGC's approval if the election— (i) Is made after the termination date; and (ii) Would result in the PBGC determining that the plan is sufficient for guaranteed benefits under paragraph (c). (a) Notices of benefit distribution. When a distribution notice is issued by the PBGC pursuant to §4041.47, the plan administrator must issue notices of benefit distribution in accordance with the rules regarding notices of plan benefits in §4041.24, except that— (1) The deadline for issuing the notices of benefit distribution is the 60th day after receipt of the distribution notice; and (2) With respect to the information described in §4041.24 (b) through (e), the term “plan benefits” is replaced with “title IV benefits” and the term “proposed termination date” is replaced with “termination date”. (b) Certification to PBGC. No later than 15 days after the date on which the plan administrator completes the issuance of the notices of benefit distribution, the plan administrator must file with the PBGC a certification that the notices were so issued in accordance with the requirements of this section. (c) Notice of annuity information. (1) In general. Unless all title IV benefits will be distributed in the form of nonconsensual lump sums, the plan administrator must provide a notice of annuity information to each affected party other than— (i) An affected party whose title IV benefits will be distributed in the form of a nonconsensual lump sum; and (ii) The PBGC. (2) Spin-off/termination transactions. The plan administrator must provide the information in paragraph (c)(4) of this section to a person entitled to notice under §4041.43(c), at the same time and in the same manner as required for an affected party described in paragraph (c)(1) of this section. (3) Selection of different insurer. A plan administrator that decides to select a different insurer after having previously notified the affected party of the identity of insurer(s) under this paragraph must provide another notice of annuity information. (4) Content of notice. The notice must include— (i) The identity-of-insurer information in §4041.27(b)(1); (ii) The information regarding change in identity of insurer(s) in §4041.27(b)(2); and (iii) Unless the state guaranty coverage information in §4041.27(b)(3) was previously provided to the affected party, such information and the extinguishment-of-guaranty information in §4041.23(b)(9) (replacing the term “plan benefits” with “title IV benefits”). (5) Deadline for notice. The plan administrator must issue the notice of annuity information to each affected party by the deadline in §4041.27(d)(1). (d) Request for IRS determination letter. To qualify for the distribution deadline in §4041.28(a)(1)(ii) (as modified and made applicable by §4041.50(c)), the plan administrator must submit to the IRS a valid request for a determination of the plan's qualification status upon termination (“determination letter”) by the day on which the plan administrator completes the issuance of the notices of benefit distribution. (a) General rule. Before distributing plan assets pursuant to a closeout under §4041.50, the plan administrator must verify whether the plan's assets are still sufficient to provide for benefits at the level determined by the PBGC, i.e., guaranteed benefits or benefit liabilities. If the plan administrator finds that the plan is no longer able to provide for benefits at the level determined by the PBGC, then paragraph (b) or (c) of this section, as appropriate, will apply. (b) Subsequent insufficiency for guaranteed benefits. When a plan administrator finds that a plan is no longer sufficient for guaranteed benefits, the plan administrator must promptly notify the PBGC in writing of that fact and may take no further action to implement the plan termination, pending the PBGC's determination and notice pursuant to paragraph (b)(1) or (b)(2) of this section. (1) PBGC concurrence with finding. If the PBGC concurs with the plan administrator's finding, the distribution notice will be void, and the PBGC will— (i) Issue the plan administrator a notice of inability to determine sufficiency in accordance with §4041.47(b); and (ii) Require the plan administrator to submit a new valuation, certified to by an enrolled actuary, of the benefit liabilities and guaranteed benefits under the plan, valued in accordance with §§4044.41 through 4044.57 of this chapter as of the date of the plan administrator's notice to the PBGC. (2) PBGC non-concurrence with finding. If the PBGC does not concur with the plan administrator's finding, it will so notify the plan administrator in writing, and the distribution notice will remain in effect. (c) Subsequent insufficiency for benefit liabilities. When a plan administrator finds that a plan is sufficient for guaranteed benefits but is no longer sufficient for benefit liabilities, the plan administrator must immediately notify the PBGC in writing of this fact, but must continue with the distribution of assets in accordance with §4041.50. (d) Finding by PBGC of subsequent insufficiency. In any case in which the PBGC finds on its own initiative that a subsequent insufficiency for guaranteed benefits has occurred, paragraph (b)(1) of this section will apply, except that the guaranteed benefits must be revalued as of the date of the PBGC's finding. (e) Restrictions upon finding of subsequent insufficiency. When the plan administrator makes the finding described in paragraph (b) of this section or receives notice that the PBGC has made the finding described in paragraph (d) of this section, the plan administrator is (except to the extent the PBGC otherwise directs) subject to the prohibitions in §4041.42. If a plan administrator receives a distribution notice from the PBGC pursuant to §4041.47 and neither the plan administrator nor the PBGC makes the finding described in §4041.49(b) or (d), the plan administrator must distribute plan assets in accordance with §4041.28 and file a post-distribution certification in accordance with §4041.29, except that— (a) The term “plan benefits” is replaced with “title IV benefits”; (b) For purposes of applying the distribution deadline in §4041.28(a)(1)(i), the phrase “after the expiration of the PBGC's 60-day (or extended) review period under §4041.26(a)” is replaced with “the day on which the plan administrator completes the issuance of the notices of benefit distribution pursuant to §4041.48(a)”; and (c) For purposes of applying the distribution deadline in §4041.28(a)(1)(ii), the phrase “the requirements of §4041.25(c)” is replaced with “the requirements of §4041.48(d)”.
Title 29: Labor
PART 4041—TERMINATION OF SINGLE-EMPLOYER PLANS
Subpart C—Distress Termination Process
§ 4041.41 Requirements for a distress termination.
§ 4041.42 Administration of plan during termination process.
§ 4041.43 Notice of intent to terminate.
§ 4041.44 PBGC review of notice of intent to terminate.
§ 4041.45 Distress termination notice.
§ 4041.46 PBGC determination of compliance with requirements for distress termination.
§ 4041.47 PBGC determination of plan sufficiency/insufficiency.
§ 4041.48 Sufficient plans; notice requirements.
§ 4041.49 Verification of plan sufficiency prior to closeout.
§ 4041.50 Closeout of plan.
