PBGC Proposes Rules Allowing Lifetime Benefit Rollover Option For Defined Contribution Participant Account Balances

April 1, 2014

The Pension Benefit Guaranty Corporation (PBGC) is touting a proposal that would add the option for 401(k) and other defined contribution plan participants to elect at time of distribution to have the balance of their 401(k) plan account converted to traditional pensions.

Under proposed rules slated for publication in the April 2, 2014 Federal Register, the PBGC plans to define rules under which the defined contribution plans could offer employees with rollover options the opportunity to move their benefits from defined contribution plans to defined benefit plans and outline safeguards for benefits that are rolled over from defined contribution plans.

Under the new proposal, benefits earned from a rollover generally would not be affected by PBGC’s maximum guarantee limits. Currently the agency’s maximum guaranteed benefit for a 65-year-old retiree is almost $59,320 a year.

Also, rollover amounts generally would remain untouched by PBGC’s so-called five-year phase-in limits. Normally, benefit increases from changes to a plan in the five years before it ends are partially guaranteed. For instance, 20 percent of the increase is paid after one year, 40 percent after two years and so on. Under the new proposal, these restrictions generally would not apply

The PBGC proposal to allow defined contribution participants to convert their account balances into lifetime annuities at distribution reflects the general enthusiasm within the PBGC, the Employee Benefit Security Administration (EBSA) and other agencies for arrangements that annuitize defined contribution accounts that provides a guaranteed fixed income for the participant for the balance of his or her lifetime.  In its April 1, 2014 announcement of impending publication of the proposed rule, the PBGC touts its proposal as making it “easier for participants in 401(k) plans to get higher returns and get lifetime income” by moving their funds into traditional pensions while removing “the fear that the amounts rolled over would suffer under guarantee limits should PBGC step in and pay benefits.”

“What we’re doing will hopefully give people an incentive to choose a savings option that they can’t outlive or outspend,” said PBGC Director Josh Gotbaum. “Annuities always offer greater retirement security.”

In the wake of the massive decline in retirement savings that came with scandals like Enron and Madoff and the economic downturn have fueled new support among the PBGC and other supporters of “lifetime income” arrangements, critics warn that the annuitizing an account to provide lifetime benefits in a low performing market is costly and cuts the recipient out of the opportunity to benefit if and when the market strengthens. They also warn that market downturns also can adversely affect the security of annuitized products. The notorious failures of the insurers providing “guaranteed investment income” in the 1980s led to the demise of GICs just as the real estate bust necessitated a government bailout to keep AIG and other insurers afloat. The PBGC and other advocates hope that their proposed standards for lifetime income accounts can produce the benefits of a lifetime income with little risk to the recipients.

 For Representation, Training & Other Resources

If you need assistance monitoring these and other regulatory policy, enforcement, litigation or other developments, or to review or respond to these or other workforce, benefits and compensation, performance and risk management, compliance, enforcement or management concerns, the author of this update, attorney Cynthia Marcotte Stamer may be able to help.

Board Certified in Labor & Employment Law, Past Chair of the ABA RPTE Employee Benefit & Other Compensation Arrangements Group, Co-Chair and Past Chair of the ABA RPTE Welfare Plan Committee, Vice Chair of the ABA TIPS Employee Benefit Plans Committee, Vice President of the North Texas Health Care Compliance Professionals Association, Past Chair of the ABA Health Law Section Managed Care & Insurance Section and the former Board Compliance Chair of the National Kidney Foundation of North Texas, Ms. Stamer has more than 25 years’ experience advising health plan and employee benefit, insurance, financial services, employer and health industry clients about these and other matters. Ms. Stamer has extensive experience advising and assisting health care providers, health plans, their business associates and other health industry clients to establish and administer medical privacy and other compliance and risk management policies, to health care industry investigation, enforcement and other compliance, public policy, regulatory, staffing, and other operations and risk management concerns. The scribe for the ABA JCEB Annual Agency Meeting with the Office of Civil Rights (OCR) for the past several years who has worked on medical and other privacy concerns throughout her career, she regularly designs and presents HIPAA and other risk management, compliance and other training for health plans, employers, health care providers, professional associations and others, defends covered entities and business associates against OCR, FTC and other privacy and data security investigations, serves as special counsel in litigation arising from these concerns and is the author of several highly regarded publications on HIPAA and other privacy and security concerns.

Ms. Stamer also regularly works with OCR, FTC, USSS, FBI and state and local law enforcement on privacy, data security, health care, benefits and insurance and other matters, publishes and speaks extensively on medical and other privacy and data security, health and managed care industry regulatory, staffing and human resources, compensation and benefits, technology, public policy, reimbursement and other operations and risk management concerns. Her publications and insights appear in the Health Care Compliance Association, Atlantic Information Service, Bureau of National Affairs, World At Work, The Wall Street Journal, Business Insurance, the Dallas Morning News, Modern Health Care, Managed Healthcare, Health Leaders, and a many other national and local publications. For instance, Ms. Stamer for the third year will serve as the appointed scribe for the ABA Joint Committee on Employee Benefits Agency meeting with OCR. Her insights on HIPAA risk management and compliance frequently appear in medical privacy related publications of a broad range of health care, health plan and other industry publications Among others, she has conducted privacy training for the Association of State & Territorial Health Plans (ASTHO), the Los Angeles Health Department, the American Bar Association, the Health Care Compliance Association, a multitude of health industry, health plan, insurance and financial services, education, employer employee benefit and other clients, trade and professional associations and others.  You can get more information about her HIPAA and other experience here.

You can review other recent human resources, employee benefits and internal controls publications and resources and additional information about the employment, employee benefits and other experience of the Cynthia Marcotte Stamer, PC here. If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information – including your preferred e-mail – by creating or updating your profile www.cynthiastamer.com or by registering to participate in the distribution of these and other updates on our HR & Employee Benefits Update distributions here including:

 

If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information including your preferred e-mail by creating or updating your profile here. For important information concerning this communication click here©2014 Cynthia Marcotte Stamer. Limited, non-exclusive right to republished granted to Solutions Law Press, Inc. All other rights reserved.


2013 Maximum Yearly PBGC Guaranteed Pension Benefit Amount To Increase Slightly In 2013

November 28, 2012

The yearly maximum guaranteed benefit for a 65-year-old retiree under the Pension Benefit Guaranty Corporation (PBGC) insurance program will increase to almost $57,500 in 2013, up from $56,000 in 2012.  Beginning in 2013, the PBGC announced November 27, 2012 that the maximum yearly guarantee for a 65-year-old retiree is $57,477.24. The increase is not retroactive.

The slight increase in the  guaranteed benefit is likely to be meaningful for the many pensioners receiving benefits under pension plans covered by the PBGC insurance program. This program insures guaranteed benefits amounts for pensioners of defined benefit plans covered by the PBGC insurance programs that are underfunded under the PBGC rules when terminated and otherwise meet program requirements.  Most retirees who get their pension from PBGC — almost 85 percent — receive the full amount of their promised benefit. In some cases, retirees can receive more than the PBGC maximum guarantee.

The PBGC maximum guarantee is based on a formula prescribed by federal law. Yearly amounts are higher for people older than age 65, and lower for those who retire earlier or choose survivor benefits (see chart).  If a pension plan ends in 2013, but a retiree does not begin collecting benefits until a future year, the 2013 rates still apply. For plans that terminate as a result of bankruptcy, the maximum yearly rates are guided by the limits in effect on the day the bankruptcy started, not the day the plan ended.

The following chart shows the 2013 annual and monthly maximum benefit guarantees for retirees from ages 45 to 75. The maximum amount is lower for retirees who begin getting benefits at ages below 65, reflecting the fact that younger retirees receive more monthly pension checks over a longer lifetime. The maximum amount is higher for benefits starting at ages above 65, because older retirees receive fewer monthly pension checks over their expected lifetimes.

PBGC Maximum Monthly Guarantees for 2013
Age Annual Maximum Monthly Maximum Monthly Joint and 50% Survivor Maximum*
75 174,730.80 14,560.90 13,104.81
74 158,867.04 13,238.92 11,915.03
73 143,003.40 11,916.95 10,725.26
72 127,139.64 10,594.97 9,535.47
71 111,275.88 9,272.99 8,345.69
70 95,412.24 7,951.02 7,155.92
69 85,641.12 7,136.76 6,423.08
68 77,019.48 6,418.29 5,776.46
67 69,547.44 5,795.62 5,216.06
66 63,225.00 5,268.75 4,741.88
65 57,477.24 4,789.77 4,310.79
64 53,453.88 4,454.49 4,009.04
63 49,430.40 4,119.20 3,707.28
62 45,407.04 3,783.92 3,405.53
61 41,383.56 3,448.63 3,103.77
60 37,360.20 3,113.35 2,802.02
59 35,061.12 2,921.76 2,629.58
58 32,762.04 2,730.17 2,457.15
57 30,462.96 2,538.58 2,284.72
56 28,163.88 2,346.99 2,112.29
55 25,864.80 2,155.40 1,939.86
54 24,715.20 2,059.60 1,853.64
53 23,565.72 1,963.81 1,767.43
52 22,416.12 1,868.01 1,681.21
51 21,266.52 1,772.21 1,594.99
50 20,117.04 1,676.42 1,508.78
49 18,967.44 1,580.62 1,422.56
48 17,817.96 1,484.83 1,336.35
47 16,668.36 1,389.03 1,250.13
46 15,518.88 1,293.24 1,163.92
45 14,369.28 1,197.44 1,077.70
* Both spouses the same age

The PBGC insurance program is funded through insurance premiums paid by covered plans.  In recent years, the number of underfunded plans has increased due to a lagging economy, declines in market performance and other factors.  The demands on the PBGC insurance program prompted Congress to increase premiums, modify pension funding rules and enact various other reforms in an effort to shore up the PBGC insurance program.  The PBGC also has undertaken a number of regulatory and operational reforms.  Companies sponsoring plans covered by the PBGC insurance program should review their existing funding and insurance requirements to ensure that they are in compliance with existing rules and taking advantage of  the most favorable opportunities under these rules.  In addition, companies sponsoring defined benefit plans govered by the PBGC insurance program and/or the Internal Revenue Code and Employee Retirement Income Security Act’s minimum funding rules or entities that are  part of commonly controlled or affiliated groups of companies, purchasing stock or assets from such company groups or lending to or investing in such entities should evaluate the funding status of these programs and the responsibilities and liability exposures that might impact their interests.

For additional information, see PBGC’s fact sheet “Pension Gurantees” and for information about the benefits guaranteed by the PBGC, see “Making Sense of the Maximum Insurance Benefit.”

For Help or More Information

If you need help reviewing and updating, administering or defending your employee benefit, human resources, insurance, health care matters or related documents or practices to respond to emerging health plan regulations, monitoring or commenting on these rules, defending your health plan or its administration, or other health or employee benefit, human resources or risk management concerns, please contact the author of this update, Cynthia Marcotte Stamer.

About Ms. Stamer

A Fellow in the American College of Employee Benefit Council, immediate past Chair of the American Bar Association (ABA) RPTE Employee Benefits & Other Compensation Group and current Co-Chair of its Welfare Benefit Committee, Vice-Chair of the ABA TIPS Employee Benefits Committee, a council member of the ABA Joint Committee on Employee Benefits, and past Chair of the ABA Health Law Section Managed Care & Insurance Interest Group, Ms. Stamer is recognized, internationally, nationally and locally for her more than 24 years of work, advocacy, education and publications on cutting edge health and managed care, employee benefit, human resources and related workforce, insurance and financial services, and health care matters. 

A board certified labor and employment attorney widely known for her extensive and creative knowledge and experienced with these and other employment, employee benefit and compensation matters, Ms. Stamer continuously advises and assists employers, employee benefit plans, their sponsoring employers, fiduciaries, insurers, administrators, service providers, insurers and others to monitor and respond to evolving legal and operational requirements and to design, administer, document and defend medical and other welfare benefit, qualified and non-qualified deferred compensation and retirement, severance and other employee benefit, compensation, and human resources, management and other programs and practices tailored to the client’s human resources, employee benefits or other management goals.  A primary drafter of the Bolivian Social Security pension privatization law, Ms. Stamer also works extensively with management, service provider and other clients to monitor legislative and regulatory developments and to deal with Congressional and state legislators, regulators, and enforcement officials concerning regulatory, investigatory or enforcement concerns. 

Recognized in Who’s Who In American Professionals and both an American Bar Association (ABA) and a State Bar of Texas Fellow, Ms. Stamer serves on the Editorial Advisory Board of Employee Benefits News, the editor and publisher of Solutions Law Press HR & Benefits Update and other Solutions Law Press Publications, and active in a multitude of other employee benefits, human resources and other professional and civic organizations.   She also is a widely published author and highly regarded speaker on these matters. Her insights on these and other matters appear in the Bureau of National Affairs, Spencer Publications, the Wall Street Journal, the Dallas Business Journal, the Houston Business Journal, Modern and many other national and local publications.   You can learn more about Ms. Stamer and her experience, review some of her other training, speaking, publications and other resources, and registerto receive future updates about developments on these and other concerns  see here or contact Ms. Stamer via telephone at 469.767.8872 or via e-mail to  cstamer@solutionslawyer.net.

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©2012 Cynthia Marcotte Stamer.  Non-exclusive right to republish granted to Solutions Law Press.  All other rights reserved.