PBGC proposes additional methods for reporting “orphaned” participants on Form 5500
The Pension Benefit Guaranty Corporation (“PBGC”) is proposing changes to how multiemployer defined-benefit pension funds report orphaned participants beginning with Schedules R (Form 5500) for 2020 plan years. Under current rules, such funds must report the number of participants under the plan on whose behalf no contributions were made by a contributing employer for such plan year and for each of the two preceding plan years on Line 14 of Schedule R.
PBGC has found a majority of multiemployer funds do not provide this information accurately – if at all. Aside from the current counting method in place, PBGC is proposing an option of using two other methods (described below). PBGC anticipates that providing funds with three optional counting methods will allow them to choose one that will be most accurate and least burdensome to correctly count and report their inactive participants.
The current instructions require multiemployer funds to count inactive participants using the last contributing employer counting method, counting only those inactive participants whose last contributing employer withdrew from the fund by the beginning of plan year for which the Form 5500 is filed. The fund does not count any inactive participants whose employers had not withdrawn.
Under a proposed alternative method, a fund would count only those inactive participants whose last contributing employer and all prior contributing employers had withdrawn by the beginning of the relevant plan year. Under this method, the fund could review all contributing employers (employers that had not withdrawn by the beginning of the relevant plan year), and include on Line 14 only those inactive participants who had no covered service with any of these employers.
And, under a proposed reasonable approximation method, a fund that is unable to use the other two counting methods must make a reasonable, good-faith effort to count inactive participants to satisfy ERISA. The fund would also be required to provide an attachment that explains the approximation method, including a description of the data and a breakdown describing the number of clearly identified inactive participants and the number of estimated inactive participants.
PBGC is also proposing that when a multiemployer fund reports a number on line 14 that differs from the number it reported for that plan year on the Form 5500 filed the prior year, it would be required to submit an attachment with an explanation of the reason for the change.
PBGC is requesting comments on these proposals by December 13, 2019. Please contact your FACT consultants if you have any questions or would like to consider providing relevant comments to PBGC.