PBGC Issues Final Rule on Benefit Payments in Terminated Single-Employer Plans

Published July 11, 2023

The Pension Benefit Guaranty Corporation (PBGC) has issued a final rule to clarify and codify policies involving benefit payments and valuation of plan assets. This final rule amends PBGC’s regulations on benefit payments, allocation of assets, and termination liability to increase transparency of PBGC benefits administration, clarify and simplify language, increase flexibility, codify practices, and harmonize regulatory provisions with statutory provisions. PBGC intends the final rule to increase transparency of PBGC benefits administration for terminated single-employer pension plans that PBGC trustees. 

The final rule:
  • Clarifies that PBGC’s rules on payment of a lump sum are unaffected by election of a lump-sum distribution before plan termination.
  • Changes wording that refers to the current statutory dollar amount subject to cashout ($5,000) to instead refer to the statutory provision that specifies the maximum dollar amount.
  • Clarifies that a de minimis benefit of a married participant who dies after plan termination will be paid as an amount due a decedent, not as a qualified preretirement survivor annuity.
  • Clarifies that benefits will be paid to estates only as lump sums.
  • Clarifies that accumulated mandatory employee contributions may not be withdrawn if benefits are in pay status when a plan becomes trusteed.
  • Clarifies that the form of benefit in pay status when a plan becomes trusteed will not be changed.
  • Requires that fair market value or fair value, as appropriate, be used for purposes of valuing assets to be allocated to participants’ benefits and in determining employer liability and net worth.
The final rule is effective August 10, 2023, and applicable to plan terminations initiated on or after August 10, 2023. 
PBGC stated that most of the final rule amendments codify policies and practices that PBGC has followed for many years, and PBGC will continue to follow those policies and practices in the interim.