Section 4062(e) of the Employee Retirement Income Security Act of 1974 (ERISA) requires the Pension Benefit Guaranty Corporation (PBGC) to seek additional funding for defined benefit pension plans when more than 20 percent of a company's employees covered by a defined benefit pension plan lose their jobs due to a cessation of operations at a facility. The amount of the liability under Section 4062(e) is calculated on a termination basis, taking into consideration the number of terminating employees. Often, liabilities under Section 4062(e) are significant and require additional funding to the affected defined benefit pension plan.
In the first quarter of 2010, PBGC has required additional funding of more than $139 million to three defined benefit pension plans sponsored by three different employers. Since 2007, the PBGC has obtained more than $500 million in additional funding for defined benefit pension plans utilizing Section 4062(e) of ERISA. The form and amount of the additional funding is negotiated with the PBGC. In the past, the additional funding has taken the form of cash contributions, credit balance waivers, letters of credit and secured bonds.
If an employer is considering closing a facility, consultation with legal counsel and plan actuaries to determine potential liabilities under Section 4062(e) of ERISA is a critical part of the planning process.