News & Insights


March 6, 2015

Compensation and Benefits Insights – February 2015


New Plant Shutdown Rules for Defined Benefit Retirement Plans

Author, Sam Choy, Atlanta, +1 404 572 4633,, and Emily Meyer, Atlanta, +1 404 572 4609,

The 2015 omnibus appropriations bill (the "Omnibus Bill"), signed by President Obama on December 16, 2014, made significant changes to the "substantial cessation of operations" rules (also known as the "plant shutdown" rules) under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The plant shutdown rules permit the Pension Benefit Guaranty Corporation (the "PBGC") to require employers to make additional funding contributions to their defined benefit plans if a significant number of employees are terminated in connection with a cessation of operations at a facility. Under the revised rules, the determination of whether a cessation of operations is substantial is based on the proportion of employees eligible to participate in any ERISA pension plan within the controlled group, rather than the proportion of employees eligible to participate in a single defined benefit plan, whose employment terminates as a result of the cessation.


Before the Omnibus Bill, a cessation of operations at a facility was deemed substantial if more than 20% of the employees participating in a defined benefit plan lost their jobs as a result. In the event of such a cessation, the PBGC could require the defined benefit plan sponsor to make an additional contribution to the plan equal to the plan's termination liability multiplied by the percentage reduction in active employee-participants in the plan caused by the substantial cessation of operations.

During the recent financial crisis, the PBGC was criticized for heavy-handed enforcement of, and failure to provide clear guidance with respect to, the plant shutdown rules. In October 2012, the PBGC announced that it would not impose liability if the affected plan had fewer than 100 participants (before the cessation of operations) or the affected company was "financially sound." The PBGC subsequently announced that it would suspend all enforcement of the rules from July 8, 2014 until the end of 2014.

New Liability Trigger

Under the revised plant shutdown rules, a cessation of operations is deemed substantial if it is permanent and results in a 15% reduction in the total number of employees eligible to participate in any ERISA pension plan (including defined contribution plans) maintained by a controlled group member. In counting the number of employees eligible to participate in controlled group pension plans, plan sponsors must include all employees whose separation from employment was "related to" the cessation and occurred during the previous three years as well as all employees who were employed immediately before the decision to implement the cessation. However, any employees who are replaced "within a reasonable period of time" (which is not defined) by U.S. citizens or residents working at a U.S. facility do not need to be included in this count. Also, the buyer in a stock or asset sale may exclude such replaced employees from the count if it sponsors "within a reasonable period of time" a defined benefit plan that includes the assets and liabilities attributable to the accrued benefits of such employees at the time of their separation from employment with the seller.

Installment Payment Contribution Option

The revised rules permit plan sponsors to satisfy their additional contribution obligations in annual installment payments over seven years, with each installment equal to 1/7 of the plan's unfunded vested benefits multiplied by the percentage reduction in active employee-participants in the plan caused by the substantial cessation of operations. However, each installment is capped at 25% of the plan's unfunded vested benefits less the minimum required contribution for the plan year. Because the amount of a plan's unfunded vested benefits is typically much lower than its unfunded termination liability, this new contribution option lowers plan sponsors' total maximum liability in addition to lengthening the payment schedule.


The Omnibus Bill added two new exemptions from liability under the plant shutdown rules:

  • The PBGC may not impose liability with respect to a plan if it has fewer than 100 participants with accrued benefits on the valuation date for the preceding plan year or an asset value to funding target ratio of 90% or greater for the preceding plan year (and a plan sponsor's obligation to make additional contributions in installment payments ceases if the plan's asset value to funding target ratio rises above 90%); and
  • The PBGC must waive liability if the affected company meets the creditworthiness standards announced in October 2012.

Considerations for Defined Benefit Plan Sponsors

The new plant shutdown rules are generally more favorable to defined benefit plan sponsors than the old rules. However, determining whether a cessation of operations is substantial is now somewhat more complicated because it requires a controlled group analysis and consideration of whether terminated employees may be replaced "within a reasonable period of time." Employers considering a cessation of operations, and parties to corporate transactions, should carefully consider the new requirements.

King & Spalding is happy to answer any questions employers may have about the potential impact of partial termination on their qualified retirement plans, or any other questions about this recent development.

Reminder: Filing Deadline is Near for Qualification Amendments to Puerto Rico Qualified Retirement Plans

Author, James P. Cowles*, Atlanta, +1 404 572 3455,

The annual deadline to file plan qualification amendments with the Puerto Rico Treasury (the "Hacienda") for most qualified retirement plans that cover Puerto Rico residents is fast approaching: for plan sponsors filing taxes on a calendar year basis that adopted any such amendments during 2014, the filing deadline is generally April 15, 2015. Unlike the U.S. rules that generally only require qualified retirement plans to file updated plans with the IRS every five or six years, the Puerto Rico rules mandate that such filings be made every year in which certain amendments, called "qualification amendments," (as described below) are made, and the penalties for failing to make such filing are steep, as the plan would be considered a nonqualified plan. Accordingly, any plan sponsor whose qualified retirement plan covers Puerto Rico residents should determine whether any amendments adopted in 2014 require the plan to file updated plan documents this year.


In January 2011, Puerto Rico enacted the Internal Revenue Code for a New Puerto Rico (the "2011 Code"), which required extensive changes to all qualified retirement plans covering employees working in Puerto Rico (even those plans that are also qualified in the United States). Plan sponsors of such plans were required to adopt extensive plan amendments to comply with the 2011 Code by the date, including any extension, on which the employer's Puerto Rico income tax return for the 2013 taxable year had to be filed (which was generally April 15, 2014, for plan sponsors filing taxes on a calendar year basis). Plan sponsors were also required to submit such plans to the Hacienda for review at the same time.

Now that the deadline to adopt that first wave of extensive changes has passed, plan sponsors should be aware of one aspect of the 2011 Code requirements that may have been previously overlooked: the requirement that going forward, qualified retirement plans must file updated plans with the Hacienda every year in which "qualification amendments," (as described below) are made.


How does a plan sponsor ensure ongoing compliance with the 2011 Code for a Puerto Rico-only or a dual-qualified plan?


If your plan has a Hacienda qualification letter that covers the amendments necessitated by the new qualification requirements of the 2011 Code, that qualification letter remains effective until (i) the plan is restated or (ii) the plan is amended to modify provisions that may have a significant impact on compliance with the qualification rules of the 2011 Code (known as "qualification amendments").

For example, if a plan obtains a Hacienda qualification letter and no plan restatement or qualification amendments are adopted for the next ten years, the existing qualification letter remains in force during those ten years. On the other hand, if any qualification amendments were adopted with respect to the plan subsequent to the issuance of the Hacienda qualification letter, the plan would be required to apply to the Hacienda for an updated qualification letter. This requirement could require frequent applications to the Hacienda for an updated qualification letter, given how broadly the 2011 Code defines the term "qualification amendment". Under the 2011 Code, a "qualification amendment" is any amendment that:

1) restates the plan document;
2) incorporates future changes to the plan qualification requirements of the 2011 Code or regulations promulgated thereunder;
3) changes the plan's rules on the application or correction of the 2011 Code non-discrimination tests;
4) changes the eligibility rules, benefit formula, service counting rules or distribution options applicable to Puerto Rico participants;
5) adds or removes participating employers that employ Puerto Rico participants;
6) terminates contributions to, or authorizes a merger, freeze or termination of, the plan;
7) substitutes the plan administrator, plan trustee or the paying agent for distributions to Puerto Rico participants; or
8) changes the provider of a prototype or master plan.


What happens if a plan sponsor does not apply for, and receive, an updated Hacienda qualification letter after adopting "qualification amendments"?


A plan that is not filed with Hacienda as required by the 2011 Code is considered a nonqualified retirement plan in Puerto Rico, and the trust related to such a plan will not be exempt from the payment of Puerto Rico income taxes. If a plan loses its tax-qualified status, all contributions made to the plan for Puerto Rico participants would be considered currently taxable income, among other adverse consequences.

If you maintain a qualified retirement plan with Puerto Rico participants, we recommend that the plan be reviewed annually to determine if any amendments adopted during the plan year could constitute a "qualification amendment" under the 2011 Code that would require such plan to be submitted to Hacienda with an application for an updated qualification letter.

If you have either a Puerto Rico-only or a dual-qualified retirement plan and have any questions regarding its qualification with the 2011 Code, please feel free to contact us, as we would be glad to assist you.

*Non-lawyer Employee Benefits Consultant.

March and April Filing and Notice Deadlines for Qualified Retirement and Health and Welfare Plans

Author, Ryan Gorman, Atlanta, +1 404 572 4609,

Employers and plan sponsors must comply with numerous filing and notice deadlines for their retirement and health and welfare plans. Failure to comply with these deadlines can result in costly penalties. To avoid such penalties, employers should remain informed with respect to the filing and notice deadlines associated with their plans.

The filing and notice deadline table below provides key filing and notice deadlines for the next two months. If the due date falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day. Please note that the deadlines will generally be different if your plan year is not the calendar year. Please also note that the table is not a complete list of all applicable filing and notice deadlines (including any available exceptions and/or extensions), just the most common ones. King & Spalding is happy to assist you with any questions you may have regarding compliance with the filing and notice requirements for your employee benefit plans.




Affected Plans

March 1

(60 days after the beginning of the plan year)

Medicare Part D Creditable Coverage Disclosure

Deadline for employers that provide prescription drug coverage to Medicare Part D eligible individuals to disclose to the Centers for Medicaid and Medicare Services (CMS) whether the coverage is “creditable prescription drug coverage” by completing the Online Disclosure to CMS Form at 

Health and Welfare Plans that provide prescription drug coverage to Medicare Part D eligible individuals

March 15

Plan Contribution Deadline

Deadline for corporate employer contributions to be made to plan trusts in order for such amounts to be deductible on corporate tax returns (assuming the employer is operating on a calendar-year fiscal year). Note that this deadline may be extended if an extension is obtained for the corporate tax return. 

Qualified Retirement Plans*

March 15
(2 ½ months after the plan year)

Excess Contributions

Deadline for plan administrator  to distribute any excess contributions and earnings from the prior year to avoid 10% excise tax on employer (other than eligible automatic contribution arrangements (EACAs)).

401(k) Plans Other Than EACAs

March 31
(last day of 3rd month following the end of the prior plan year)

Certification of Adjusted Funding Target Attainment Percentage (AFTAP)

Deadline for actuary to certify AFTAP to avoid presumption that AFTAP is 10 points less than prior year AFTAP.

Defined Benefit Plans

April 1

Age 70 ½ Distribution Requirements

Deadline for plan administrator to distribute prior year’s required minimum distribution for any terminated employee who reached age 70 ½ or older during the prior year.

Qualified Retirement Plans

April 15

Excess Deferrals

Deadline for plan to distribute prior year’s deferrals in excess of Internal Revenue Code (IRC) §402(g) annual dollar limit and related earnings.

401(k) Plans

April 15
(105 days after the end of the plan year)

PBGC 4010 Filing

Deadline for contributing sponsors (and each controlled group member) to file PBGC Form 4010 if:
1) Any single-employer plan in the contributing sponsor’s controlled group had a prior year AFTAP of less than 80%;
2) Any single-employer plan in the contributing sponsor’s controlled group fails to make a required installment or other required payments to a plan, and as a result, a lien is imposed pursuant to ERISA section 303(k)(1) or IRC section 430(k)(1); or
3) The IRS has granted funding waivers of more than $1 million to any single-employer plan in the contributing sponsor’s controlled group and any portion of such waiver is still outstanding. 

Defined Benefit Plans

April 30
(no later than 120 days after the end of the plan year)

Annual Funding Notice

Deadline for the plan administrator to provide a plan funding notice to the PBGC, to each plan participant and beneficiary and to each employer that has an obligation to contribute under the plan.


Defined Benefit Plans

*Qualified Retirement Plans include all defined benefit and defined contribution plans that are intended to satisfy Code §401(a).

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