Effective July 14, the date that a plan sponsor files for bankruptcy is also considered the date of plan termination, according to a final rule published in the Federal Register on Tuesday.
The rule was prompted by the Pension Protection Act of 2006 and applies to bankruptcy petitions filed on or after Sept. 16, 2006.
The purpose of the rule was to help determine the amount of benefits the PBGC guarantees, and the amount of benefits with which the PBGC has to work.
Before the Pension Protection Act, the PBGC used the plan's termination date for determining guaranteed benefits. Under that method, which “often comes after the sponsor has been in bankruptcy for some time, the result has been that PBGC's losses often increase substantially,” the Federal Register notice stated. The change also means that benefits earned by participants after the bankruptcy filing date are not guaranteed. “These changes reduce claims on PBGC funds and thereby strengthen the PBGC insurance program,” the notice added.