Senate Committee Approves Bill Making ERISA Clarifications

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On July 23, 2014, the Senate Committee on Health, Education, Labor and Pensions unanimously approved S. 2511.

United States Employment and HR

On July 23, 2014, the Senate Committee on Health, Education, Labor and Pensions unanimously approved S. 2511, a measure that aims to clarify the definition of "substantial cessation of operations" under Section 4062(e) of ERISA. According to a statement issued by the committee, "this legislation will bring clarity to the pension downsizing liability rules and will ensure that there is a workable mechanism to protect pension benefits when employers show symptoms of financial distress."

Under Section 4062(e), if more than 20% of an employer's total employees who participant in an employer-maintained pension plan are laid off because the employer ceases operations at a facility, the employer must notify the Pension Benefit Guaranty Corporation (PBGC) and face certain withdrawal liability. The committee-approved bill clarifies that "substantial cessation of operations" triggering liability occurs only when:

(i) such cessation is reasonably expected to be permanent; (ii) no portion of such operations is moved to another facility at a different location; (iii) no portion of such operations is assumed by or otherwise transferred to another employer; and (iv) no other operations are reasonably expected to be maintained at such facility, and as a result of the cessation . . . more than 20 percent of the employees of the employer have a termination of employment that is reasonably expected to be permanent.

The bill is expected to advance to the Senate floor for a vote.

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