The general rule is that all defined benefit plans are covered by the PBGC unless, the defined benefit plan qualifies for a statutory PBGC coverage exemption. These statutory exemptions are covered in ERISA Section 4021(b).
The more common of the exemptions are as follows:
- Plans covering only substantial owners,
- Professional employer plans covering fewer than twenty-six employees,
- Governmental plans including plans maintained by the US federal government, by a state, by a county or by a city,
- Non-electing church plans,
- Indian tribal government plans,
- Plans established and maintained outside of the United States for the purpose of covering non-resident aliens,
- Excess benefit plans and top hat plans.
PBGC coverage requirements are determined by ERISA and not by whether an employer or employee wants to be covered. If a defined benefit plan does not qualify for a coverage exemption under ERISA, the plan is covered by the PBGC and must comply with PBGC rules including paying premiums and the reportable event regulations. There is no mechanism for a covered plan to waive PBGC coverage because the employer does not want to be covered. Similarly, if a defined benefit plan does qualify for a coverage exemption, the plan cannot optionally elect to be covered by the PBGC to take advantage of the higher deduction limits that PBGC covered plans sometimes have or because the employer just likes the idea of having PBGC insurance.
The PBGC only covers defined benefit plans (including cash balance plans). The PBGC does not cover defined contribution plans such as 401(k) plans, new comparability profit sharing plans, and money purchase pension plans. Defined contribution plans (even trustee directed plans and plans that provide annuities) may not opt-in to PBGC coverage.
If an employer is uncertain whether a particular plan is covered by the PBGC, the employer may apply to the PBGC for a coverage determination.
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