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entitled 'Defined Benefit Plans: Proposed Plan Buyouts by Financial 
Firms Pose Potential Risks and Benefits' which was released on April 15, 2009. 

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Report to Congressional Requesters: 

United States Government Accountability Office: 
GAO: 

March 2009: 

Defined Benefit Plans: 

Proposed Plan Buyouts by Financial Firms Pose Potential Risks and 
Benefits: 

GAO-09-207: 

GAO Highlights: 

Highlights of GAO-09-207, a report to congressional requesters. 

Why GAO Did This Study: 

Some U.S. financial and pension consulting firms have recently proposed 
alternatives to terminating a defined benefit (DB) pension plan and 
contracting with insurance companies to pay promised benefits. In their 
proposals, a plan sponsor would typically transfer the assets and 
liabilities of a hard-frozen DB plan—one in which all participant 
benefit accruals have ceased—along with additional money, to a 
financial entity, which would become the new sponsor. Such buyouts 
would have implications for participants, plan sponsors, and the 
Pension Benefit Guaranty Corporation (PBGC), the federal agency that 
insures private DB plans. This report addresses the following 
questions: (1) What is the basic model of proposed sales of frozen DB 
plans to third-party financial firms and how does it compare with a 
standard plan termination? (2) What are the potential risks and 
benefits of plan buyouts for participants, PBGC, plan sponsors, and 
other stakeholders? To address these questions, GAO reviewed proposed 
models for plan buyouts and analyzed regulatory and statutory issues 
associated with terminations and buyouts. GAO also interviewed labor 
and pension advocacy groups, pension regulatory agencies, and pension 
experts. 

What GAO Found: 

In proposed DB plan buyouts, a third-party financial company would take 
over sponsorship of a hard-frozen plan from the original sponsor, in 
exchange for money to compensate for plan underfunding, expenses, and 
risk. As with a standard plan termination, the objective of a buyout 
would be to allow the original sponsor to shed its obligations to the 
plan, but potentially at lower cost and possibly with greater 
flexibility. In buyout proposals, the new sponsor would assume all plan 
responsibilities and PBGC guarantees would continue to apply to plan 
benefits. In comparison, a standard termination ends the plan, and an 
insurance company contracts to pay accrued benefits to participants (to 
the extent participants' benefits are not paid out by the plan as part 
of the termination); PBGC guarantees no longer apply, but state 
guarantees do. Insurance companies generally must comply with state-
based risk-based capital requirements, which may provide safeguards 
against insurer insolvency and protections for pension benefits paid 
this way. 

In some cases, plan buyouts could increase the security of DB pensions 
by allowing weak sponsors to transfer plan sponsorship to firms with 
stronger financial backing and improved plan management. However, 
buyouts would sever the employment relationship between sponsors and 
participants, possibly eroding incentives to manage the plan in the 
interests of participants. Buyouts could increase the risk of a large 
claim against PBGC by increasing the concentration of assets and 
liabilities held by a single sponsor or sector. They could also lead to 
conflicts between agencies regulating financial companies and those 
regulating pensions. In August 2008, the Internal Revenue Service 
issued a ruling declaring that a DB plan that was bought out by a 
nonemploying entity would not qualify for tax preferences under current 
law. 

Figure: Proposed DB Plan Buyout Models: 

[Refer to PDF for image: illustration] 

Original plan sponsor: creates subsidiary: 
* Pension plan assets, liabilities, and additional money put into 
subsidiary; 
* Subsidiary pays PBGC premiums. 

New plan sponsor: purchases subsidiary. Original plan sponsor no longer 
responsible for plan. 
* Subsidiary: Required funding for participant benefits; 
* Additional assets: Available for future required plan contributions 
or for the new plan sponsor to keep as profit. 

Sources: GAO analysis of proposed DB plan buyouts, Art Explosion 
(images). 

[End of figure] 

What GAO Recommends: 

GAO is not making any recommendations. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-09-207]. For more 
information, contact Barbara Bovbjerg at (202) 512-7215 or 
bovbjergb@gao.gov or Jospeh Applebaum at (202) 512-6336 or 
applebaumj@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Proposed Plan Buyouts Would Offer Sponsors an Alternative to Standard 
Plan Terminations, with Significant Differences: 

Some Plan Buyouts Could Benefit Participants and PBGC, but in General 
Pose New Risks: 

Concluding Observations: 

Agency Comments: 

Appendix I: UK Experience with Noninsured Plan Buyouts Provides Only 
Limited Regulatory Lessons for the United States: 

Appendix II: Internal Revenue Service 2008 Revenue Ruling on Defined 
Benefit Plan Buyouts: 

Appendix III: GAO Contacts and Staff Acknowledgments: 

Tables: 

Table 1: Comparison of Key Characteristics of Plan Buyouts and 
Terminations: 

Table 2: Potential Positive Outcomes and Risks Associated with Plan 
Buyouts: 

Figure: 

Figure 1: Proposed DB Plan Buyout Models: 

Abbreviations: 

DB: defined benefit: 

ERISA: Employee Retirement Income Security Act of 1974: 

FASB: Financial Accounting Standards Board: 

FDIC: Federal Deposit Insurance Corporation: 

IRC: Internal Revenue Code: 

IRS: Internal Revenue Service: 

NAIC: National Association of Insurance Commissioners: 

NOLHGA: National Organization of Life and Health Insurance Guaranty 
Associations: 

OCC: Office of the Comptroller of the Currency: 

OTS: Office of Thrift Supervision: 

PBGC: Pension Benefit Guaranty Corporation: 

PPA: Pension Protection Act of 2006: 

PPF: Pension Protection Fund: 

UK: United Kingdom: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

March 16, 2009: 

The Honorable Charles B. Rangel: 
Chairman: 
The Honorable Dave Camp: 
Ranking Member: 
Committee on Ways and Means: 
House of Representatives: 

The Honorable Sam Johnson: 
Ranking Member: 
Subcommittee on Social Security: 
Committee on Ways and Means: 
House of Representatives: 

The Honorable Earl Pomeroy: 
House of Representatives: 

In recent years, a number of prominent U.S. employers have terminated 
their defined benefit (DB) plans.[Footnote 1] Other pension plan 
sponsors have frozen their plans, either by closing them to new 
participants or by slowing down or ceasing the accrual of additional 
benefits to existing participants. Provisions of the Pension Protection 
Act of 2006 (PPA),[Footnote 2] which established more stringent plan 
funding requirements, and recent Financial Accounting Standards Board 
(FASB) standards,[Footnote 3] which require additional financial 
reporting for DB plan sponsors, place more requirements on DB plan 
sponsors and could possibly lead to more freezes and terminations in 
upcoming years. 

A sponsor generally may terminate a DB plan and shed all plan 
responsibilities either by hiring an insurance company to pay all 
accrued benefits to participants through a group annuity contract or, 
if the plan permits, by paying the benefits owed in a different form 
(such as a lump-sum distribution).[Footnote 4] In recent years, some 
U.S. financial institutions and at least one pension consulting firm 
have proposed an alternative to this "standard" termination model in 
which a plan sponsor would engage a financial entity to take ownership 
of the assets and liabilities of a hard-frozen DB plan, or one in which 
all participant benefit accruals have ceased, with the financial entity 
becoming the new sponsor. Such transactions carry potential risks and 
benefits for participants, plan sponsors, and the Pension Benefit 
Guaranty Corporation (PBGC), the federal agency that insures private 
pension benefits. Government officials, pension advocates, and some 
academics have expressed concerns that these new arrangements would 
place the responsibility for managing DB plans on firms that have no 
employment relationship with the participants, and potentially increase 
the risk of losses to participants and PBGC; proponents argue that such 
arrangements will improve the security of benefits and provide better 
overall plan management. In August 2008, the Internal Revenue Service 
(IRS) ruled that such DB plan buyouts by a nonemploying entity would 
not qualify for tax preferences under current law, effectively 
prohibiting this new type of arrangement.[Footnote 5] At the same time, 
the Department of the Treasury (Treasury) issued guidelines, developed 
with the Departments of Labor (Labor) and Commerce (Commerce) and PBGC, 
that could be used to shape legislation that would allow tax 
preferences for such nonemployer plans, should Congress choose to do 
so.[Footnote 6] 

In light of these issues, you requested that we examine these proposed 
transactions in greater detail. Specifically, this report addresses the 
following questions: 

1. What is the basic model of proposed sales of frozen DB plans to 
third-party financial firms and how does it compare with a standard 
plan termination? 

2. What are the potential risks and benefits of plan buyouts for 
participants, PBGC, plan sponsors, and other stakeholders? 

To learn about proposed plan buyouts by third-party sponsors in the 
United States, we interviewed individuals from several financial 
institutions and from a pension consulting firm that have publicly 
expressed an interest in engaging in such transactions. We also 
reviewed and assessed literature from these companies describing their 
proposed business models for plan buyouts. We spoke with pension 
practitioners and government representatives in the United Kingdom (UK) 
to identify and analyze plan buyouts that have taken place there, as 
well as to discuss the British pension regulatory structure and pension 
plan governance.[Footnote 7] To compare proposed buyouts with plan 
terminations, we spoke with officials from IRS and pension and bank 
regulatory agencies, from insurance companies and organizations, and 
from companies proposing buyout models. 

To analyze key regulatory and statutory issues associated with DB plan 
buyouts and identify the potential impact of buyouts on participants, 
PBGC, plan sponsors, and other stakeholders, we interviewed 
representatives from labor and pension advocacy groups, pension 
experts, pension regulatory agencies, and the Federal Reserve Board 
(FRB) and the Office of the Comptroller of the Currency (OCC). We also 
discussed the nature of current government oversight of insurance 
companies that issue group annuities for terminated plans with 
insurance industry experts and regulators, and we reviewed rules 
describing the regulatory safeguards and benefit guarantees for group 
annuities issued by insurers. Finally, we reviewed laws governing the 
sponsorship of pension plans and relevant government statements 
regarding plan buyouts. We did not assess Treasury's suggested 
guidelines for buyouts issued concurrently with the August 2008 IRS 
revenue ruling. 

Results in Brief: 

In proposed DB plan buyouts, a plan sponsor would transfer plan assets 
to another entity, typically a financial company, that would become the 
new plan sponsor. Plan buyouts would typically target plans that are 
hard-frozen--in which participants no longer accrue benefits--and 
therefore present relatively limited sources of risk in meeting funding 
targets. However, soft-frozen or active plans, in which some or all 
participants continue to accrue benefits, could also be potential 
buyout targets, although these plans would create problematic 
incentives in that the new sponsor would be funding ongoing benefits 
for employees of another company. In buyout proposals, the new sponsor 
would receive cash to cover any plan underfunding plus additional money 
to compensate for risk and administrative costs, which could be kept 
outside the plan. A plan buyout, like a plan termination, would be 
intended to allow the original sponsor to shed all obligations to the 
plan, but at potentially lower cost and possibly with greater 
flexibility. However, buyouts would differ in key ways from 
terminations, including the treatment of the plan, applicable 
regulatory requirements, protection of plan benefits, and fiduciary 
responsibilities. Under buyout models, the plan would remain ongoing 
and, presumably, all existing pension regulatory requirements would 
continue to apply to the plan and sponsor. By comparison, in a standard 
termination, paying plan benefits becomes an obligation of the 
insurance company, which is under state insurance regulation. States 
generally require insurance companies to meet specific risk-based 
capital levels to help ensure their solvency. PBGC guarantees would 
continue to apply to accrued benefits in bought-out plans, whereas 
state insurance guarantees generally would apply to annuity payments to 
participants of standard terminated plans: 

Plan buyouts by financial companies could, in some cases, improve 
benefit security for participants and PBGC, but also pose some key 
risks that might be difficult to anticipate and mitigate. Plan buyouts 
could increase the security of DB pensions for participants if they 
allowed weak sponsors of underfunded plans that would not choose to do 
a standard plan termination to transfer sponsorship to a company with 
stronger financial backing and financial management expertise. PBGC 
would also benefit from continuing to receive premiums for bought-out 
plans, unlike terminated plans. However, even with continued pension 
regulation and oversight in place, plan buyouts could create risks for 
participants, PBGC, and other pension stakeholders. For example, the 
new sponsor assuming responsibility for paying plan benefits would not 
have an employment relationship with participants, raising concerns 
about its incentives to manage the plan in the interests of 
participants. Buyouts could also increase the concentration of 
liabilities held by a single sponsor if that sponsor took over a number 
of large plans, potentially increasing PBGC's exposure to risk should 
the new sponsor encounter financial problems. PBGC may, under its 
current authority, have a limited ability to prevent buyouts that may 
increase risk of losses from terminations. Plan buyouts may also create 
potential regulatory conflicts between the goals of agencies regulating 
financial sponsors and those regulating pensions. 

Background: 

By many measures, PBGC-insured private sector DB plans have been in 
decline since the 1980s. As of 2007, companies sponsored around 30,000 
DB plans, down from over 114,000 in 1985.[Footnote 8] The total number 
of participants in these plans rose from 38 million to 44 million over 
this time period, but according to the most recent data available, the 
percentage of the active workforce covered by a DB plan fell from 31 
percent in 1985 to 17 percent, as of 2005. Also, the percentage of DB 
participants who are retirees has grown steadily, to where they made up 
over one-quarter of all DB participants in 2005. PBGC has seen its net 
financial condition hurt by losses from the termination of large 
underfunded plans this decade. After reporting a surplus as recently as 
2001, PBGC's insurance programs reported a combined net accumulated 
deficit as high as $23.5 billion in 2004 before improving to over $11 
billion as of the end of fiscal year 2008.[Footnote 9] 

Under the U.S. voluntary, tax-preferenced pension system, employers can 
choose to form, terminate, or freeze plans. Both plan terminations and 
freezes can reduce potential retirement income from DB plans for future 
retirees. A termination occurs when a sponsor ceases to operate a plan 
and agrees to disburse all accrued benefits to participants, whereas a 
freeze limits or halts some or all future pension accruals for some or 
all participants. Under the Employee Retirement Income Security Act of 
1974 (ERISA), the primary federal law governing DB plans, plan sponsors 
may terminate a fully funded plan (called a standard termination) by 
purchasing a group annuity contract from an insurance company, under 
which the insurance company agrees to pay all accrued benefits, or, if 
the plan permits, by paying participants the benefits owed in a 
different form, such a lump-sum distribution.[Footnote 10] If the plan 
does not have sufficient assets to pay all vested benefits owed to 
participants, and a company is in financial distress, the sponsor may 
file for a "distress" termination with PBGC. Under these circumstances, 
PBGC pays benefits to participants up to specified limits,[Footnote 11] 
using its own assets and any remaining assets in the plan.[Footnote 12] 
PBGC may also initiate termination of a plan if a plan cannot pay 
benefits when due or if the loss to PBGC is expected to grow 
unreasonably without termination.[Footnote 13] From 1990 to 2006, 
sponsors voluntarily terminated over 61,000 sufficiently funded single- 
employer plans. 

A plan freeze limits some or all future pension accruals for some or 
all participants, but does not terminate the plan. Freezes can take 
various forms: a soft freeze, which closes the plan to new entrants and 
may limit benefit accruals based on a component of the benefit accrual 
formula; a partial freeze, which changes the plan's benefit formula to 
reduce future accruals for a subset of active participants; and a hard 
freeze, which ceases all future accruals, with no additional benefits 
granted for future years of service or salary gains for any workers. A 
recent GAO survey found that 21 percent of all active participants in 
single-employer DB plans are affected by a freeze, with hard freezes 
accounting for about half of all freezes (although larger sponsors are 
significantly less likely to have a hard-frozen plan than smaller 
ones).[Footnote 14] A separate PBGC study found that 14 percent of 
plans were hard-frozen as of 2005, with a nearly 50 percent increase in 
frozen plans since 2003.[Footnote 15] 

Some pension experts expect plan freezes and terminations to persist or 
increase in the near future, partly because of recent changes in 
pension requirements. The PPA tightened certain funding rules for DB 
plans,[Footnote 16] which may discourage some sponsors from continuing 
to operate a plan or offer ongoing benefits accruals.[Footnote 17] The 
PPA reduced the period allowed for filling in funding shortfalls from 
up to 30 years to 7 years. Previous funding requirements had allowed 
sponsors to smooth DB plan asset values over 5 years, and use a 4-year 
average of interest rates to measure plan liabilities, rather than 
reporting assets and liabilities based on current market measures; this 
helped dampen plan funding volatility from year-to-year swings in 
market conditions. The PPA reduced the smoothing period for reported 
assets to 2 years, and reduced the period for averaging interest rates 
used to measure liabilities to 2 years, changes that could increase the 
volatility of reported plan funding. In addition, new accounting 
standards will require DB sponsors to report their pension liabilities 
and assets on their balance sheets in more transparent ways than in the 
past. In a recent GAO survey, the primary reasons cited for freezing 
plans were the cost of plan contributions and the volatility of plan 
funding.[Footnote 18] About a third of sponsors of frozen plans in the 
survey said they will ultimately terminate the plan, and over 60 
percent were unsure of their future course. Outside experts are also 
not optimistic about DB plans in the near future: One study by McKinsey 
& Company predicts that 50 to 75 percent of all private sector DB 
assets will be in frozen or terminated status by 2012. Another, by 
Watson Wyatt, stated that plan freezes and terminations may have 
declined in 2007 after a peak in 2006; however, turmoil in the 
financial markets in 2008, with plummeting values in stocks, could 
severely negatively affect the funding of many DB plans, and could lead 
to increased plan freezes or terminations if required contributions 
rise significantly. The recently enacted Worker, Retiree, and Employer 
Recovery Act of 2008 provides DB sponsors with some temporary relief 
from some of these new requirements in response to the current 
financial crisis.[Footnote 19] 

On August 6, 2008, IRS issued a revenue ruling declaring that the 
transfer of a pension plan to "an unrelated taxpayer," without the 
concurrent transfer of significant business assets, operations, or 
employees, such as in a merger or business acquisition, would violate 
the "exclusive benefit" rule of the Internal Revenue Code (IRC). 
[Footnote 20] This rule provides that any pension plan must be operated 
for the exclusive benefit of a sponsor's employees and their 
beneficiaries.[Footnote 21] This means that under current law, 
generally any plans transferred to a nonemployer sponsor would not 
receive the same tax benefits an employer-sponsored plan would, 
including but not limited to the tax deferral on sponsor contributions 
and the return on plan assets. According to the Treasury Department, as 
a result of this ruling, companies will be unable to take over any 
pension plans, frozen or active, except as part of a business merger or 
acquisition. 

Proposed Plan Buyouts Would Offer Sponsors an Alternative to Standard 
Plan Terminations, with Significant Differences: 

Under proposed models for DB plan buyouts, a plan sponsor would 
transfer plan assets, along with funds to cover any plan underfunding, 
plus additional money to compensate for risk and administrative costs, 
to a financial company. The financial company would become the new plan 
sponsor, taking over all obligations of the original sponsor. These 
types of buyouts would typically, but not necessarily, target hard- 
frozen plans, or portions of plans, in which participants are no longer 
accruing benefits, limiting some of the incentive problems of having a 
plan sponsor who is not the participants' employer. The new sponsor 
would be able to keep money above the minimum funding levels required 
by ERISA outside the plan and eventually keep whatever money in the 
transaction was not needed to pay for plan funding and expenses. A plan 
buyout, like a standard plan termination via an insurance company, is 
intended to allow the sponsor to transfer all plan responsibilities to 
another company, but possibly at lower cost than a termination. In 
addition, the sponsor taking over the plan would face different 
regulatory requirements than an insurance company contracting to pay 
benefits from a terminated plan, including different oversight, 
financial requirements, and benefit guarantees. 

Proposed Plan Buyouts Seek to Offer Alternative to Termination, with 
Possible Flexibility and Cost Advantages to Plan Sponsors: 

While there are different models for DB plan buyouts, the basic 
transaction would involve the transfer of the assets and liabilities of 
a pension plan from a plan sponsor to a financial entity. The original 
sponsor would set up a corporate subsidiary, into which it would put 
the pension plan (see figure 1). The original sponsor would arrange for 
the pension assets to be held by or transferred to a trust designated 
by the subsidiary; in addition, it would transfer to the subsidiary 
enough cash or other assets to cover any plan underfunding. It would 
also provide additional money to cover the new sponsor's administrative 
costs and to compensate for the risk associated with plan sponsorship, 
which could be kept outside the plan. Risks include factors that could 
affect the future value of plan assets and liabilities, such as 
investment performance, interest rates, or mortality rates. The 
subsidiary could also include a relatively small number of employees 
from the original sponsor, such as those administering the plan. The 
financial company would then take over ownership of the subsidiary and 
become the new plan sponsor. The objective of the original sponsor, the 
employer, would be to shed all of its sponsorship responsibilities and 
liabilities. 

Figure 1: Proposed DB Plan Buyout Models: 

[Refer to PDF for image: illustration] 

Original plan sponsor: creates subsidiary: 
* Pension plan assets, liabilities, and additional money put into 
subsidiary; 
* Subsidiary pays PBGC premiums. 

New plan sponsor: purchases subsidiary. Original plan sponsor no longer 
responsible for plan. 
* Subsidiary: Required funding for participant benefits; 
* Additional assets: Available for future required plan contributions 
or for the new plan sponsor to keep as profit. 

Sources: GAO analysis of proposed DB plan buyouts, Art Explosion 
(images). 

[End of figure] 

The distinction between assets in the plan versus those outside 
represents a key detail of any plan buyout. In general, if a sponsor 
withdraws excess assets from an overfunded DB plan, this action would 
trigger a 50 percent excise tax as a "reversion," in addition to 
corporate income tax.[Footnote 22] Money outside the plan would be 
available for future contributions to the plan if additional funding is 
needed; however, should the new sponsor be successful at growing plan 
assets up to a level sufficient to pay accrued benefits and 
administrative expenses, the company may be able to keep this money as 
profit without this money being subject to the reversion tax. Thus the 
new sponsor, similar to any sponsor, has an incentive to keep as much 
money as possible outside the plan itself while meeting ERISA minimum 
funding requirements.[Footnote 23] 

Representatives of firms that have expressed an interest in taking over 
plans said that their firms would most likely target slightly 
underfunded plans.[Footnote 24] It would, most likely, be difficult for 
the sponsor to include enough cash to convince a financial entity to 
take over a plan that was below 80 percent funded in a buyout, 
considering the funding gap and the premium the new sponsor would 
charge to take over the plan. They also said that hard-frozen plans 
would be the simplest types of plans to buy out. In a hard-frozen plan, 
the absence of future benefit accruals for salary increases and time of 
service limits potential sources of funding uncertainty. However, even 
in a hard-frozen plan, changes in interest rates or mortality 
assumptions could increase or decrease the valuation of plan 
liabilities, and investment performance can affect plan asset levels, 
possibly triggering additional contributions to maintain plan funding 
at legally required levels. Buyouts would not necessarily be limited to 
hard-frozen plans; however, transferring sponsorship of an active or 
soft-frozen plan would be more complicated, since participants would 
continue to accrue benefits in these plans. This would create a 
problematic incentive for the new sponsor to freeze the plan and cease 
all accruals in order to avoid paying ongoing benefits to participants 
that work for another firm. If buyouts were allowed to include soft- 
frozen or active plans, explicit regulation or contractual language 
would likely be required to assure ongoing benefits and applicable 
ERISA protections to participants. 

From the point of view of the plan sponsor, a buyout would serve a 
function similar to plan termination, since in both cases an objective 
of the sponsor is to shed responsibilities associated with the plan. 
Buyouts seem to offer two potential advantages to the sponsor: 
flexibility and cost. A plan buyout could offer flexibility if sponsors 
were allowed to shed only a portion of a plan, rather than terminating 
the entire plan. For example, a sponsor could segregate the benefits 
for retirees or former employees and sell this "legacy" portion of a 
plan to a new sponsor, with assets moving to the new sponsor to cover 
only the benefit liability for these participants; a buyout of this 
kind would resemble that of a hard-frozen plan in that benefits for 
retirees and separated employees have ceased accruing. If this 
arrangement were allowed, the employer could then keep its current 
workers, or active participants, in the original plan that it continues 
to sponsor.[Footnote 25] 

Buyouts may also cost the sponsor less than a termination of the same 
plan. This cost difference may reflect the differences in assumptions 
appropriate for an ongoing plan, which would be the case for a buyout, 
as opposed to a terminating plan whose benefits an insurance company 
would contract to pay. The financial entity taking over sponsorship of 
an ongoing plan would be taking on liabilities recorded at "current 
liability"--that is, using the assumptions for discount rates, 
smoothing, mortality, and other factors as prescribed by ERISA funding 
requirements for ongoing plans. ERISA funding rules allow sponsors to 
report measurements of plan assets based on an average over a 
designated period of time and of liabilities using an average of recent 
interest rates. Using such smoothed values dampens the year-to-year 
volatility in funding levels and required contributions compared with 
using current market values. In contrast, an insurance company prices a 
plan's liabilities based on assumptions appropriate for a terminating 
plan, or "termination liability." An insurance company may also 
consider in its price the risk of future improvements in mortality 
beyond those currently projected and the risk of taking on the 
obligation to pay benefits without the possibility of collecting future 
premiums. Other differences between insurance company prices and 
current liability could include (1) a more conservative rate-of-return 
assumption reflecting the investments used to support annuities, (2) an 
underlying interest rate used to value liabilities based on current 
market values rather than smoothed values, and (3) an assumption that 
participants in a terminated plan will retire somewhat earlier than 
those in an ongoing plan.[Footnote 26] It is unclear to what degree the 
assumptions a firm taking over an ongoing plan would reflect current 
liability or termination liability, but prospective financial sponsors 
said they expected to be able to compete with plan termination prices. 

From the acquiring sponsor's point of view, a plan buyout could offer 
access to new investment capital, although with the restrictions facing 
all DB plans regarding ERISA funding requirements and the tax on the 
reversion of plan assets. Buyouts could also provide a strategy for 
funding multiple plans by merging the assets and liabilities of an 
underfunded plan with the excess assets of a similarly overfunded one. 
While any sponsor can merge plans, buyouts might facilitate such a 
strategy. On net, the change in risk of underfunded benefits might be 
balanced across the participants in underfunded and overfunded plans, 
but workers whose previous sponsor had funded a plan to ensure that 
benefits would be paid might not favor their plan's surplus funding 
other workers' benefits at their expense. 

Plan Buyouts Would Differ in Key Ways from Plan Terminations: 

While proposed plan buyouts are intended to provide a similar function 
to plan sponsors as plan terminations, they differ in many important 
ways, including the treatment of the plan, applicable regulatory 
requirements, protection of plan benefits, and fiduciary 
responsibilities (see table 1). Fundamentally, a plan buyout differs 
from a termination because the buyout treats the plan as an ongoing 
concern, while a termination ends the plan. In a buyout, the new 
sponsor would presumably have to fund the plan according to ERISA 
minimum funding requirements and make all plan disclosures. The sponsor 
would pay PBGC premiums, and PBGC guarantees would continue to apply to 
plan benefits.[Footnote 27] Oversight of the plan would remain within 
the jurisdiction of federal pension regulatory agencies: PBGC, Labor, 
and Treasury. 

Table 1: Comparison of Key Characteristics of Plan Buyouts and 
Terminations: 

Characteristic: Treatment of plan; 
Proposed plan buyouts: Treated as ongoing arrangement; 
Plan termination with insurance company: Plan terminated or closed, and 
all accrued benefits are contracted to be disbursed. 

Characteristic: Measurement of plan's liabilities at time of 
transaction; 
Proposed plan buyouts: Current liability, calculated using ERISA 
assumptions for ongoing plan[A]; 
Plan termination with insurance company: Termination liability, using 
actuarial assumptions appropriate for annuities to close out plan. 

Characteristic: Asset requirements to fund pension promises; 
Proposed plan buyouts: Based on ERISA funding rules; regulated 
financial institutions may have to hold capital against the plan 
liabilities, depending on risk factors; 
Plan termination with insurance company: Based on National Association 
of Insurance Commissioners' risk-based capital rules. 

Characteristic: Relevant regulatory agencies; 
Proposed plan buyouts: PBGC, Labor, Treasury[B]; 
Plan termination with insurance company: State insurance departments. 

Characteristic: Guarantor of participant benefits; 
Proposed plan buyouts: PBGC; 
Plan termination with insurance company: State insurance guarantee 
funds. 

Characteristic: Guarantee limits; 
Proposed plan buyouts: Up to $54,000 maximum annually[C]; 
Plan termination with insurance company: Up to at least $100,000 cash 
value for annuities[D]. 

Characteristic: Fiduciary responsibility of sponsor in choosing 
purchasing entity/provider; 
Proposed plan buyouts: Unclear[E]; 
Plan termination with insurance company: Must pick "safest available 
annuity" provider. 

Sources: GAO analysis of proposed buyout models, ERISA, PBGC 
guarantees, and NAIC guidelines. 

[A] A new sponsor would have to fund the plan based on ERISA current 
liability; it is unclear which assumptions the acquiring entity would 
use to price the liabilities in the buyout. 

[B] Banking activities by regulated financial institutions may in 
addition be regulated by the Federal Deposit Insurance Corporation, 
Office of Thrift Supervision, OCC, FRB, and state agencies. 

[C] For a 65-year-old retiree in a plan terminating in 2009, with lower 
guarantees for younger workers. Retirees may receive more than the 
maximum guarantee if they earned a higher benefit and the plan had 
sufficient assets to pay benefits beyond the guarantee. 

[D] State guaranty associations can levy other insurance companies to 
collect additional money to pay policyholders. 

[E] According to Labor, discretionary activities that relate to the 
formation rather than the management of plans generally are not 
fiduciary activities subject to Title I of ERISA, except in the context 
of multiemployer plans. These so-called "settlor" functions include 
decisions relating to the establishment, design, and termination of 
plans. See Labor, letter to John N. Erlenborn from Dennis M. Kass 
(March 13, 1986); letter to Kirk F. Maldonado from Elliot I. Daniel 
(March 2, 1987); and Advisory Opinion No. 97-03 (January 23, 2007). The 
extent to which buyouts involve settlor as opposed to fiduciary 
activities is unclear. 

[End of table] 

In contrast, a standard plan termination ends the plan itself. If the 
sponsor purchases an insurance company annuity contract, payment of 
plan benefits that are covered by the contract becomes the obligation 
of the insurance company, which is regulated by state insurance bodies. 
State regulation of insurance companies is grounded in statutory 
valuations of an insurer's assets and liabilities and risk-based 
capital requirements, as laid out by the National Association of 
Insurance Commissioners (NAIC), the organization of state insurance 
regulators. Risk-based capital refers to the amount of assets an 
insurer holds in order to ensure that it can pay its obligations, which 
in this case would mean the accrued benefits in the plan. Regulators 
set the amount of risk-based capital a firm must hold depending on 
different categories of risk, including asset risk, insurance risk, 
interest rate risk, and business risk, with firms deemed to hold 
riskier obligations or operations forced to hold more assets against 
those risks.[Footnote 28] Because asset risk is one of the risk 
categories considered by regulators, insurance companies have an 
incentive to invest conservatively. NAIC guidelines suggest that an 
insurer hold total capital levels of at least 200 percent of the 
minimum risk-based capital requirements to avoid any corrective action. 
If the insurance company has total capital levels below this 
percentage, regulators could take a variety of corrective actions, 
ranging from requiring the company to report how it intends to raise 
its capital levels to a state takeover of the insurer. 

In a buyout, depending on the institutional nature of the purchasing 
entity, the new sponsor may also face capital requirements. For 
example, regulators for banks and other regulated financial 
institutions, including OCC, FRB, the Federal Deposit Insurance 
Corporation (FDIC), and the Office of Thrift Supervision (OTS), look at 
capital and leverage ratios to assess whether banks are holding enough 
capital based on those identified risks to ensure the safety and 
soundness of the banks and bank deposits.[Footnote 29] 

Government guarantees backing up plan benefits would also differ under 
buyouts and terminations. With plan buyouts, PBGC would continue to 
guarantee benefits for participants of bought-out plans in the event 
the new sponsor could not pay because of financial distress.[Footnote 
30] In contrast, for benefits paid by insurance companies following 
plan terminations, state insurance commissions maintain guaranty funds, 
funded by insurance companies (on a post insolvency basis), which can 
be used to pay policyholders in the event of insurer insolvency. 
Guarantee limits vary by state, but all states provide coverage of up 
to at least $100,000 per beneficiary for annuities, according to the 
National Organization of Life and Health Insurance Guaranty 
Associations (NOLHGA). This limit would not be as high as PBGC 
guarantees for distress-terminated plans for some beneficiaries, but 
NOLHGA claims that guarantees have allowed over 90 percent of 
policyholder benefits to be paid in full during past insolvencies, 
similar to PBGC's success to date in covering pension benefits in 
distress terminations. Partly, this is due to assessments the state 
guaranty associations can levy on other insurance companies to collect 
additional money to pay policyholders.[Footnote 31] 

In addition, sponsor fiduciary requirements could differ between 
buyouts and terminations. Pension plan sponsors have a fiduciary duty 
to manage plans solely in the interest of plan participants and 
beneficiaries.[Footnote 32] While the decision whether or not to 
terminate a plan is generally viewed as outside the management of a 
plan and not covered by this duty, should a decision be made to 
terminate a plan, the selection of an annuity provider is a covered 
fiduciary duty. Labor has interpreted this duty as generally requiring 
DB plan sponsors to choose "the safest available annuity" and has 
published explicit factors for sponsors to consider when making such a 
selection.[Footnote 33] According to insurance representatives with 
whom we spoke, this has typically meant that AA-rated companies or 
stronger have dominated the DB plan termination market. Further, a 
purchase of an annuity by a sponsor of a terminating plan establishes 
an "irrevocable commitment," as required by ERISA, that all plan 
benefits will be paid.[Footnote 34] While it is possible that similar 
fiduciary standards could apply in the case of DB plan buyouts by 
financial entities, the law, having not contemplated such transactions, 
does not specify explicit standards.[Footnote 35] 

Some Plan Buyouts Could Benefit Participants and PBGC, but in General 
Pose New Risks: 

DB plan buyouts by financial companies could, in some cases, improve 
the security of benefits. Those buyouts in which weak sponsors of 
underfunded plans, who otherwise would choose not to terminate, 
transferred their plans to companies with stronger financial backing 
and superior pension financial management could improve plan funding 
and decrease the risk of distress termination. PBGC would, in addition, 
benefit from the continued premiums new sponsors would pay for 
insurance on their plan benefits, as opposed to premiums ceasing when a 
plan is terminated. However, these advantages would seem to apply in 
only a small subset of potential buyouts, and would likely provide 
limited upside for participants and PBGC. Further, plan buyouts could 
create risks for various pension stakeholders. For example, the new 
sponsor assuming responsibility for paying plan benefits would not have 
an employment relationship with participants, raising concerns about 
its incentives to manage the plan for the exclusive benefit of 
participants. Buyouts may also raise risks to PBGC, depending on the 
structure of the transaction, in that a financial sponsor taking on 
several plans may become weak, and PBGC may have limited authority to 
intervene to prevent risky buyouts. Further, the recent financial 
crisis has highlighted the emergence of serious and previously 
unforeseen risks with financial companies, even among firms that had 
been considered strong. Buyouts by financial sponsors may also create 
regulatory ambiguities and conflicts between the goals of agencies 
regulating financial sponsors and those regulating pensions. (See table 
2 for potential risks and benefits of plan buyouts.) 

Table 2: Potential Positive Outcomes and Risks Associated with Plan 
Buyouts: 

Category: Benefit security; 
Potential positive outcomes: Risky plans move from financially weak to 
strong sponsors; 
Potential risks: Financial strength of new sponsor deteriorates 
quickly. 

Category: Sponsor-participant relationship; 
Potential positive outcomes: New sponsor provides improved plan 
management and administrative services; 
Potential risks: Possible mismatch of incentives of new sponsor; 
participants might not like plan administration moving to another 
unfamiliar firm; IRS ruling rejected bought-out plans as tax-preferred 
employer plans. 

Category: Pension plan management; 
Potential positive outcomes: Superior financial management compared 
with original sponsor; additional capital requirements for regulated 
financial institutions; 
Potential risks: Mismatch of incentives to manage plan in interests of 
participants; possible merging of over-and underfunded plans. 

Category: PBGC; 
Potential positive outcomes: PBGC continues to receive premiums on 
plans that otherwise may have been terminated; 
Potential risks: Could increase the concentration of plan liabilities 
held by a single sponsor or sector, raising PBGC's exposure; PBGC may 
have limited ability to prevent risky buyouts. 

Category: Effects on future termination; 
Potential positive outcomes: Large, well-capitalized controlled group 
protects PBGC against major claims; 
Potential risks: Limited or no capital outside plan in controlled group 
provides little financial security for plan. 

Category: Regulatory issues; 
Potential positive outcomes: Financial regulation improves benefit 
security compared with that of some sponsors; 
Potential risks: Ambiguities about some benefits; possible conflict 
between pension and financial agency goals. 

Category: Effect on DB sponsors; 
Potential positive outcomes: Reduced cost and greater flexibility in 
shedding liabilities; ability to shed "legacy" portion of a plan; 
Potential risks: May encourage sponsors to freeze plans. 

Source: GAO analysis of proposed DB plan buyouts. 

[End of table] 

Some Plan Buyouts by Financially Strong Sponsors Could Increase Benefit 
Security for Participants and PBGC: 

Advocates of allowing pension plan buyouts point to a potential "win- 
win-win": more options and lower cost for sponsors who wish to shed 
their pension plans, more security for participants than a weak sponsor 
can provide, and reduced risk of large claims from distress 
terminations for PBGC. Plan sponsors could benefit from buyouts if they 
provide a cheaper means for shedding a pension plan than terminating 
the plan through an insurance company. Buyouts could also allow 
sponsors to shed just a portion of the plan while maintaining 
sponsorship for a smaller plan. To the extent that the lower cost of 
plan buyouts reflects a competitive advantage over a plan termination 
without increasing pension risk, buyouts can be viewed as a beneficial 
financial innovation. 

Buyouts could add security for plan participants if the new sponsor can 
manage plan assets and liabilities better than the original sponsor, if 
the original sponsor could not terminate the plan. The financial 
backing of the assets of a large, diversified, and well-capitalized 
parent company or of large amounts of investment capital could better 
ensure that assets will be available to pay promised benefits. It could 
also lower the likelihood that PBGC would face a future claim from 
distress termination, since a stronger sponsor would be in a better 
position to keep the plan funded and be less likely to face financial 
distress than a weaker one. 

Pension Buyouts by Financial Entities May Pose New Risks and Regulatory 
Challenges: 

While buyouts could provide more security for plan benefits in some 
cases, they may also create new risks that could adversely affect 
benefit security. These include the severing of the plan from a direct 
employment arrangement between employer and employee, the ability of 
PBGC to monitor and intervene in buyouts that could have adverse 
implications for participants and PBGC, and potential conflicts and 
issues between the regulatory missions of PBGC and various financial 
regulators. 

Buyouts would affect the relationship between sponsor and participant 
by separating it from an employment arrangement, possibly raising 
concerns about the management of participants' pension benefits and the 
long-term effect on the DB system. With an employer-sponsored plan, the 
financial fate of the plan depends to a large degree on the financial 
fate of the company, since a healthier company is better able to fund 
its DB plan and the plan will not endure a distress termination as long 
as the company thrives. Opponents to buyouts contend that even in the 
case of a frozen plan, an employer sponsor, as opposed to a third-party 
sponsor, has a greater incentive to manage the plan in the interests of 
its employees because it has an incentive to maintain a good working 
relationship with them. In addition, a frozen plan that remains within 
the firm has at least the chance of being "thawed," especially within a 
collective bargaining agreement.[Footnote 36] Workers may also have a 
relationship with plan administrators within their own company, and may 
worry about addressing concerns when dealing with administrators of a 
new sponsor outside their company. Further, the option of plan buyouts 
for frozen plans as a less expensive alternative to plan termination 
may provide an incentive for existing sponsors to freeze their plans, 
an act that could reduce future retirement income for participants. 

Buyout proponents argue that the employment relationship plays a 
diminished role in hard-frozen plans, which would be the primary target 
of buyouts. Because these plans offer no future accruals, they serve a 
very limited ongoing function of providing benefits to employees, and 
therefore likely do not play a strong role in attracting or retaining 
workers. As one advocate also pointed out, DB plans can change 
sponsorship as a result of company mergers or acquisitions, which could 
result in a situation where the new sponsor becomes responsible for 
managing the benefits of a participant it has never employed (such as a 
worker who has left the firm prior to the merger and change of 
sponsor). However, the IRS ruling suggests that the underlying 
employment relationship between plan sponsor and participant is 
fundamental to the rationale for the tax-favored status of qualified 
plans. 

The buyout of plans by a nonemployer may also create some perverse 
incentives or ambiguities in applying rules that guide how the sponsor 
may interpret participant benefits or rights. One key issue concerns 
whether a participant who had not yet reached the minimum service time 
with his employer would continue to accrue service time after the plan 
changes sponsors. For example, a plan may require a minimum of 5 years 
of service to be able to qualify for benefits upon retirement. A worker 
may have 4 years working for an employer when the company sells its 
pension to a financial entity, which would become the new sponsor. If 
the participant continues to work for another year, he would have 5 
years of service with the employer, but not with the sponsor, and 
therefore it is possible the sponsor would claim that the participant 
has not vested.[Footnote 37] Similarly, should an active or soft-frozen 
plan be bought out by a nonemployer, there would be a potential 
question of whether a participant would continue to accrue service time 
after the transfer of sponsorship. Other benefits, such as shutdown 
benefits--significant early retirement benefits triggered by layoffs or 
plant closings--may be affected by decisions by the employer, who would 
no longer be responsible for paying the benefits, creating an incentive 
mismatch between employer and sponsor unless the plan was amended 
explicitly to address this. 

Arranging a DB plan buyout in situations where participants and 
beneficiaries are covered by a collective bargaining agreement may 
involve overcoming additional challenges. Under federal law, "wages, 
hours, and other terms and conditions of employment" are mandatory 
subjects of collective bargaining.[Footnote 38] Case law has 
established that employee pension benefits are generally subject to 
mandatory collective bargaining.[Footnote 39] On the other hand, courts 
have recognized that terms and conditions of employment do not 
encompass every employer decision or management function that may have 
an indirect impact upon or be of interest to employees.[Footnote 40] 
One expert with whom we spoke was unsure whether the sale of a pension 
plan from an employer to a third-party sponsor would be considered 
negotiable under a collective bargaining agreement. The outcome in 
individual cases may depend on the specific facts and circumstances 
involved, including the terms of any applicable union contracts. 

Buyouts would have an ambiguous impact on PBGC's financial position and 
risk. PBGC would benefit if a plan buyout moved a plan from a 
financially weak sponsor to a stronger one with a better ability to 
fund the plan sufficiently because PBGC would take a loss if it had to 
take responsibility for paying benefits of an underfunded plan that 
closed in a distress termination. In addition, PBGC would benefit from 
continued premium payments by the new sponsor, compared with the 
original sponsor terminating the plan. However, buyouts would be 
unlikely to involve the weakest and riskiest plans --proponents of 
buyouts with whom we spoke said that the plans financial companies 
would most likely target would be only slightly underfunded. Large, 
more severely underfunded plans held by weak sponsors, which present 
the biggest risk of a large claim on PBGC's assets, would seem to be an 
unlikely target for buyout because of the amount of cash a prospective 
financial sponsor would require to agree to take over the plan. It 
therefore seems unlikely that the buyouts would help rescue the 
riskiest plans or reduce PBGC's overall risk significantly, unless a 
buyout prevented the future erosion of plan funding in large plans. 

More important for PBGC, seemingly strong companies buying out plans 
may not remain financially strong. The current turmoil in the financial 
markets, which has led to the failure of financial institutions and 
direct federal financial assistance to others, provides clear evidence 
that the financial strength of a firm or industry can quickly 
deteriorate. Even if the financial sponsor appeared to be stronger than 
employers from whom it purchased DB plans, plan buyouts could move 
multiple plans from several firms in different industries to the 
control of one firm or industry. This could increase the magnitude of 
future losses to PBGC and participants should that sponsor or industry 
find itself in financial distress. 

For PBGC, the potential risk associated with any particular DB plan 
buyout depends in part on the structure of the new sponsorship. A large 
financial company, such as a bank or an investment bank, might choose 
to set up a subsidiary explicitly to sponsor bought-out plans. If the 
parent financial company owns at least 80 percent of the subsidiary 
containing the plan, then the subsidiary would generally be within the 
financial company's "controlled group."[Footnote 41] This would mean 
that the parent company could be liable for supporting the pension plan 
should the plan terminate with insufficient assets to pay accrued 
benefits. However, a firm conducting a buyout could transfer plan 
assets and liabilities to a separate subsidiary or investment vehicle 
outside the parent company's controlled group. In this case, the larger 
parent may not be legally liable to the pension plan if the plan became 
underfunded or the sponsor suffered financial distress, possibly 
increasing the risk of lost participant benefits or losses to PBGC in 
the event of a plan termination. Therefore, the structure of the 
sponsorship of any plan may affect the potential risk to PBGC. 

According to PBGC officials, the agency's ability to prevent buyouts 
that increase risk to itself and the DB system relies on statutory 
provisions permitting PBGC to involuntarily terminate a plan and to 
seek recovery from plan fiduciaries who engage in transactions to evade 
plan liability. PBGC officials indicated, however, that those 
provisions could be of limited value when applied to buyouts. The first 
provision authorizes PBGC to institute proceedings to involuntarily 
terminate plans in certain specific circumstances involving a sponsor 
failure to comply with funding laws or anticipation of such failure. 
[Footnote 42] The second permits PBGC to recover from persons entering 
into transactions for the purpose of evading liability in connection 
with a plan termination.[Footnote 43] This provision was intended to 
deter attempts by plan sponsors to shift pension obligations to weak 
companies.[Footnote 44] Because it could result in original plan 
sponsors being liable for plan obligations as if a plan buyout had 
never occurred, it may discourage plan sponsors from selling plans to a 
new sponsor that is obviously not financially sound. However, PBGC 
officials stated it would still be very difficult and costly to prevent 
risky buyouts because PBGC faces a heavy burden of proving that one of 
the triggering criteria has been met, and could involve protracted 
litigation. Further, under the first provision a forced plan 
termination would still likely lead to losses, and under the second 
provision PBGC has only a 5-year window to prove that a transaction was 
conducted to evade liability. Other former PBGC officials with whom we 
spoke thought that PBGC probably had the ability under its current 
authorities to craft rules to prevent buyouts that would increase the 
risk of losses to the agency. 

Regulated financial firms face capital requirements designed to try to 
ensure the safety of bank deposits and assets. While these requirements 
could provide additional security for plan benefits if they improve the 
likelihood of ongoing solvency for the sponsor, the oversight goals of 
banking regulatory agencies may conflict with those of the pension 
regulatory agencies. Bank regulatory agencies, such as OCC or FRB, seek 
to ensure that the activities of a banking institution do not create 
undue risk for the safety of the depositors and the soundness of the 
banks. Therefore, if a banking institution wanted to take over the 
sponsorship of a pension plan, financial regulatory agencies may need 
to ensure that plan sponsorship does not unduly increase the risk to 
the bank, and especially to bank depositors. This might take the form 
of shielding bank assets from liability for pension plan underfunding. 
This would seemingly conflict directly with the interests of PBGC, 
which would want assets of the sponsor beyond the plan itself available 
to cover pension obligations before allowing a distress termination. 
This regulatory conflict would have implications for the security of 
plan benefits under a new sponsor following a plan buyout if some of 
the assets of a large financial sponsor were shielded from potential 
pension liability. Such a conflict may lead to the perverse result that 
regulated, well-capitalized banking entities might be barred from 
participating in DB plan buyouts while financial entities that may be 
exempt from some securities laws and regulations, such as hedge funds, 
would not. On the other hand, it is possible that OCC or FRB might 
conclude that the financial company has sufficient assets outside of 
its banking activities to provide financial support for plan funding, 
or that the structure of the buyout provides sufficient protections for 
banking assets, and allow the banking entity to take over a plan. 
[Footnote 45] 

Plan buyouts might place additional demands on pension regulators to 
enforce current rules. Financial entities taking over plans in buyouts 
may offer investment services or asset-liability management geared 
toward DB plans. As plan sponsors themselves, they could theoretically 
hire a related subsidiary to provide these services, but doing so could 
present a conflict of interest between their role as sponsor and as 
investment manager. ERISA generally prohibits a range of transactions 
that could trigger conflicts of interest but there are a number of 
specific exceptions.[Footnote 46] It is unclear if plan buyouts will 
make it more difficult to monitor such transactions. A second source of 
potential oversight difficulty concerns the excise tax on plan 
reversions. A sponsor of an overfunded plan could attempt to extract 
excess plan assets, which would typically be subject to an excise tax, 
by selling the plan to a financial sponsor in exchange for cash or 
assets reflecting the plan surplus (less fees the new sponsor might 
collect to take over the plan). IRS officials with whom we spoke 
mentioned that buyouts could possibly make enforcing the reversion tax 
more complicated, particularly if the transaction included the transfer 
of some business assets. 

Concluding Observations: 

The recent IRS ruling and legislative efforts to address the nation's 
financial difficulties have pushed DB plan buyouts off the immediate 
policy agenda. At first glance, buyouts in and of themselves seem to be 
a minor issue. With a primary target market of sponsors of slightly 
underfunded, hard-frozen plans, both the direct benefits and costs of 
such transactions appear comparatively small. To the extent that a 
buyout results in a stronger sponsor of the pension plan, the buyout 
could make participant benefits more secure and reduce PBGC's financial 
exposure somewhat. Sponsors would certainly benefit from the increased 
choice they would have in being able to shed their pension liabilities, 
presumably at reduced cost compared with standard termination through 
insurance companies. If such buyouts represented new level-playing- 
field competition to insurance terminations, with no added risk to 
participants or to PBGC, they could be seen as a financial innovation 
that increased flexibility and lowered cost to DB sponsors. 

The troubling aspects of DB plan buyouts involve risks that may be 
difficult to foresee or quantify now or at the time of any particular 
transaction. It is unclear to what extent buyouts would cost less than 
standard plan terminations simply because of differences in regulations 
facing financial institutions and insurance companies providing similar 
services to plan sponsors instead of from economic efficiency. Further, 
the current economic downturn has laid bare the current weaknesses and 
imperfections of financial regulation, with banks and insurance 
companies previously considered to be sound and well capitalized 
suffering catastrophic losses. 

Plan buyouts, as proposed by potential sponsors, would likely provide 
very limited upside for participants, since PBGC guarantees have 
covered the overwhelming majority of participant benefits in DB plans 
that PBGC has taken over. They may offer cost savings and flexibility 
to sponsors, but they would appear to offer few advantages for benefit 
protection over plan terminations already recognized by ERISA. Although 
it is possible that the current financial crisis could uncover 
weaknesses in the regulation of annuity providers for terminated plans, 
the potential advantages appear to be limited to a very narrow set of 
scenarios in which a buyout by a strong sponsor rescues the plan from a 
distress termination and saves participants from lost uninsured 
benefits. Even to the extent they are a successful model, buyouts could 
erode worker retirement benefits by encouraging plan freezes by 
sponsors wishing to avail themselves of this option. For PBGC, the 
gains in security would also likely be small, since only mildly 
underfunded plans are likely to be targeted for buyout, although it is 
possible that some buyouts could prevent further erosion in plan 
funding. Whatever the ultimate effect buyouts would have on benefits 
security or plan sponsorship, it seems likely that they would change 
the traditional role that DB pensions play as a benefit employers 
provide directly to their employees. One's evaluation of buyouts may 
depend on the degree to which DB plans are defined by the employer- 
employee relationship, and not just on the monetary value of the 
benefits. 

Agency Comments: 

We provided a draft of this report to the Department of Labor, the 
Department of the Treasury, IRS, and PBGC, all of whom provided 
technical comments that we incorporated as appropriate. 

As agreed with your offices, unless you publicly announce its contents 
earlier, we plan no further distribution until 30 days after the date 
of this letter. At that time, we will send copies of this report to the 
Secretary of Labor, the Secretary of the Treasury, the Director of 
PBGC, appropriate congressional committees, and other interested 
parties. We will also make copies available to others on request. In 
addition, the report will be available at no charge on GAO's Web site 
at [hyperlink, http://www.gao.gov]. 

If you have any questions concerning this report, please contact 
Barbara Bovbjerg at (202) 512-7215 or Joseph Applebaum at (202) 512- 
6336. 

Contact points for our Offices of Congressional Relations and Public 
Affairs may be found on the last page of this report. GAO staff who 
made contributions are listed in appendix III. 

Signed by: 

Barbara D. Bovbjerg, Director: 
Education, Workforce, and Income Security Issues: 

Signed by: 

Joseph A. Applebaum, Chief Actuary: 
Applied Research and Methods: 

[End of section] 

Appendix I: UK Experience with Noninsured Plan Buyouts Provides Only 
Limited Regulatory Lessons for the United States: 

The United Kingdom (UK) has in recent years seen a marked increase in 
defined benefit (DB) plan sponsors closing their plans. British plan 
experts and policy makers with whom we spoke estimated that 
terminations are expected to involve assets of £10 billion in 2008. 
Most of these closeouts have been conducted by insurance companies in 
ways similar to pension terminations in the United States, with 
sponsors terminating their plans and purchasing group annuities from 
insurers to pay plan benefits. However, a few have involved 
noninsurance entities. In 2007, two financial firms, Citigroup and 
Pension Corporation, took over control of four defined benefit plans 
with a value of £4.5 billion collectively. Citigroup's purchase of the 
plan sponsored by Thompson Regional Newspapers most clearly resembled 
the structure of models proposed by U.S. firms: Thompson created a 
subsidiary, into which it put its pension plan plus additional assets, 
and Citigroup purchased this subsidiary and became the plan's new 
sponsor. Citigroup pointed out some benefits of this buyout for all 
parties involved, including the facts that Thompson was a relatively 
weak sponsor and the investment strategy proposed by Citigroup was 
conservative in nature. 

To take over the Thompson pension plan, Citigroup had to obtain 
approval from both U.S. and United Kingdom regulatory agencies. The 
Federal Reserve Board (FRB) approved the plan buyout while making it 
clear that its approval was limited to the specific conditions of this 
deal, involving a hard-frozen, fully funded plan in which the plan 
assets equaled or exceeded the value of future plan benefit payments. 
[Footnote 47] Citigroup proposed that this deal be done through a 
nonbank subsidiary, and FRB wanted to know if this transaction posed 
any risk to subsidiary groups, Citibank in particular.[Footnote 48] We 
were told that, under UK law, the corporate control group of a 
subsidiary would be liable for any losses the pension plan might incur, 
meaning that the Pensions Regulator, the main British pension 
regulatory agency, could seek recovery from the U.S.-insured depository 
institution of Citibank in the event that something went awry with the 
fund. FRB officials indicated that they would have serious concerns 
about allowing a U.S. banking institution to subject itself to the 
liabilities of a pension plan acquired by a subsidiary. In order to 
secure final approval from FRB, Citigroup had to receive written 
assurance from the Pensions Regulator that Citibank assets would not be 
pursued in the event of the plan becoming insolvent. The Pensions 
Regulator agreed to grant this exemption for a period of 5 years. 

While that buyout contained features similar to those in U.S. 
proposals, there are inherent structural differences between the UK and 
U.S. pension regulatory systems that appear to limit the lessons from 
the UK experience for the United States. Officials told us that, unlike 
American plans, British defined benefit plans are managed by separate 
boards of trustees rather than plan sponsors. Trustees have the power, 
for example, to constrain plan sponsors from employing any investment 
strategy that may lead to undue risk for the participants or the 
British federal pension insurance fund, the Pension Protection Fund 
(PPF); in contrast, U.S. plans are not required to have any such 
governance body. Furthermore, according to pension experts, the tax on 
plan reversions in the UK is significantly lower than in the United 
States, and Citigroup made clear its intent to keep any remaining 
surplus after either paying all promised benefits or terminating the 
plan through an insurance company. This source of profit would not be 
available in the United States because of the size of the reversion 
tax. 

Additionally, the Pensions Regulator has powers that allow for 
flexibility and give strong protection to plan members. As the DB plan 
buyout landscape continues to evolve, the Pensions Regulator has the 
power to intervene when it believes a noninsurer transaction might put 
plan members and the PPF in jeopardy. The Pensions Regulator has 
already shown its willingness to engage in such intervention during the 
Pension Corporation's buyout of the telecommunication firm Telent. In 
contrast to Citigroup, the Pension Corporation acquired pension plans 
by gaining an interest in the original employer sponsor. These 
takeovers more closely resembled a merger and acquisition transaction 
than they did a pension plan buyout. In this case, the trustees of the 
Telent pension plan claimed that the interests of the Pension 
Corporation were not aligned with those of the trustees and plan 
members. Some believed that the Pension Corporation's sole interest in 
acquiring Telent was to seek higher returns from the fund as a means of 
profit for the corporation, rather than for the members. The Pensions 
Regulator agreed with the trustees and exercised its power by 
installing three additional independent members as trustees, thus 
preventing the Pension Corporation from gaining control of the board. 
In addition to showing the powers of the Pensions Regulator, this 
instance also illustrates the relative importance of UK trustees. It 
was the trustees that first notified the Pensions Regulator about the 
potential risk being imposed on members. 

[End of section] 

Appendix II: Internal Revenue Service 2008 Revenue Ruling on Defined 
Benefit Plan Buyouts: 

On August 6, 2008, the Department of the Treasury and the Internal 
Revenue Service (IRS) issued Rev. Rul. 2008-45.[Footnote 49] This 
ruling decided whether DB plans bought out by third-party sponsors 
complied with or violated the "exclusive benefit" rule of the Internal 
Revenue Code (IRC). This rule provides that in order to constitute a 
qualified plan, a pension plan must be operated for the exclusive 
benefit of a sponsor's employees and their beneficiaries.[Footnote 50] 

The ruling declared that the transfer of a pension plan to "an 
unrelated taxpayer," without the concurrent transfer of significant 
business assets, operations, or employees, such as in a merger or 
business acquisition, would jeopardize a plan's tax qualification. IRS 
contrasted the transfer of a sole pension plan with the transfer of a 
plan in connection with the acquisition of business assets or 
operations, and held that since a plan in the first instance would no 
longer be maintained by an employer to provide retirement benefits for 
its employees and their beneficiaries, it would not satisfy the rule. 
The ruling further held that this would still be the case if the 
purchasing company has "some employees…or some business assets or 
operations transferred, where substantially all of the business risks 
and opportunities" relate solely to the buyout of the plan itself. This 
means that under current law any plans transferred to a nonemployer 
sponsor would not receive the same tax benefits an employer-sponsored 
plan would, such as the tax deferral on sponsor contributions to the 
plan and on the return on plan assets. According to Treasury, as a 
result of this ruling, companies will be unable to take over any 
pension plans, frozen or active, except as part of a business merger or 
acquisition. 

Advocates of buyouts said that they believed the IRS ruling was broader 
in its coverage of all third-party buyouts than it needed to be under 
the law and inconsistent with prior rulings on plans that change 
sponsors. Instead, they thought the ruling should have left open the 
possibility of case-by-case IRS approval pending an evaluation of 
whether a buyout benefited participants or the Pension Benefit Guaranty 
Corporation (PBGC). 

Concurrent with the ruling, the Department of the Treasury issued a set 
of principles, with input from the Department of Labor, Department of 
Commerce, and PBGC, that might guide Congress should it decide to write 
legislation that would permit pension plan buyouts.[Footnote 51] These 
include the following: (1) companies should give advance notice of plan 
buyouts to participants and regulators; (2) only financially strong 
entities in well-regulated sectors would be permitted to acquire a 
pension plan in a plan buyout transaction; (3) the parties to the 
transaction would be required to demonstrate that participants' 
benefits and the pension insurance system would be exposed to less risk 
as a result of the buyout, and that the buyout would be in the best 
interests of the participants and beneficiaries; (4) limitations on 
buyouts would be imposed to limit undue concentration of risk; (5) 
transferees and members of their controlled groups would assume full 
responsibility for the liabilities of transferred plans and would 
comply with post-transaction reporting and fiduciary requirements; and 
(6) subsequent buyout transactions for a plan would be subject to the 
same rules as the original buyout. 

[End of section] 

Appendix III: GAO Contacts and Staff Acknowledgments: 

Contacts: 

Barbara D. Bovbjerg (202) 512-7215 or bovbjergb@gao.gov Joseph A. 
Applebaum (202) 512-6336 or applebaumj@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts above, Charles A Jeszeck, Mark M. Glickman, 
Brian Tremblay, Craig Winslow, Karine McClosky, Jessica Orr, and Mimi 
Nguyen made important contributions to this report. 

[End of section] 

Footnotes: 

[1] In a defined benefit plan, pension benefits are typically set by 
formula, with workers receiving benefits upon retirement based on the 
number of years worked for a firm and earnings in years prior to 
retirement. DB plans must make available a joint and survivor life 
annuity to retiring participants--a series of periodic payments that 
begin at retirement and continue through the life of the participant 
and, at the death of the participant, to the surviving spouse. 

[2] Pub. L. No. 109-280, 120 Stat. 780. 

[3] Financial Accounting Standards Board, "Statement of Financial 
Accounting Standards No. 158," Financial Accounting Series No. 284-B, 
September 2006. 

[4] 29 U.S.C. § 1341(b)(3)(A). 

[5] Rev. Rul. 2008-45, 2008-34 I.R.B. 403, available at [hyperlink, 
http://www.treas.gov/press/releases/reports/hp1110revrul200845.pdf]. 
The IRS is not aware of any buyouts covered by the revenue ruling that 
have occurred in the United States. However, some plan buyouts through 
noninsurance entities have occurred in the United Kingdom. See appendix 
I for a discussion of British pension buyouts. 

[6] Treasury Press Release HP-1110 (Aug. 6, 2008). According to Labor, 
neither the IRS ruling nor the pension regulatory agencies have 
addressed the application to buyouts of title I of the Employee 
Retirement Income Security Act of 1974, which establishes vesting, 
funding and other pension plan requirements, or title IV, which 
establishes pension plan termination insurance. If a post buyout 
arrangement sponsored by a nonemployer entity fails to constitute an 
"employee benefit plan" under title I, for example, entities engaged in 
such transactions may be subject to state regulation, possibly creating 
an additional disincentive for engaging in such a transaction. 

[7] For more detail on DB buyouts in the United Kingdom, see appendix 
I. 

[8] Some DB plans are not covered by PBGC insurance: for example, plans 
sponsored by professional service employers, such as physicians and 
lawyers, with 25 or fewer employees. 

[9] This figure reflects the value of program assets less the current 
value of future benefit obligations for terminated plans and net claims 
for those deemed likely to default for both the single-and 
multiemployer insurance programs. PBGC noted in its fiscal year 2008 
Annual Management Report that "since the close of the fiscal year, 
there continue to be significant events in the economy and financial 
markets that may impact the financial statement measurements going 
forward." 

[10] 29 U.S.C. § 1341(b)(3)(A). 

[11] PBGC's single-employer insurance program guarantees participant 
benefits up to $4,500 per month for age-65 retirees of plans 
terminating in 2009, with lower guarantees for those who retire before 
age 65. With a joint annuity with 50 percent survivor benefits for a 
spouse of the same age, the age-65 monthly guarantee limits are $4,050 
for plans terminating in 2009. Younger workers whose plans terminate 
receive lower guarantee levels: The guarantee for a 55-year-old retiree 
in 2009 is $2,025 per month, and $1,125 per month for a 45-year-old. 

[12] In a distress termination, PBGC also tries to collect plan 
underfunding from employers and shares a portion of its recoveries with 
participants and beneficiaries. 

[13] 29 U.S.C. § 1342(a). 

[14] See GAO, Defined Benefit Pensions: Plan Freezes Affect Millions of 
Participants and May Pose Retirement Income Challenges, [hyperlink, 
http://www.gao.gov/products/GAO-08-817] (Washington, D.C.: July 2008). 
For earlier GAO work on frozen plans, see GAO, Private Pensions: Timely 
and Accurate Information Is Needed to Identify and Track Frozen Defined 
Benefit Plans, [hyperlink, http://www.gao.gov/products/GAO-04-200R] 
(Washington, D.C.: Dec. 17, 2003). 

[15] Summary of study in "Hard-Frozen Defined Benefit Plans: Findings 
for 2003, 2004, and Preliminary Findings for 2005" in PBGC, Pension 
Insurance Data Book 2006 (Washington, D.C.: 2007). 

[16] PPA §§ 102 and 112, 120 Stat. 789-809 and 833-846. 

[17] ERISA minimum plan funding rules say that a sponsor must annually 
fund the plan's "normal cost," the amount of earned benefits allocated 
during that year, plus a specified portion of other liabilities that 
may be amortized over a period of years. For more on plan funding, see 
GAO, Private Pensions: Recent Experiences of Large Defined Benefit 
Plans Illustrate Weaknesses in Funding Rules, [hyperlink, 
http://www.gao.gov/products/GAO-05-294] (Washington, D.C.: May 2005). 

[18] For more on the GAO survey, see [hyperlink, 
http://www.gao.gov/products/GAO-08-817] and GAO, Survey of Sponsors of 
Large Defined Benefit Pension Plans, an E-supplement to GAO-08-817. 

[19] Pub. L. No. 110-458, §§ 101(b), 121, 202 and 203, 122 Stat. 5092, 
5093-97, 5113-14 and 5117-18. 

[20] Rev. Rul. 2008-45. See app. II for further discussion of the IRS 
ruling and Treasury guidelines. 

[21] 26 U.S.C. § 401(a)(2). 

[22] 26 U.S.C. § 4980(d). Under certain circumstances, the excise tax 
is 20 percent or inapplicable at all when excess assets are transferred 
to retiree health accounts. 26 U.S.C. § 420(a)(3)(A). 

[23] Plans below certain funding levels, designated under the statute 
as "at risk," have to meet additional, stricter actuarial assumptions. 
26 U.S.C. § 430(i) and 29 U.S.C. §1083(i). In addition, plans that do 
not meet certain funding levels could face additional restrictions, 
such as possible prohibitions on benefit increases or lump-sum 
distributions. 26 U.S.C. § 436 and 29 U.S.C. § 1056(g). The Worker, 
Retiree, and Employer Recovery Act of 2008, however, provided some 
plans with temporary relief from some of these provisions. Pub. L. No. 
110-458, §§ 101(b) and 203, 122 Stat. 5092, 5093-97 and 5118. 

[24] Overfunded plans could possibly also be targeted for buyouts, with 
the new sponsor paying the original sponsor for the overfunded assets, 
less any fees for administrative costs and risk. However, the original 
sponsor could possibly face a reversion tax on any money received in 
the transaction for plan assets in excess of its liabilities. 

[25] Sponsors could achieve a similar effect by purchasing annuities 
for retired participants. 

[26] Insurance companies that offer life insurance may also consider 
the partial hedge that this insurance provides against the longevity 
risk inherent in issuing annuities. 

[27] In 2009, PBGC charged a flat rate premium of $34 per participant 
in a single-employer program plan, and $9 per participant in a 
multiemployer plan. These rates are indexed to the growth in the 
average national wage. In addition, sponsors of single-employer plans 
with unfunded vested benefits pay $9 per $1,000 of underfunding. 

[28] Asset risk refers to the risk of default or loss of value in 
assets the insurer owns, including affiliated businesses. Insurance 
risk refers to the possibility of higher-than-expected claims, such as, 
in this case, having to pay out benefits for longer periods of time 
because of above-average life expectancy. A company faces interest rate 
risk if it could incur losses in assets relative to liabilities if 
interest rates move in a particular direction. Business risk represents 
general uncertainty about the revenues or costs a particular insurance 
company or industry can expect. 

[29] Some financial institutions, such as hedge funds or private equity 
firms, may be managed to be exempt from some requirements of federal 
securities law and regulations that apply to other investment vehicles. 
For more on "alternative" investment vehicles, see GAO, Defined Benefit 
Pension Plans: Guidance Needed to Better Inform Plans of the Challenges 
and Risks of Investing in Hedge Funds and Private Equity, [hyperlink, 
http://www.gao.gov/products/GAO-08-692] (Washington, D.C.: Aug. 14, 
2008). 

[30] PBGC's single-employer insurance program covers benefits of up to 
about $4,500 per month for a 65-year-old participant whose plan 
terminates in 2009, with lower guarantees for younger retirees. A 
recent PBGC study found that its guarantees fully covered the benefits 
of 84 percent of participants in PBGC-trusteed plans for distress 
terminations from 1990 to 2005. 

[31] GAO highlighted concerns in 1992 about the failure of insurance 
companies and the adequacy of protections for policyholders whose 
insurance companies fail. See GAO, Insurer Failures: Life/Health 
Insurer Insolvencies and Limitations of State Guaranty Funds, 
[hyperlink, http://www.gao.gov/products/GAO/GGD-92-44], (Washington, 
D.C.: March 1992). 

[32] 29 U.S.C. § 1104. 

[33] 29 C.F.R. 2509.95-1(c) (2008). In contrast, the PPA required Labor 
to issue regulations to clarify that the safest available annuity 
standard and its related factors are not applicable to defined 
contribution plans. PPA § 625, 120 Stat. 980. The final regulation, 
which became effective December 8, 2008, was published on October 7, 
2008. 73 Fed. Reg. 58,445. 

[34] 29 U.S.C. § 1341(b)(3)(A). 

[35] See note e in table 1. 

[36] A recent GAO survey found that less than half of sponsors with 
frozen plans have a firm idea of the anticipated outcome for their 
largest frozen plans. Among these sponsors, a very small number 
anticipated thawing their plan and about one-third said they would 
eventually terminate their largest frozen plans. In contrast, nearly 
half said they would keep the plan frozen indefinitely. Another 14 
percent reported that it was too early to make a decision or that they 
were uncertain what the outcome will be. See [hyperlink, 
http://www.gao.gov/products/GAO-08-817]. 

[37] Where a plan sponsor sold part of its business but retained the 
pension plan, a federal appeals court has ruled that additional service 
with the new employer need not count toward years-of-service 
requirements for early retirement. Dade v. North Am. Philips Corp., 68 
F.3d 1558 (3d Cir N.J. 1995). According to Treasury, full vesting 
applies to plan benefits in a termination, but would not necessarily 
apply to a buyout. 

[38] 29 U.S.C. § 158(d). Separate collective bargaining requirements 
apply to railway and airline workers. 45 U.S.C § 156. 

[39] E.g., United Brick & Clay Workers v. International Union of Dist. 
50, etc., 439 F.2d 311 (8th Cir. Mo. 1971). 

[40] E.g., Westinghouse Electric Corp. v. NLRB 387 F.2d 542 (4th Cir. 
1967). 

[41] 29 U.S.C. § 1301(a)(14) and 26 C.F.R. § 1.414(c)-2 (2008). 

[42] Specifically, PBGC may institute such proceedings if (1) a plan 
has not met the minimum funding standard under the IRC or has been 
mailed a notice of tax deficiency under section 6212 under the IRC; (2) 
a plan will be unable to pay benefits when due; (3) a plan distribution 
of $10,000 or more is made to a plan owner, not by reason of death, and 
the plan immediately thereafter has nonforfeitable benefits that are 
not funded; or (4) the possible long-run loss to PBGC "may reasonably 
be expected to increase unreasonably" if a plan is not terminated. In 
addition, PBGC is required to terminate a single-employer plan that 
does not have the assets available to pay benefits currently due. 29 
U.S.C. § 1342(a). 

[43] Specifically, it provides that if the principal purpose of a 
person entering into a transaction is to evade such liability and the 
transaction becomes effective during the 5 years prior to plan 
termination, the person and members of such person's controlled group 
are subject to the same liability as a contributing plan sponsor. 29 
U.S.C. § 1369. Person is defined to include partnerships, joint 
ventures, corporations and other entitles, as well as individuals. 29 
U.S.C. § 1002(9). With respect to a single-employer plan, controlled 
group generally means a group of (natural or corporate) persons under 
common control. 29 U.S.C. § 1301(a)(14)(A). Common control is 
determined as set out in regulations under the IRC to include such 
corporate forms as parent-subsidiary, brother-sister, and combined 
groups of trades or businesses. 29 U.S.C. § 1301(a)(14)(B) and 26 
C.F.R. § 1.414(c)-2 (2008). 

[44] H.R. Rep. No. 99-300, at 304. 

[45] The Citigroup purchase of the Thompson Regional Newspaper pension 
plan in the UK illustrates this potential regulatory conflict. Under 
section 23A of the Federal Reserve Act, FRB reviewed actions of a 
nonbanking subsidiary that might pose a risk to Citigroup's banking 
unit. 12 U.S.C. § 371c. Citigroup received a ruling from FRB 
determining that the pension buyout transaction in question qualified 
as an allowable financial activity as a bank holding company. This 
permitted Citigroup to move forward with the acquisition of Thompson's 
pension plan. However, FRB required Citigroup to secure a letter of 
assurance from the UK Pensions Regulator that assets under its banking 
unit, Citibank, would be exempt from any calls on Citigroup resources 
in the event of the pension plan becoming insolvent. See app. I for 
further discussion of this ruling. 

[46] 29 U.S.C. §§ 1106 and 1108. 

[47] Citigroup, Inc., 93 Fed. Res. C16 (2207) 

[48] Section 23A of the Federal Reserve Act (12 U.S.C. § 371c) and 
Regulation W (12 C.F.R. pt. 223 (2008) impose quantitative and 
qualitative limits on covered transactions between a depository 
institution and its affiliates. Covered transactions include, among 
other things, an extension of credit by a depository institution to an 
affiliate and the issuance of a guarantee by a depository institution 
on behalf of an affiliate. The limitations in section 23A and 
Regulation W provide important protections against a depository 
institution suffering losses due to covered transactions with its 
affiliates, and also limit the ability of a depository institution to 
transfer to its affiliates the subsidy arising from the institution's 
access to the federal safety net. 

[49] See IRS Rev. Rul. 2008-45, Aug. 6, 2008, available at [hyperlink, 
http://www.treas.gov/press/releases/reports/hp1110revrul200845.pdf]. 

[50] 26 U.S.C. § 401(a). 

[51] Treasury Press Release HP-1110 (Aug. 6, 2008). 

[End of section] 

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