PBGC Issues One-Time Waiver for 4010 Filers

The Pension Benefit Guaranty Corporation has issued a one-time waiver for certain pension sponsors for 4010 filings.

Scott Hittner, a partner in and the chief actuary at October Three Consulting, says that Section 4010 of the Employee Retirement Income Security Act requires companies with a pension plan with less than 80% funding to report additional financial and actuarial information to the PBGC. Waivers will be issued for smaller plans, such as those with fewer than 500 participants or whose aggregate underfunding does not exceed $15 million.

According to a release from the PBGC, sponsors who have a valuation date between October 1, 2022, and March 1, 2023, might be eligible for a one-time waiver if certain conditions are met.

If a sponsor with an applicable valuation date meets the following criteria, they are eligible:

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They did not need to file under 4010 for the previous five years;
Either none of the plans had a market-based funding level below 85% or the market-based shortfall is less than $15 million; and
Every plan below 80% has a value date in the eligible time period.

Hittner explains that in calculating funding under Section 4010, pension funds use a two-year average for interest rates. The two-year average was much lower than the actual interest rates for the time period covered by the waiver, which would have caused many plans with no history of being underfunded to become technically underfunded because of the way interest rates are used in the calculation. The total reduction in liabilities for the plan is not captured by the two-year average, which leads to false positives.

Hittner adds that many plan sponsors with no history of being underfunded would have been swept up, absent a waiver. Some sponsors were “looking to make extra contributions to avoid a filing” when “they were likely to only file for one year only.”

Plans that fall just outside the time range will still have to file, Hittner says, even if they have never been below 80% funding before. However, the waiver “will pick up a majority of affected plans.”

Tags: PBGC

Business development companies are having a good year, with the S&P BDC Index leaping 12.8% as of Monday’s close.

The increase marks a comeback for the asset class, which is one of the private credit fields that giant money managers such as Blackstone have entered. The BDC measure this year is far ahead of the investment-grade Bloomberg Global Aggregate Total Return Index (up 1.4%) and only slightly trails the Credit Suisse High-Yield Index (13.2%)—although none of the fixed-income indexes can compare to stocks, as seen by the S&P 500’s 17.7% advance in 2023.

“This is a compelling time to be investing” in BDCs, said Ron Kantowitz, head of private credit at asset manager Invesco, in a video clip posted on LinkedIn. While acknowledging that risks abound nowadays, he argued that careful due diligence will allow investors to pick the best ones and “invest away from” less-worthy BDCs.

BDCs—closed-end investment companies—are run to invest in small and medium-sized privately held businesses and offer lush annual dividend yields, which S&P Dow Jones Indices place at 10.2%, far above the S&P 500’s 1.5% and junk bonds’ 8.3%.

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As most BDCs use floating rates for the debt that dominates their portfolios, they have grown more and more attractive to yield-hungry investors. At this point, BDCs, along with other private debt offerings, have low default rates. As of year-end 2022, law firm Proskauer Rose, which specializes in legal advice to private credit, reported that the BDC sector had just a 1.04% default rate.

Public BDCs have ballooned, expanding to $200 billion in total assets in 2021 from $5 billion in 2002. Some big names, often affiliated with private equity titans, are in the publicly traded BDC space.

The leader in terms of assets is Ares Capital Corp. ($9.3 billion), followed by FS KKR Capital Corp. ($5 billion) and Owl Rock Capital ($4.8 billion). There also has been a surge in privately traded BDCs, with Blackstone Private Credit ($22 billion) in the lead.