On June 15, 2026, the Pension Benefit Guaranty Corporation (“PBGC”) issued an opinion addressing whether an annuity buyout that reduces active headcount by 20% or more would trigger a reportable event. PBGC concluded that, if the active participants are expected to remain employed, the reduction in headcount would not trigger a reportable event.
Background
Under ERISA section 4043, defined benefit plan administrators must notify PBGC when certain “reportable events” occur. One of those events is a reduction in the active participant headcount. Under that rule, if the headcount under a defined benefit plan is reduced by 20% or more from the count at the start of the year, the plan administrator must notify PBGC.
The reportable events rules are designed to allow PBGC to take timely action to protect pension benefits where an event occurs that may impact a pension plan’s funding or a plan sponsor’s financial health. For example, the active headcount reduction rule is designed to alert PBGC when a large layoff or other shutdown occurs. If the event raises potential risks to the pension plan’s ability to pay all benefits, the PBGC can take action to protect the pension plan and minimize its risk.
However, some events can inadvertently trigger unnecessary reporting. For example, suppose hypothetical Plan X is frozen. Plan X has many active employees (who work for Employer Y), but they are not earning additional benefits under Plan X. Finally, suppose Plan X purchased annuity contracts to satisfy the benefits for all of those active employees. Under the current rules, this transaction would be viewed as a 100% reduction in the active participant headcount, and would require reporting it to PBGC.
PBGC’s Update
In PBGC Opinion Letter 2026-1, PBGC concluded that an annuity buyout, where the employees are expected to remain employed, does not by itself trigger an active headcount reduction. PBGC noted that annuity buyouts do not (by themselves) signal financial issues with a plan or a sponsor, and that annuity buyouts actually tend to reduce PBGC’s risk because the associated liabilities are no longer subject to PBGC guarantees.
PBGC was clear that an active headcount reduction can still occur in the same year as an annuity buyout—but the annuity buyout by itself would not trigger a reportable event. In calculating whether the headcount reduction has occurred, a plan can disregard the annuitized individuals, unless the annuitization is concurrent with an unrelated workforce reduction.
Observations
Annuity buyouts typically involve liabilities for term vested and retired participants so the fact pattern here may be relatively unusual. Nevertheless, PBGC’s analysis is helpful for buyouts that involve active employees, which could become more common in the market.
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