When the termination premium applies
In general, the termination premium applies where a single-employer plan terminates in a
distress termination under section 4041(c) (unless all contributing sponsors and controlled group
members meet the bankruptcy liquidation requirements of section 4041(c)(2)(B)(i)) or in an
involuntary termination under section 4042 of ERISA, and the termination date under section
4048 of ERISA is after 2005. However, there is a special rule for certain bankruptcy situations.
Under the special rule, the termination premium does not apply where as of the plan’s
termination date under section 4048 of ERISA —
(1) A bankruptcy proceeding has been filed by or against any person that was, on the day
before the plan’s termination date, a contributing sponsor of the plan or a member of a
contributing sponsor’s controlled group, and
(2) The proceeding is pending as a reorganization proceeding under chapter 11 of title
11, United States Code (or under any similar law of a State or political subdivision of a State),
(3) The person has not been discharged from the proceeding, and
(4) The proceeding was filed before October 18, 2005.
Note that this special rule does not apply during a period when there is in effect an election of
funding relief (an extended underfunding amortization period and lenient assumptions for
valuing liabilities) by a commercial passenger airline or airline catering service for a frozen plan
under section 402(a)(1) of PPA 2006.
How the termination premium is determined
The termination premium is payable for three years. The same amount is payable each
year. The amount of each payment is based on the number of participants in the plan as of the
day before the termination date. The definition of “participant” for purposes of the termination
premium is the same as the definition used for purposes of the annual flat-rate premium, but the
participants are counted as of the day before the termination date, not as of the participant count
date used for the flat-rate premium. In general, the amount of each payment is equal to $1,250
times the number of participants. However, the rate is increased from $1,250 to $2,500 where a
commercial passenger airline or airline catering service elects funding relief (an extended
underfunding amortization period and lenient assumptions for valuing liabilities) for a frozen
plan under section 402(a)(1) of PPA 2006, if the plan terminates during the first five years of the
funding relief period, unless the Secretary of Labor determines that the termination resulted from
extraordinary circumstances such as a terrorist attack or other similar event.
Who is liable for the termination premium
The following persons are jointly and severally liable for the termination premium with
respect to a terminated plan:
(1) Each person that was a contributing sponsor of the plan on the day before the plan’s
termination date, and
(2) Each person that was a member of any contributing sponsor’s controlled group on the
day before the plan’s termination date.