Proposed PBGC reporting regulations threaten confidentiality of tax returns – US Pension Benefit Guaranty Corporation

Proposed PBGC reporting regulations threaten confidentiality of tax returns – US Pension Benefit Guaranty Corporation – Tax Executives Institute IRS Administrative Affairs Committee

On November 30, 1995, Tax Executives Institute submitted the following comments to James J. Keightley, General Counsel of the Pension Benefit Guaranty Corporation, relating to the annual financial and actuarial reporting requirements imposed under section 4010 of the Employee Retirement Income Security Act of 1974 (ERISA). The comments were prepared under the aegis of the Institute’s IRS Administrative Affairs Committee, whose chair is Robert L. Ashby of Northern Telecom Inc. David L. Klausman of Westinghouse Electric Corp., vice chair of TEI’s Federal Tax Committee, materially participated in the development of the Institute’s comments.

On behalf of Tax Executives Institute, Inc., I am writing to comment on a proposed regulation issued by the Pension Benefit Guaranty Corporation (PBGC), relating to the annual financial and actuarial reporting requirements imposed under section 4010 of the Employee Retirement Income Security Act of 1974 (ERISA). The proposed regulations were issued on July 6, 1995, under Title 29 of the Code of Federal Regulations, section 2628, and published in the FEDERAL REGISTER (60 Fed. Reg. 35308). Our comments focus on Prop. Reg. [subsections] 2628.7(e)(1)(iii) and (f), which we believe both impose an unnecessary paperwork burden on companies subject to the regulations and undermine the confidentiality accorded tax returns and return information under the Internal Revenue Code (IRC).


Tax Executives Institute is a volunteer, professional association of approximately 5,000 accountants, lawyers, and other professionals who are responsible for managing the tax affairs of their companies. TEI members must contend daily with business pension and tax laws, including those affecting the taxation of companies and their pension plans, from planning, recordkeeping, and compliance perspectives. TEI represents a cross-section of the business community. We are dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and the government alike.

The Institute is firmly committed to maintaining a tax system that works – both for taxpayers and the government. We believe the diversity and training of our members enable us to bring a balanced and practical perspective to your attention in respect of the need to safeguard the confidentiality of tax returns and return information.


Section 772(a) of the Retirement Protection Act of 1994(1) added section 4010 to ERISA. Under section 4010, certain contributing sponsors and all members of their controlled groups (referred to in the regulations and hereinafter as “Filers”) must submit annually to the PBGC financial and actuarial information prescribed by the PBGC in regulations. Under section 4010(a)(2), Filers must provide the PBGC with audited or unaudited financial statements. Prop. Reg. [sections] 2628.7(e)(1)(iii) states that where audited or unaudited financial statements are unavailable, the Filer may submit copies of federal tax returns to satisfy the financial information requirement. Prop. Reg. [sections] 2628.7(f) authorizes the PBGC to “require any Filer to submit additional actuarial or financial information that is necessary to determine … the financial status of a Filer.”

TEI recommends that Prop. Reg. [sections] 2628.7(e)(1)(iii) be deleted from the final regulation. In addition, we submit that the phrase “additional financial information” in Prop. Reg. [sections] 2628.7(f) is vague and overbroad, and are concerned that the phrase may be interpreted to include requests for the Filer’s federal income tax returns. Consequently, TEI recommends, at a minimum, that the scope of Prop. Reg. [sections] 2628.7(f) be narrowed to exclude tax returns or tax return information from the “additional actuarial or financial information” to be sought from Filers.(2)

Under current law, the PBGC is authorized to request and receive copies of a company’s federal tax return and other return information necessary “for purposes of … the administration of Titles I and IV” of ERISA. See IRC [sections] 6103(l)(2). By requiring a taxpayer to submit documents that have already been submitted to the IRS and that the PBGC has a right to obtain, the proposed regulations would unnecessarily burden taxpayers with redundant paperwork and filing requirements.

More important, we believe that the proposed regulations would diminish the confidentiality accorded to taxpayers under the Internal Revenue Code. Where the PBGC obtains tax returns and return information from the IRS pursuant to IRC [sections] 6103, the tax returns and return information remain subject to stringent requirements to ensure the confidentiality of the information. In particular, IRC [sections] 6103(p)(4) requires the PBGC to adhere to stringent rules to safeguard confidential taxpayer information obtained from the IRS.(3) Moreover, IRC [sections] 7213 imposes criminal sanctions against federal employees and other persons who disclose any confidential return or return information in violation of IRC [sections] 6103. By contrast, under Prop. Reg. [sections] 2628.10, tax return information submitted directly to the PBGC would be minimally protected by the Administrative Procedures Act, which imposes no similar criminal or civil sanctions.

Where the PBGC obtains tax returns and other return information from a source other than the IRS, including the taxpayer, the agency takes the position that such information is not subject to the strictures of IRC [sections] 6103. In particular, PBGC attorneys have expressed the view that, where a plan sponsor’s federal tax return is obtained other than under IRC [sections] 6103(l)(2), the returns are considered to have been voluntarily disclosed and the confidentiality of IRC [sections] 6103 is unavailable. In effect, the PBGC believes that returns and return information obtained directly from the tax-payer may be used or disclosed in any fashion or for any purpose it wishes.(4) As a result, Prop. Reg. [subsections] 2628.7(e)(1)(iii) and (f) would seriously undermine the confidentiality accorded to taxpayers by IRC [subsections] 6103 and 7213 since unwary plan sponsors who submit their tax returns in response to PBGC requests may inadvertently and unknowingly waive the protections accorded by Code [sections] 6103. Moreover, any Filer challenging a request for tax returns or return information must risk incurring a substantial penalty, since Prop. Reg. [sections] 2628.7(h) would subject Filers to a penalty of $1,000 per day for failure to comply with PBGC requests.

TEI does not believe it is proper for the PBGC to arrogate authority to itself under section 4010 of ERISA to issue a vague and overbroad information-gathering regulation that may be used in a manner that contravenes a clearly expressed congressional policy to protect tax returns and return information. By its action, the PBGC would circumvent the important privacy interests that Congress recognized in enacting IRC [sections] 6103. Safeguarding and protecting the legitimate privacy interests of taxpayers was a paramount concern underlying enactment of IRC [sections] 6103. See Staff of Joint Committee on Taxation, 94th Cong., 2d Sess., General Explanation of the Tax Reform Act of 1976, at 315 (1976). We believe that the proposed regulations far exceed the legitimate needs of the PBGC and should be withdrawn or substantially revised to incorporate the standards of, and protections accorded by, IRC [subsections] 6103 and 7213. Thus, we urge the PBGC to reaffirm explicitly that the exclusive means to obtain tax returns and return information for Filers are the procedures set forth in IRC [sections] 6103.


TEI is pleased to have the opportunity to submit its comments on Prop. Reg. [subsections] 2628.7(e)(1)(iii) and (f). TEI’s comments were prepared under the aegis of its IRS Administrative Affairs Committee, whose chair is Robert L. Ashby of Northern Telecom, Inc. If you have any questions about TEI’s comments please do not hesitate to call Mr. Ashby at (615) 734-4621, or Jeffery P. Rasmussen of the Institute’s professional tax staff at (202) 638-5601.

(1) Subtitle F of Title VII of the Uruguay Round Agreements Act, Pub. L. No. 103-465, 108 Stat. 4809 (1994). (2) Since Prop. Reg. [sections] 2628.7(e)(1)(iii) sets forth alternatives with which companies may comply without disclosing tax return information (such as the submission of audited or unaudited financial statements), TEI is more concerned about the vagueness of Prop. Reg. [sections] 2628.7(f). Nonetheless, a single standard of protection against disclosure of confidential federal tax return information should apply for all taxpayers and that standard, we believe, is embodied in IRC [subsections] 6103 and 7213. Moreover, even where a company voluntarily complies with a PBGC request for disclosure of tax returns, comparable safeguards should be accorded to taxpayers. (3) Under IRC [sections] 6103(p), the PBGC is required to erect and maintain “firewalls” protecting the confidentiality of tax return information obtained from the Secretary of the Treasury, by, inter alia, keeping the information in secure storage rooms, maintaining a system of records to identify persons seeking inspection or disclosure of tax return information and records, restricting access to the data, and making reports to the Secretary of the Treasury concerning the persons seeking inspection or disclosure. (4) Stokwitz v. United States, 831 F. 2d 893 (9th Cir.), cert. denied, 485 U.S. 1033 (1988), provides support for the PBGC view. (5) In addition, Prop. Reg. [sections] 2628.7(h) seemingly violates the protection accorded Filers under ERISA [sections] 4003 to challenge PBGC subpoenas and to invoke a court’s protection of the confidentiality of the records sought.

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