On August 10, 2026, the Pension Benefit Guaranty Corporation (PBGC) announced the launch of its Coverage Assessment Program. This new compliance resource allows private-sector employers to request a determination of whether a tax-qualified defined benefit (DB) plan is covered by PBGC under Title IV of ERISA.¹ The program is available both to employers considering establishing a new DB plan and to sponsors of existing DB plans seeking confirmation of their coverage status.

For professional service firms, such as law practices, medical groups, and accounting firms, this coverage determination is especially important since these businesses often operate under unique rules when it comes to PBGC coverage. Two rules in particular, the definition of “professional” and the participant count threshold, can make coverage analysis more complex than many plan sponsors expect.

Special PBGC coverage rules for professional service firms

ERISA Section 4021(b)(13) provides an exemption from PBGC coverage for small professional service employer plans. To qualify for this exemption, a plan must:

1. “Be established and maintained by a professional service employer”
2. Never have had more than 25 active participants since September 2, 1974, when ERISA was enacted

But these requirements are not as straightforward as they seem.

What is considered “professional”?

ERISA Section 4021(c)(2)(A) defines a “professional service employer” as follows:

“[A]ny proprietorship, partnership, corporation, or other association or organization (i) owned or controlled by professional individuals or by executors or administrators of professional individuals, (ii) the principal business of which is the performance of professional services.”

The term “professional individual” is defined in ERISA Section 4021(c)(2)(B) as including, but not limited to, the following:

“[P]hysicians, dentists, chiropractors, osteopaths, optometrists, other licensed practitioners of the healing arts, attorneys at law, public accountants, public engineers, architects, draftsmen, actuaries, psychologists, social or physical scientists, and performing artists.”

PBGC will determine on a case-by-case basis whether an employer (or business owner) is a professional individual based on factors such as the nature of services provided, education, licensing, continuing education, years of experience, or whether there are any authoritative regulatory agencies or affiliations with oversight bodies. PBGC has previously ruled² that opticians,³ artist-designers,⁴ real estate brokers,⁵ and advertising and public relations firms⁶ are not “professional individuals” for purposes of the exemption.

Professional service firms should not assume their plan is exempt simply because the owners are highly educated or provide specialized services. If there is any uncertainty, requesting a coverage assessment is critical to avoid future compliance issues.

Exceeding the 25-participant count triggers coverage

The coverage exemption only applies if the plan has never had more than 25 active participants since ERISA’s effective date. If a plan ever exceeds that threshold, even briefly, it loses the exemption and becomes subject to PBGC coverage. This means a plan could start out exempt but become covered later, sometimes without the plan sponsor realizing it.

For example, a law firm that hires additional associates or merges with another practice could inadvertently cross the 25-participant line. In such cases, PBGC coverage requirements would kick in and failure to comply could lead to significant penalties.

What compliance items are triggered if a DB plan becomes covered by PBGC?

If a DB plan is determined to be covered by the PBGC, certain participant benefits will be guaranteed if the plan is terminated with insufficient assets. In addition, several important compliance requirements are triggered. These include:

• PBGC premiums: A plan sponsor must pay an annual flat rate premium to PBGC, as well as a variable rate premium if the plan is underfunded. Failing to pay on time can result in interest and penalties.
• Annual PBGC filings: Sponsors must file Form 1 (or Form 1-ES for estimated premiums) and may also need to file Form 5500 with PBGC-related information.
• Reportable events: Sponsors are required to notify PBGC of certain events that could indicate financial distress or jeopardize plan funding, such as missed contributions, large reductions in active participants, or business transactions (e.g., mergers, substantial layoffs). Learn more about reportable events here.
• Plan termination rules: If a sponsor wishes to terminate a covered plan, strict PBGC procedures must be followed, including advance notice to participants and PBGC, and certification that the plan is fully funded at termination.
• Participant notices: Certain disclosures are required to be provided to participants, such as annual funding notices and notices of benefit restrictions.

Failing to comply with these requirements can result in significant penalties and, in the case of underfunded plans, personal liability for plan sponsors.

Potentially higher tax deduction for PBGC-covered plans

Small professional service firms that maintain both a DB plan and a defined contribution (DC) plan may benefit from higher tax deductions if their DB plan is covered by PBGC. In general, when an employer has both types of plans, Internal Revenue Code section 404(a)(7) imposes a combined deduction limit: The total deductible employer contributions to both plans generally cannot exceed the greater of 25% of aggregate participant compensation or the minimum required DB plan contribution (or the excess of the DB funding target over plan assets, if higher).

However, if the DB plan is covered by PBGC, it is disregarded for the purposes of this combined limit, so the employer can fully fund the DB plan according to its specific deduction rules and also contribute up to 25% of compensation to the DC plan, maximizing deductible contributions.

For firms not covered by PBGC, the combined limit applies, but with a helpful qualification known as the "6% rule." Under this rule, up to 6% of compensation contributed to the DC plan is ignored when applying the combined deduction limit. In practical terms, this means the firm can generally deduct its DB plan contributions and, in addition, deduct up to 6% of compensation in DC plan contributions without those DC contributions being subject to the combined limit. Any DC contributions above 6% must be aggregated with the DB plan contributions and tested against the combined 25% limit. While the 6% rule provides some additional deduction room, it is less generous than the limits for PBGC-covered plans, which allow for both full DB and up to 25% DC deductions independently.

Figure 1 summarizes the difference in deductible limits for a firm with both DB and DC plans, under both PBGC-covered and non-covered scenarios.

How to request a PBGC coverage assessment

Filing for coverage determination is free. Instructions and forms for requesting a coverage assessment letter are available on PBGC’s website.¹ Firms should be prepared to provide detailed information about the plan (e.g., Form 5500s and actuarial valuation reports), their business, ownership structure, participant counts, and the professional credentials of owners and managers.

Final thoughts

PBGC’s new Coverage Assessment Program provides an opportunity for employers to confirm whether their DB plan is subject to Title IV of ERISA. For professional service firms in particular, it also serves as an important reminder to periodically review plan coverage status, especially after changes in ownership, staffing, plan participation, or business structure. Employers that are unsure whether their plan is covered should consider requesting a PBGC determination and consulting with their advisors to address any potential compliance obligations.

Please contact your Milliman consultant to discuss how these rules may affect your plan.

¹ ERISA 4021(b) lists the types of plans not covered by Title IV of ERISA. These include defined contribution plans; plans covering only substantial owners; unfunded excess benefit plans for highly paid employees; church plans that do not elect coverage; and governmental plans.

² PBGC has issued opinion letters that determine whether certain individuals qualify as professional individuals. See Opinion letter database (n.d.). Pension Benefit Guaranty Corporation. Retrieved August 21, 2026, from https://www.pbgc.gov/employers-practitioners/legal-resources/opinion-letters/database?withdrawn=All&key=coverage&page=1.

³ Opinion letter 80-9. (1980, June 9). Pension Benefit Guaranty Corporation. Retrieved August 21, 2026, from https://www.pbgc.gov/sites/default/files/80-9.pdf.

⁴ Opinion letter 80-11. (1980, June 9). Pension Benefit Guaranty Corporation. Retrieved August 21, 2026, from https://www.pbgc.gov/sites/default/files/80-11.pdf.

⁵ Opinion letter 80-12. (1980, June 9). Pension Benefit Guaranty Corporation. Retrieved August 21, 2026, from https://www.pbgc.gov/sites/default/files/80-12.pdf.

⁶ Opinion letter 80-13. (1980, June 20). Pension Benefit Guaranty Corporation. Retrieved August 21, 2026, from https://www.pbgc.gov/sites/default/files/80-13.pdf.

⁷ The plan’s funding shortfall is defined under IRC section 404(o) as the amount by which the plan’s benefit liability (i.e., funding target), plus the current year’s cost of accruals (i.e., target normal cost) plus a cushion amount exceeds the plan’s assets.

⁸ See Requesting a plan coverage determination or assessment. (2026, August 13). Pension Benefit Guaranty Corporation. Retrieved August 21, 2026, from https://www.pbgc.gov/employers-practitioners/legal-resources/insurance-coverage#coveragedetermination.