PBGC Offers Relief to DB Plan Sponsors

September 14, 2011 (PLANSPONSOR.com) - The Pension Benefit Guaranty Corporation (PBGC) is providing relief to defined benefit plan sponsors from certain premium penalties and in certain situations involving alternative premium funding target elections.

Under the Employee Retirement Income Security Act (ERISA) section 4007 and PBGC’s regulation on Payment of Premiums (29 CFR part 4007), late payment charges — interest and late payment penalties — apply to required annual premium payments that are not timely made.  For plan years beginning after 2010, PBGC will automatically waive premium payment penalties that are assessed solely because premium payments are late by not more than seven calendar days.  

In addition, PBGC has taken steps to reduce box 5 errors for 2010 and later plan years.  A PBGC announcement explained that for plan years beginning after 2007, the agency’s premium regulations allow a plan to elect to use the alternative premium funding target to calculate its variable rate premium (VRP).  The regulations require that such an election be filed with PBGC before the VRP due date.  A plan makes an election by checking box 5 in Part II (Alternative Premium Funding Target Election) of the comprehensive premium filing for the first plan year to which the election applies.  If an election to use the alternative premium funding target is not in effect, the plan must calculate its VRP using the standard premium funding target.   

For 2008 and 2009 plan years, PBGC said, over 95% of the plans that used the alternative method filed valid elections to do so.  However, some plans that used the alternative method did not make a valid election to do so and later requested that PBGC treat them as having made a valid election.  In response, on June 16, 2010, PBGC issued Technical Update 10-2, under which a plan was deemed to have made a valid election if certain conditions were met.    

PBGC is providing relief similar to, but more expansive, than the relief provided in Technical Update 10-2 for plan years beginning after 2009.  Specifically, relief is available where the plan used the alternative method to determine the VRP for the applicable plan year without filing a valid election to do so for the applicable plan year or a prior plan year. Similar relief is available where the plan used the standard method, but inadvertently made an election to use the alternative method for the applicable plan year  

If an election to use the alternative method is invalid solely because the filing was submitted after the due date, relief is available only if the filing is not an amendment of a timely filing in which the plan used the standard method to determine the VRP and the filing is submitted by the earlier of: 

  • the 90th day after the filing due date, or  
  • the 30th day after the date of any PBGC notification that no filing has been received.   

 

In situations where a plan with a box 5 error for 2008 or 2009 plan years was not eligible for the Technical Update 10-2 relief and a request for reconsideration was denied (or not submitted), the plan was required to amend the applicable premium filing and recalculate the VRP using the standard method.  In some cases, this resulted in additional premium being due.  Because the additional premium was paid after the due date, late payment charges (penalties and interest) were assessed on the additional premium.    

PBGC will waive premium penalties in connection with these errors for 2008 and 2009 plan years and will also waive premium penalties for plans that used the standard method but inadvertently checked box 5 and were required to recalculate the VRP using the alternative method.    

A full explanation of the relief can be found in the September 14 edition of the Federal Register at http://www.gpoaccess.gov/fr/.

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