In July 2013, PBGC proposed rules to simplify due dates, coordinate the due date for terminating plans with the termination process, make conforming and clarifying changes to the variable-rate premium rules, give small plans more time to value benefits, and provide for relief from penalties, as well as other changes (see “PBGC Proposes Premium Changes”). In January 2014, the agency issued a final rule moving the flat-rate premium due date for large plans to later in the premium payment year (see “PBGC Moves Premium Date for Large Plans”). The current rule finalizes all other items in the proposal.
Under the final rule, small plans’ premiums will be due at the same time as large and mid-size plans’ premiums. However, because of a transition rule that gives small plans more time to adjust to the new provisions, the due dates will not be completely uniform until 2015. The final rule includes a chart of premium due dates going forward.
For the special case of a plan terminating in a standard termination, the final premium might come due months after the plan closed its books and thus be forgotten. Correcting such defaults has been inconvenient for both plans and the PBGC, the agency says. To forestall such problems, PBGC is setting the final premium due date no later than the date when the post-distribution certification is filed. PBGC is also making conforming changes to other special case due date rules.
According to the agency, some small plans determine funding levels too late in the year to be able to use current-year figures for the variable-rate premium by the new uniform due date. To address this problem, it is providing that small plans generally use prior-year figures for the variable-rate premium (with a provision for opting to use current-year figures).
To facilitate the due date changes, a plan will generally be exempt from the variable-rate premium for the year in which it completes a standard termination or (if it is small) for the first year of coverage.
In response to inquiries from pension practitioners (see "Groups Recommend Changes to PBGCs Premium Proposal”), the agency is clarifying the computation of the premium funding target for plans in “at-risk” status for funding purposes.
PBGC assesses late premium payment penalties at 1% per month for filers that self-correct and 5% per month for those that do not. The differential is to encourage and reward self-correction. But both penalty schedules have had the same cap—100% of the underpayment—and once the cap was reached, the differential disappeared. To preserve the self-correction incentive and reward for long-overdue premiums, PBGC is reducing the 1% penalty cap from 100% to 50% of the underpayment. The agency is also codifying in its regulations the penalty relief policy for payments made not more than seven days late that it established in a Federal Register notice in September 2011 and is giving itself more flexibility in exercising its authority to waive premium penalties.
PBGC is also amending its regulations to accord with the Moving Ahead for Progress in the 21st Century Act and the Bipartisan Budget Act of 2013 (see “PBGC Increases Some 2014 Premium Rates”) and to avoid retroactivity of PBGC’s rule on plan liability for premiums in distress and involuntary terminations.
The agency says this rulemaking is needed to make its premium rules more effective and less burdensome. The changes are generally applicable for plan years starting on or after January 1, 2014.
Text of the final rule is here.