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April 27 — The Pension Benefit Guaranty Corporation is proposing to lower the penalty for late premiums in an effort to reduce the financial burden, the agency announced in a proposed rule.
The proposed rule, issued April 27, would cut the current penalty level rates and caps in half, the PBGC said. Currently, there are two penalty levels: 1 percent per month with a 50 percent cap and 5 percent per month with a 100 percent cap. The lower rate is for self-correction.
The floor on penalty assessments would also be eliminated under the proposed rules. There currently is a floor of $25, or the amount of the premium paid late, if it is less.
In addition, the PBGC is proposing to create a penalty waiver that would apply to underpayments from plans that have histories of good compliance. The agency is proposing to waive 80 percent of the penalty that would be otherwise applicable to those plans, the rule said.
There are two conditions that must be met in order to qualify for the waiver: the plan must have a five-year record of premium compliance and prompt correction of underpayments, the PBGC said.
Since Congress has increased PBGC premiums in recent years, the penalties for late payments have gone up. The PBGC said that while it's not “unfair” to impose larger penalties for late payments, the agency is aware that the higher penalties are being assessed on plans that haven't grown in size or had major changes in their unfunded vested benefits.
“PBGC has good reason to believe that smaller penalties will provide an adequate incentive for compliance by premium payers,” the agency said in the rule.
Comments are due 60 days after the proposed rule is published in the Federal Register, which is scheduled for April 28.
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The proposed rule is at http://src.bna.com/esr.
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