PBGC Sets Small Plan Premium Due Date At Same Time as for Midsize, Large Plans

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By Sean Forbes  

March 10 --The Pension Benefit Guaranty Corporation issued a final rule that requires small defined benefit plans to file their flat-rate and variable-rate premiums at the same time as midsize and large plans.

The change arises from the PBGC's decision to make its premium rules less burdensome by coordinating due dates 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, provide for relief from penalties and other changes. The rule (RIN 1212-AB26) was issued March 10.

Kathryn L. Ricard, senior vice president for retirement policy at the ERISA Industry Committee in Washington, told Bloomberg BNA March 10 that the rule is a good reduction of regulatory burdens for small defined benefit plan sponsors.

The regulation sets the premium due date for small plans as 9-1/2 months after the beginning of the premium payment year, subject to a one-year transition rule.

Under the new rules, small plans that operate on a calendar-year basis for 2014 must file their premiums by Feb. 15, 2015. For the 2015 calendar year, small plans must file their premiums by Oct. 15, 2015.

The new due date corresponds with the extended due date for the annual report for the prior year that is filed on Form 5500.

The rules are effective April 10, and generally applicable for plan years beginning on or after Jan. 1, 2014.

The PBGC issued a package of proposed rules in July 2013, including the small-plan premium provision; the agency finalized another portion in January, when it set Oct. 15 as the new due date for both flat-rate premiums and variable-rate premiums for large plans (2 PBD, 1/3/14; 41 BPR 6, 1/7/14). The March 10 regulations finalized the rest of the proposed rule package.

The PBGC also:

• set the final premium due date for plans terminating in a standard termination for no later than the date when the post-distribution certification is filed;

• reduced the penalty for late premium payments from a maximum of 100 percent of the underpayment to 50 percent for plans that self-correct, to preserve the agency's self-correction incentive and reward for long-overdue premiums;

• codified in its regulations the penalty relief policy for payments made not more than seven days late; and

• amended its regulations to accord with the Moving Ahead for Progress in the 21st Century Act (MAP-21) and the Bipartisan Budget Act of 2013 and to avoid retroactivity of the PBGC's rule on plan liability for premiums in distress and involuntary terminations.


Ricard said ERIC submitted a comment letter to the PBGC in September, in which she said her organization supported the reduction in the self-correction premium penalty as “the right thing to do. So, we're happy they went that route.”

Timing Issues

The new unified due date raises a timing issue for small plans, the PBGC said. Unlike large plans, which by statute must value benefits at the beginning of the year, small plans are permitted by statute to value benefits as late as the end of the year and so might be unable to calculate variable-rate premiums by a due date within the year using current-year data.

The agency said its solution to the timing problem is to allow small plans to determine the variable-rate premium using data, assumptions and methodology for the year before the premium payment year.

The changes mean that plan consultants can do all premium and Form 5500 filing chores at one time, once a year, the PBGC said. The agency will then receive all premium filings for each plan year at one time, specific to that year, and will be able to process a plan's entire annual premium in a single operation.

“Going from three due dates to one will be simpler for all concerned--even for mid-size plans, whose due date is not changing,” the PBGC said.

The PBGC also recognized that switching immediately from the old to the new due-date schedule would result in two premium due dates for small plans in the transition year.

For example, using a calendar-year plan, the 2013 premium would be due at the end of April 2014, and the 2014 premium would be due in mid-October 2014. The agency is resolving the problem by extending the transition year due date by four months for small plans that would otherwise have two premium due dates in the transition year.

With the one-time extension, a small plan's transition-year premium and its premiums for the preceding and following plan years can be spaced about equally over a 17-1/2-month period (from April 30, 2014, to Oct. 15, 2015, for calendar-year plans), with about eight or nine months between each two payments, the PBGC said.

Judy A. Miller, director of retirement policy at the American Society of Pension Professionals and Actuaries in Arlington, Va., said that the transition rule “is giving us more time to adjust. So, I think that's a good transition rule.”

A 60-day penalty waiver is also available in cases of financial hardship, which could extend the period by two months.

To contact the reporter on this story: Sean Forbes in Washington at sforbes@bna.com

To contact the editor responsible for this story: Sue Doyle at sdoyle@bna.com

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