Payment of Premiums

PENSION BENEFIT GUARANTY CORPORATION

29 CFR Part 4007

RIN 1212-AA82

Payment of Premiums

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Final rule.

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SUMMARY: The PBGC is amending its regulation on Payment of Premiums to

encourage self-correction of premium underpayments. The amendments make

it easier to qualify for ``safe-harbor'' relief from late payment

penalty charges and codify the PBGC's current premium penalty policy

(under which the penalty charge is lowered from 5% per month to 1% per

month if a premium payor corrects an underpayment before PBGC

notification).

DATES: Effective Date: December 27, 1999.

Applicabilitly Dates: The amendment to the safe-harbor rules will

apply to PBGC initial determinations and final decisions on requests

for reconsideration (``PBGC determinations'') with respect to premiums

for 1999 and later plan years, and to PBGC determinations issued on or

after December 27, 1999 with respect to premiums for plan years

beginning before 1999. The amendment to the late payment penalty rate

will apply to PBGC determinations issued on or after December 27, 1999

with respect to premiums for 1996 and later plan years.

FOR FURTHER INFORMATION CONTACT: Harold J. Ashner, Assistant General

Counsel, or Catherine B. Klion, Attorney, Office of the General

Counsel, PBGC, 1200 K Street, NW., Washington, DC 20005-4026; 202-326-

4024. (For TTY/TDD users, call the Federal relay service toll-free at

1-800-877-8339 and ask to be connected to 202-326-4024.)

SUPPLEMENTARY INFORMATION: On April 27, 1999 (at 64 FR 22589), the PBGC

published a proposed rule to amend its regulation on Payment of

Premiums (29 CFR part 4007). The proposed amendments would make it

easier to qualify for ``safe-harbor'' relief from late payment penalty

charges and would codify the PBGC's current premium penalty policy

(under which the penalty charge is lowered from 5% per month to 1% per

month if a premium payor corrects an underpayment before PBGC

notification).

The PBGC received two comments on the proposed rule. Both

commenters praised the PBGC's efforts to expand safe-harbor relief but

suggested that the amendment to the safe-harbor rules, which in the

proposed rule would have applied with respect to premiums for 1999 and

later plan years, should apply with respect to premiums for prior plan

years as well. In response to the comments, the PBGC will provide the

expanded safe-harbor relief to all PBGC determinations issued on or

after December 27, 1999 with respect to premiums for plan years

beginning before 1999, as well as to all PBGC determinations with

respect to premiums for 1999 and later plan years. Applying the

expanded safe-harbor relief with respect to premiums for prior plan

years will further encourage self-correction of premium underpayments.

In all other respects, the PBGC is issuing the final regulation without

change from the proposed regulation.

Amendment to Safe-Harbor Rules

The proposed rule expanded the PBGC's safe-harbor rules under the

current regulation to encourage self-correction in three situations. As

explained in detail in the preamble to the proposed rule, a plan's

premium due dates depend upon whether the plan is ``small'' or

``large.'' The determination of whether a plan is ``small'' or

``large'' is based on the actual number of participants for whom

premiums were payable for the prior year (not necessarily the number of

participants reported on the PBGC Form 1 for the prior year).

The premium filing due date for small plans (those with fewer than

500 participants for the prior year) for both the flat-rate premium

(for single-employer and multiemployer plans) and the variable-rate

premium (for single-employer plans) is the fifteenth day of the tenth

full calendar month in the premium payment year. For calendar year

plans, this date is October 15 of the premium payment year. (For

convenience, the discussion in this preamble assumes that all plans are

calendar year plans.)

For large single-employer and multiemployer plans (those with 500

or more participants for the prior year), the due date for the flat-

rate premium is the last day of the second full calendar month in the

premium payment year (February 28 of the premium payment year). If the

number of participants for whom premiums are payable for the premium

payment year is not known by

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February 28 of the premium payment year, the plan administrator must

make an ``estimated'' payment by February 28 of the premium payment

year and a ``reconciliation'' payment by October 15 of the premium

payment year. The due date for the variable-rate premium for large

single-employer plans is also October 15 of the premium payment year.

Because plan administrators often do not know the exact participant

count for the premium payment year by February 28 of the premium

payment year, the current regulation provides a safe harbor from late

payment penalty charges, provided certain requirements are met. (There

is no safe harbor from late payment interest charges.) A plan

administrator must do two things to qualify for the safe harbor and

therefore avoid late payment penalty charges:

By February 28 of the premium payment year, the plan

administrator must pay the lesser of: (1) 90% of the flat-rate

premium due for the premium payment year; or (2) 100% of the flat-

rate premium that would be due for the premium payment year, if that

amount were determined by multiplying the actual participant count

for the prior year by the flat premium rate for the premium payment

year.

By October 15 of the premium payment year, the plan

administrator must pay any remaining portion of the flat-rate

premium for the premium payment year.

Under the current regulation, a plan can fail to qualify for safe-

harbor relief if the plan administrator corrects a premium underpayment

or fails to make a timely reconciliation payment. The amendment

addresses three situations where this can happen. The preamble to the

proposed rule contains detailed examples of how the amendment would

apply in these situations.

The amendment will affect only penalty charges. It will not affect

interest charges on any premium underpayment.

500-Participant Threshold

Under the current regulation, a plan can fail to qualify for safe-

harbor relief if the plan administrator, relying on a reported

participant count of less than 500 for the prior year, fails to make an

estimated payment by February 28 of the premium payment year and later

corrects the prior year's participant count to 500 or more. Under the

amendment, whether the PBGC will assess a late payment penalty charge

for failure to make an estimated payment for the premium payment year

by February 28 of the premium payment year is determined based on the

lesser of (1) the number of participants reported for the prior year,

or (2) the actual number of participants for the prior year. Thus, the

PBGC will not assess a penalty charge for failing to make an estimated

payment for the premium payment year by February 28 of the premium

payment year if the number of participants reported for the prior year

is fewer than 500. For this purpose, the number of participants

reported for the prior year is the number of participants last reported

for the prior year (on the PBGC Form 1 or an amended PBGC Form 1) by

February 28 of the premium payment year.

Estimate Based on Prior Year's Form 1 Participant Count

Under the current regulation, a plan can lose safe-harbor relief if

the plan administrator, in computing the estimated flat-rate premium

payment due on February 28 of the premium payment year, relies on a

participant count reported on the prior year's PBGC Form 1 that is

later corrected because it is determined to be too low. Under the

amendment, the PBGC will determine whether the estimated payment

reflected at least 100% of the prior year's participant count by using

the lesser of: (1) the number of participants reported on the prior

year's PBGC Form 1 or amended PBGC Form 1 (filed by February 28 of the

premium payment year); or (2) the actual number of participants for the

prior year.

PBGC Form 1 Reconciliation Payment Underpaid or Late

Under the current regulation, a plan loses safe-harbor relief when

the plan administrator timely makes the appropriate estimated payment

by February 28 of the premium payment year but fails to make the full

PBGC Form 1 reconciliation payment on time. This can occur, for

example, if the plan administrator bases the reconciliation payment on

a participant count that is too low. (It can also occur if the plan

administrator makes the reconciliation payment late.) Under the

amendment, payment of any balance of the flat-rate premium due for the

premium payment year by October 15 of the premium payment year will no

longer be a prerequisite for qualifying for safe-harbor relief.

Amendment to Late Payment Penalty Rate

The regulation also codifies the PBGC's December 2, 1996, policy

statement, in which it announced its current two-tiered penalty rate

policy for 1996 and later plan years (61 FR 63874). The PBGC will

assess a penalty of 1% per month if the premium is paid on or before

the date the PBGC issues a written notice that there is or may be a

premium delinquency. If the premium is paid after the PBGC notification

date, the penalty rate will be 5% per month for all months. The minimum

total penalty will continue to be $25, and the penalty will continue to

be limited to 100% of the unpaid premium. PBGC notification may take

various forms, including a premium bill, a letter initiating a premium

compliance review (i.e., an audit), or a letter questioning a failure

to make a premium filing. The 5% rate will apply (for all months) to

all persons liable for premiums for the plan (i.e., the plan

administrator and, for a single-employer plan, each contributing

sponsor and each member of any contributing sponsor's controlled group)

once this notice is issued to any of those persons.

Miscellaneous

The regulation clarifies that the penalty waiver for premium

underpayments paid within 30 days after the date of a PBGC bill applies

only to penalty charges accruing after the date of the bill.

The current regulation provides that the PBGC may waive all or part

of a late payment penalty charge upon a demonstration of ``good

cause.'' The PBGC is changing the standard to ``reasonable cause'' to

be consistent with the standard in the PBGC's policy statements on

penalties under section 4071 of ERISA (relating to penalties for

failure to provide required information on time). This is only a change

in terminology that is not intended to alter the substantive

requirements for this waiver.

Applicability

The amendment to the safe-harbor rules will apply to PBGC

determinations with respect to premiums for 1999 and later plan years,

and to PBGC determinations issued on or after December 27, 1999 with

respect to premiums for plan years beginning before 1999.

The amendment to the late payment penalty rate will apply to PBGC

determinations issued on or after December 27, 1999 with respect to

premiums for 1996 and later plan years.

Compliance With Rulemaking Guidelines

The PBGC has determined that this action is not a ``significant

regulatory action'' under the criteria set forth in Executive Order

12866.

This rule provides relief from premium penalties. The relief is

limited to a percentage--generally small--of a plan's premium. While

this rule will

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result in a positive economic impact for some small entities, the

number of small entities for which the impact will be significant is

not substantial. The PBGC therefore certifies under section 605(b) of

the Regulatory Flexibility Act that this rule will not have a

significant economic impact on a substantial number of small entities.

Accordingly, sections 603 and 604 of the Regulatory Flexibility Act do

not apply.

List of Subjects in 29 CFR Part 4007

Penalties, Pension insurance, Pensions, Reporting and recordkeeping

requirements.

For the reasons set forth above, the PBGC is amending 29 CFR part

4007 as follows.

PART 4007--PAYMENT OF PREMIUMS

1. The authority citation for part 4007 continues to read as

follows:

Authority: 29 U.S.C. 1302(b)(3), 1301(a), 1306, 1307.

2. Section 4007.8 is revised to read as follows:

Sec. 4007.8 Late payment penalty charges.

(a) Penalty charge. If any premium payment due under this part is

not paid by the due date under Sec. 4007.11, the PBGC will assess a

late payment penalty charge as determined under this paragraph (a),

except to the extent the charge is waived under paragraphs (b) through

(g) of this section. The charge will be no more than 100% of the unpaid

premium. The charge will be based on the number of months (counting any

portion of a month as a whole month) from the due date to the date of

payment and is subject to a floor of $25 (or, if less, the amount of

the unpaid premium).

(1) Penalty rate for post-1995 premium payment years. This

paragraph (a)(1) applies to the premium for any premium payment year

beginning after 1995. The penalty rate is--

(i) 1% per month (for all months) on any amount of unpaid premium

that is paid on or before the date the PBGC issues a written notice to

any person liable for the plan's premium that there is or may be a

premium delinquency (e.g., a premium bill, a letter initiating a

premium compliance review, or a letter questioning a failure to make a

premium filing); or

(ii) 5% per month (for all months) on any amount of unpaid premium

that is paid after that date.

(2) Penalty rate for pre-1996 premium payment years. This paragraph

(a)(2) applies to the premium for any premium payment year beginning

before 1996. The penalty rate is 5% per month (for all months) on any

amount of unpaid premium.

(b) Hardship waiver. The PBGC may grant a waiver based upon a

showing of substantial hardship as provided in section 4007(b) of

ERISA.

(c) Reasonable cause waiver. The PBGC may, upon any demonstration

of reasonable cause, waive all or part of a late payment penalty

charge.

(d) Waiver on PBGC's own initiative. The PBGC may, on its own

initiative, waive all or part of a late payment penalty charge.

(e) Grace period. With respect to any PBGC bill for a premium

underpayment, the PBGC will waive any late payment penalty charge

accruing after the date of the bill, provided the premium underpayment

is paid within 30 days after the date of the bill.

(f) Safe-harbor relief for certain large plans. This waiver applies

in the case of a plan for which a reconciliation filing is required

under Sec. 4007.11(a)(2)(iii). The PBGC will waive the penalty on any

underpayment of the flat-rate premium for the period that ends on the

date the reconciliation filing is due if fewer than 500 participants

are reported for the plan year preceding the premium payment year

(determined in accordance with paragraph (h) of this section).

(g) Safe-harbor relief for plans that make minimum estimated

payment. This waiver applies in the case of a plan for which a

reconciliation filing is required under Sec. 4007.11(a)(2)(iii). The

PBGC will waive the penalty on any underpayment of the flat-rate

premium for the period that ends on the date the reconciliation filing

is due if, by the date the flat-rate premium for the premium payment

year is due under Sec. 4007.11(a)(2)(i), the plan administrator pays at

least the lesser of--

(1) 90% of the flat-rate premium due for the premium payment year;

or

(2) 100% of the flat-rate premium that would be due for the premium

payment year if the number of participants for that year were the

lesser of--

(i) The number of participants for whom premiums were required to

be paid for the plan year preceding the premium payment year; or

(ii) The number of participants reported for the plan year

preceding the premium payment year (determined in accordance with

paragraph (h) of this section).

(h) Reported participant count. For purposes of paragraphs (f) and

(g)(2)(ii) of this section, the number of participants reported for the

plan year preceding the premium payment year is the number of

participants last reported under this part to the PBGC (for the plan

year preceding the premium payment year) by the date the flat-rate

premium for the premium payment year is due under

Sec. 4007.11(a)(2)(i).

Issued in Washington, DC, this 19th day of November, 1999.

Alexis M. Herman,

Chairman, Board of Directors, Pension Benefit Guaranty Corporation.

Issued on the date set forth above pursuant to a resolution of

the Board of Directors authorizing its Chairman to issue this final

rule.

James J. Keightley,

Secretary, Board of Directors, Pension Benefit Guaranty Corporation.

[FR Doc. 99-30775 Filed 11-24-99; 8:45 am]

BILLING CODE 7708-01-P