[Federal Register Volume 64, Number 80 (Tuesday, April 27, 1999)]
[Proposed Rules]
[Pages 22589-22592]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-10451]


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PENSION BENEFIT GUARANTY CORPORATION

29 CFR Part 4007

RIN 1212-AA82


Payment of Premiums

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Proposed rule.

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SUMMARY: The PBGC is proposing to amend 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: Comments must be received on or before June 28, 1999.

ADDRESSES: Comments may be mailed to the Office of the General Counsel, 
Pension Benefit Guaranty Corporation, 1200 K Street, NW., Washington, 
DC 20005-4026, or delivered to Suite 340 at the above address. Comments 
also may be sent by Internet e-mail to [email protected]. Comments 
will be available for public inspection at the PBGC's Communications 
and Public Affairs Department, Suite 240.

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:

Background

Late Payment Penalties

    Section 4007 of ERISA authorizes the PBGC to assess a late payment 
penalty charge for failure to pay premiums on time. Under the PBGC's 
regulation on Payment of Premiums (29 CFR part 4007), the penalty 
accrues at the rate of 5% of the unpaid amount each month, subject to a 
floor of $25 on the total penalty amount. The total penalty amount may 
not exceed 100% of the premium that is not timely paid. The PBGC may 
grant a waiver of all or a portion of the penalty (e.g., upon a 
demonstration of good cause). The regulation also requires the payment 
of interest on premium underpayments.
    On December 2, 1996 (at 61 FR 63874), the PBGC published a policy 
statement in which it adopted a two-tiered policy on penalties for late 
payment of premiums due for 1996 and later plan years. This policy, 
which lowers penalties from 5% per month to 1% per month if a premium 
payor corrects an underpayment before PBGC notification, is designed to 
encourage self-correction.

Premium Due Dates

    A plan's premium due dates depend upon whether the plan is 
``small'' or ``large.'' Under the current regulation, 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. This number is not necessarily the number of participants that 
was reported on the PBGC Form 1 for the prior year.
Small Plans
    A small plan is a plan with fewer than 500 participants for the 
prior year. For

[[Page 22590]]

1999 and later plan years, the premium filing due date for small plans 
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 (see 63 FR 68684, Dec. 14, 1998). For calendar year plans, this 
date is October 15. (For convenience, the discussion in this preamble 
assumes that all plans are calendar year plans.)
Large 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). If the number of participants for 
whom premiums are payable for the premium payment year is not known by 
February 28, the plan administrator must make an ``estimated'' payment 
by February 28 and a ``reconciliation'' payment by October 15. The due 
date for the variable-rate premium for large single-employer plans is 
also October 15.
Premium Forms
    The plan administrator ordinarily makes the February 28 filing on 
PBGC Form 1-ES and must make the October 15 filing (for both large and 
small plans) on PBGC Form 1.

Safe-harbor Rules

    The participant count for the premium payment year is generally 
determined as of the last day of the plan year preceding 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 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.

    For example, assume that a single-employer plan has 600 
participants for 2000 and 700 participants for 2001. In order to meet 
the safe-harbor requirements for 2001, the plan administrator must make 
an estimated payment by February 28, 2001, of at least $11,400. This 
amount is the lesser of 90% of the flat-rate premium due for 2001 (700 
x  $19  x  90% = $11,970) or 100% of the flat-rate premium for 2000 
(600  x  $19  x  100% = $11,400). (The examples in this preamble use 
the current single-employer plan flat-rate premium of $19 per 
participant for all plan years.) The plan administrator also must make 
a reconciliation payment by October 15, 2001, equal to the difference 
between the February 28, 2001, payment and the full flat-rate premium 
of $13,300 (700  x  $19) due for 2001. Assuming that, by February 28, 
2001, the plan administrator had paid the $11,400--the minimum amount 
to qualify for safe-harbor relief--the plan administrator must pay the 
difference of $1,900 ($13,300-$11,400) by October 15, 2001.

Proposed Amendment--Safe-Harbor Rules

    The PBGC is proposing to expand its current safe-harbor rules to 
encourage self-correction in three situations. The relief applies only 
to penalty charges. It does not affect the interest that would accrue 
on any underpayment of the flat-rate premium.

500-participant Threshold for PBGC Form 1-ES

Current Regulation.
    Whether an estimated payment is due by February 28 depends on the 
actual participant count for the prior year, not the participant count 
that was reported on the prior year's Form 1.
    For example, assume that a plan administrator of a plan that had 
always had fewer than 500 participants reports 490 participants on the 
plan's 2000 PBGC Form 1, which is filed on October 16, 2000 (because 
October 15, 2000, is a Sunday). Based on the reported participant count 
of 490 for 2000, the plan administrator does not make an estimated 
payment for 2001 by February 28, 2001, but pays the plan's full flat-
rate premium for 2001 on October 15, 2001. Subsequently, the plan 
administrator discovers that the participant count that should have 
been reported for 2000 is 510. On November 15, 2001, the plan 
administrator files an amended PBGC Form 1 for 2000 with the additional 
flat-rate premium due for the 20 participants ((510-490)  x  $19 = 
$380). The PBGC would assess penalty and interest charges on the $380 
payment for the period October 16, 2000, through November 15, 2001. In 
addition, because the actual participant count for 2000 is 500 or more, 
the PBGC also would assess penalty and interest charges for the period 
March 1 through October 15, 2001 on the full flat-rate premium for 2001 
(reflecting the fact that the plan's full flat-rate premium for 2001 
was due February 28, 2001).
Amendment
    Under the amendment, whether the PBGC would 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 would be 
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, PBGC would 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 would be 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. The 
relief would apply only to penalty charges. The PBGC would continue to 
assess interest on any underpayment of the flat-rate premium for the 
period March 1 of the premium payment year through the date of payment.
    Because the plan administrator in the example reported fewer than 
500 participants on the plan's 2000 Form 1, the PBGC would not assess a 
penalty charge (for the period March 1 through October 15, 2001) for 
failing to make an estimated payment for 2001 by February 28, 2001. The 
PBGC still would assess interest on the flat-rate premium for 2001 for 
the period March 1 through October 15, 2001. (The change would not 
affect the penalty and interest charges assessed for the period October 
16, 2000, through November 15, 2001, on the $380 late payment for the 
20 participants for 2000.)

Estimate Based on Prior Year's Form 1 Participant Count

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

[[Page 22591]]

premium payment year, relies on a participant count reported on the 
prior year's PBGC Form 1 that is later determined to be too low. For 
example, assume that the plan administrator of a single-employer plan 
reports 600 participants on the plan's 2000 PBGC Form 1, which is filed 
on October 16, 2000. On February 28, 2001, the plan administrator makes 
an estimated payment for 2001 equal to 100% of the flat-rate premium 
for 2000 (600  x  $19  x  100% = $11,400). On October 15, 2001, the 
plan administrator reports 800 participants on the plan's 2001 Form 1 
and makes a reconciliation payment of $3,800 (800  x  $19-$11,400). The 
PBGC would assess interest on the $3,800 reconciliation payment for the 
period March 1 through October 15, 2001.
    Subsequently, the plan administrator discovers that 700 
participants should have been reported for 2000 and, on November 15, 
2001, files an amended PBGC Form 1 for 2000 with the additional flat-
rate premium of $1,900 due for the 100 participants (100  x  $19). The 
PBGC would assess penalty and interest charges on the $1,900 payment 
for the period October 16, 2000, through November 15, 2001. Under the 
current regulation, the plan would lose safe-harbor relief for 2001 
because the payment of $11,400 made on February 28, 2001, is neither at 
least 100% of the flat-rate premium for 2000 (700  x  $19  x  100% = 
$13,300) nor at least 90% of the flat-rate premium for 2001 (800  x  
$19  x  90% = $13,680). Thus, under the current regulation, in addition 
to interest, the PBGC would assess a penalty charge on the $3,800 
reconciliation payment for the period March 1 through October 15, 2001.
Amendment
    Under the amendment, the PBGC would 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. Thus, in the example, the plan would not lose safe-
harbor relief for 2001 even though the plan administrator later files 
an amended 2000 PBGC Form 1 reporting 700 participants. The amendment 
would affect only penalty charges. It would not affect the interest 
assessed on the $3,800 reconciliation payment for the period March 1 
through October 15, 2001.

PBGC Form 1 Reconciliation Payment Underpaid or Late

Current Regulation
    A plan also loses safe-harbor relief when the plan administrator 
timely pays the appropriate estimated payment with the PBGC Form 1-ES 
but fails to make the full PBGC Form 1 reconciliation payment on time. 
This can occur, e.g., if the plan administrator bases the 
reconciliation payment on a participant count that is too low or makes 
the reconciliation payment late.
    For example, assume that the plan administrator of a single-
employer plan reports 800 participants on the plan's 2000 PBGC Form 1, 
which is filed on October 16, 2000. On February 28, 2001, the plan 
administrator makes an estimated payment for 2001 of 100% of the flat-
rate premium for 2000 (800  x  $19  x  $100% = $15,200). On October 15, 
2001, the plan administrator reports a participant count of 900 for 
2001 and makes a reconciliation payment of $1,900 (900  x  
$19-$15,200). The PBGC would assess interest on the $1,900 payment for 
the period March 1 through October 15, 2001.
    Subsequently, the plan administrator discovers that the participant 
count that should have been reported for 2001 is 910 and, on November 
15, 2001, files an amended PBGC Form 1 for 2001 with an additional 
flat-rate premium of $190 (10  x  $19 = $190) for the 10 participants. 
The PBGC would assess penalty and interest charges on the $190 payment 
for the period October 16 through November 15, 2001. Under the current 
regulation, the plan would lose safe-harbor relief because it did not 
make a timely PBGC Form 1 reconciliation payment in full. Thus, the 
PBGC would also assess a penalty charge on $2,090 (910  x  
$19-$15,200)--the amount by which the flat-rate premium for 2001 of 
$17,290 (based on the amended November 15, 2001, PBGC Form 1) exceeds 
the February 28, 2001, payment of $15,200--for the period March 1 
through October 15, 2001 .
Amendment
    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 would no longer be a prerequisite for qualifying for safe-
harbor relief. Thus, in the example, the PBGC still would assess 
penalty and interest charges on the $190 payment (due for the 
additional 10 participants) for the period October 16 through November 
15, 2001. But the plan would not lose safe-harbor relief and therefore 
would not be assessed a penalty charge for the period March 1 through 
October 15, 2001, on $2,090--the amount by which the flat-rate premium 
for 2001 (based on the amended November 15, 2001, PBGC Form 1) exceeds 
the February 28, 2001, payment. The amendment would not affect the 
interest assessed on that amount for the period March 1 through October 
15, 2001.

Proposed Amendment--Late Payment Penalty Rate

    Based on its experience, the PBGC proposes to codify its December 
2, 1996, policy statement, in which it announced its current two-tiered 
penalty rate policy for 1996 and later plan years. Under this policy, 
which is designed to encourage self-correction, the PBGC assesses 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 is 5% per month for all months. The minimum total 
penalty continues to be $25, and the penalty continues 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 amendment clarifies that the 5% rate applies (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 proposed 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 proposing to change 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 would apply to PBGC

[[Page 22592]]

determinations issued on or after the effective date of the final rule 
with respect to premiums for 1999 and later plan years. The amendment 
to the late payment penalty rate would apply to PBGC determinations 
issued on or after the effective date of the final rule 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 would provide relief from premium penalties. The relief 
would be limited to a percentage--generally small--of a plan's premium. 
While this rule would result in a positive economic impact for some 
small entities, the number of small entities for which the impact would 
be significant would not be substantial. The PBGC therefore certifies 
under section 605(b) of the Regulatory Flexibility Act that this rule 
would 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 proposes to amend 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 
to the premium for any premium payment year beginning after 1998 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) In the case of a premium payment year beginning after 1998, 
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 21st day of April, 1999.
David M. Strauss,
Executive Director, Pension Benefit Guaranty Corporation.
[FR Doc. 99-10451 Filed 4-26-99; 8:45 am]
BILLING CODE 7708-01-P