[Federal Register Volume 64, Number 227 (Friday, November 26, 1999)]
[Rules and Regulations]
[Pages 66383-66385]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-30775]


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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

[[Page 66384]]

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

[[Page 66385]]

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