[Federal Register Volume 69, Number 89 (Friday, May 7, 2004)]
[Proposed Rules]
[Pages 25797-25799]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-10407]



  Federal Register / Vol. 69, No. 89 / Friday, May 7, 2004 / Proposed 
Rules  

[[Page 25797]]


-----------------------------------------------------------------------

PENSION BENEFIT GUARANTY CORPORATION

29 CFR Parts 4011 and 4071

RIN 1212-AA95


Assessment of and Relief From Penalties--Participant Notices

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Proposed statement of policy.

-----------------------------------------------------------------------

SUMMARY: The PBGC is proposing a new penalty policy for failures to 
issue Participant Notices as required under section 4011 of the 
Employee Retirement Security Act of 1974 and 29 CFR part 4011. The new 
policy would tie the guideline penalty amounts primarily to the number 
of plan participants. Subject to a one-year transition period, the new 
policy would apply to: (1) 2004 and later Participant Notices, (2) 2002 
and 2003 Participant Notices that do not meet the requirements for 
penalty relief under the Participant Notice Voluntary Correction 
Program (``VCP'') announced elsewhere in today's Federal Register, and 
(3) pre-2002 Participant Notices, where there is a 2002 or 2003 
Participant Notice failure that is covered by the VCP but that does not 
meet the requirements for penalty relief under the VCP.

DATES: Comments must be received on or before July 6, 2004.

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 submitted electronically through the PBGC's Web site at 
http://www.pbgc.gov/regs, or by fax to 202-326-4112. The PBGC will make 
all comments available on its Web site, http://www.pbgc.gov. Copies of 
the comments may also be obtained by writing to the PBGC's 
Communications and Public Affairs Department at Suite 240 at the above 
address or by visiting that office or calling 202-326-4040 during 
normal business hours. (TTY and TDD users may call the Federal relay 
service toll-free at 1-800-877-8339 and ask to be connected to 202-326-
4040.)

FOR FURTHER INFORMATION CONTACT: Harold J. Ashner, Assistant General 
Counsel, or Catherine B. Klion, Attorney, Pension Benefit Guaranty 
Corporation, Office of the General Counsel, Suite 340, 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: Section 4011 of the Employee Retirement 
Income Security Act of 1974 (``ERISA'') requires certain underfunded 
plans to issue a notice to participants of the plan's funding status 
and the limits on the PBGC's guarantee (``Participant Notice''). The 
Participant Notice helps to ensure that participants better understand 
the financial status of their plans and the consequences that plan 
underfunding may have on their promised benefits. The PBGC's 
implementing regulations are at 29 CFR part 4011.
    Elsewhere in today's Federal Register, the PBGC is announcing a 
Participant Notice Voluntary Correction Program (``VCP''). This 
program, which generally covers Participant Notices for the 2002 or 
2003 plan year that were not issued as required, is designed to 
encourage plan administrators to correct recent compliance failures 
without penalty and to facilitate plan administrators' future 
compliance. The VCP and the requirements generally governing 
Participant Notices, including the effect of the Pension Funding Equity 
Act of 2004, which was signed into law by the President on April 10, 
2004, are more fully described in that announcement.
    Under section 4071 of ERISA and 29 CFR part 4071, the PBGC may 
assess a penalty of up to $1,100 a day for certain failures to provide 
notices or other material information in a timely manner, including a 
failure to provide a Participant Notice as required. The Department of 
Labor has advised the PBGC that a penalty assessed against a plan 
administrator under section 4071 of ERISA for failure to issue a 
Participant Notice as required is a liability of the plan 
administrator, not a liability of the plan, and may not be paid out of 
plan assets.
    On July 18, 1995 (60 FR 36837), the PBGC published its current 
penalty policy, which applies to Participant Notices along with other 
types of information. The current policy provides:
    General guideline penalty amounts: The penalty accrues at the rate 
of $25 per day for the first 90 days of delinquency and $50 per day 
thereafter. The penalty is reduced proportionately for plans with fewer 
than 100 participants, subject to a floor of $5 per day. There is a cap 
on the total penalty for any violation of $100 times the number of plan 
participants.
    Facts-and-circumstances adjustments: The PBGC may adjust the 
penalty rate up or down based on the facts and circumstances 
surrounding the violation. The policy identifies certain specific 
circumstances in which the PBGC may or will assess larger penalties.
    Penalty waivers for reasonable cause: The PBGC evaluates each 
request for a waiver based on ``reasonable cause'' to determine whether 
the responsible person exercised ordinary business care and prudence 
and delay resulted from circumstances beyond that person's control.
    On January 12, 2001 (66 FR 2856), the PBGC published a proposed 
rule that would, among other things, codify in its regulations an 
expanded version of its 1995 penalty policy. The proposed policy leaves 
the guideline amounts for assessing penalties basically unchanged and 
provides guidance on determining whether there is ``reasonable cause'' 
that would justify a waiver of penalties. The PBGC did not receive any 
comments on this proposal.
    Based on its experience in enforcing Participant Notice 
requirements, the PBGC has reconsidered its 2001 proposal as applied to 
Participant Notices. The PBGC believes that its guideline penalties for 
Participant Notice failures should be tied primarily to the number of 
plan participants rather than, as is the case under the existing policy 
and the 2001 proposal, the number of days of delinquency. This approach 
recognizes that the significance of a failure to provide a Participant 
Notice varies with the number of participants who were entitled to, but 
did not, receive the Participant Notice. Accordingly, the PBGC is 
issuing a supplemental proposal relating to its penalty policy for 
Participant Notice failures. Under the proposed new penalty structure, 
as under the existing penalty policy and the 2001 penalty policy 
proposal, the PBGC would continue to consider the facts and 
circumstances of each case to ensure that the penalty fits the 
violation. The PBGC intends to publish its final Participant Notice 
penalty policy as soon as practicable after considering public 
comments.

Proposed Participant Notice Penalty Policy

    The guideline penalty amount for a failure to issue a Participant 
Notice as required would equal the number of participants in the plan 
multiplied by the applicable per-participant information penalty rate. 
That rate would depend on whether the failure is a repeat violation and 
on the timing of its correction in relation to a PBGC audit:

[[Page 25798]]

    Pre-audit corrections: If the plan administrator corrects the 
failure on or before the date the PBGC issues a written notice to the 
plan that it is or may be auditing compliance with Participant Notice 
requirements, the per-participant information penalty rate would be $5, 
unless the violation is a repeat violation, in which case the per-
participant information penalty rate would be $20.
    Post-audit corrections: If the plan administrator corrects the 
failure after the date the PBGC issues a written notice to the plan 
that it is or may be auditing compliance with Participant Notice 
requirements, the per-participant information penalty rate would be 
$40, unless the violation is a repeat violation, in which case the per-
participant information penalty rate would be $100.
    However, if the plan administrator corrects the failure within one 
year after the Participant Notice was originally due (regardless of 
whether the correction was pre-audit or post-audit), the PBGC would 
prorate the penalty based on the number of days before correction. For 
example, if the plan administrator corrects the failure 90 days after 
the Participant Notice deadline, the PBGC would reduce the penalty by 
multiplying it by 90/365. The PBGC would not increase the penalty for 
failures corrected after a year.

Determination of Participant Count

    In applying the new penalty structure, the PBGC generally would use 
the number of plan participants as determined for premium purposes for 
the plan for which the Participant Notice is required. Thus, the 
participant count would ordinarily be determined as of the last day of 
the prior plan year, which usually serves as the ``snapshot'' date used 
to count participants for premium purposes. However, where this 
participant count is significantly higher or lower than the number of 
persons entitled to receive the Participant Notice, the PBGC may make 
an appropriate adjustment to the participant count.

Determination of Repeat Violation Status

    The PBGC would treat a failure to issue a Participant Notice as 
required for a plan year as a repeat violation if it occurred after the 
date the plan administrator knew, or should have known, that there was 
a non-de minimis Participant Notice failure for a previous plan year. 
For this purpose, the PBGC would disregard any Participant Notice 
failure for: (1) Any plan year more than six years before the plan year 
in question, (2) any 2002 or 2003 plan year, provided the 2002 or 2003 
Participant Notice failure meets the requirements for penalty relief 
under the VCP announced elsewhere in today's Federal Register, and (3) 
any pre-2002 plan year, except where there is a 2002 or 2003 
Participant Notice failure that is covered by the VCP but that does not 
meet the requirements for penalty relief under the VCP.

Determination That Valid Corrective Notice Has Been Issued

    The PBGC would determine whether a corrective notice issued by a 
plan administrator is valid for purposes of this penalty policy under 
the following guidelines:
    Pre-audit corrections: If the plan administrator corrects a 
Participant Notice failure on or before the date the PBGC issues a 
written notice to the plan that it is or may be auditing compliance 
with Participant Notice requirements, the correction would be valid for 
purposes of this penalty policy if the PBGC determines, based on the 
facts and circumstances, that the corrective notice serves the 
statutory purposes of the Participant Notice requirement. There would 
be a ``safe harbor'' under which the PBGC would treat the corrective 
notice as valid if the corrective notice:
    (1) Included, in addition to the information originally required in 
the delinquent Participant Notice, all information that was required in 
all later Participant Notices that were due on or before the date the 
corrective notice is issued; and
    (2) Was issued to the persons who were entitled to receive the most 
recent Participant Notice that was due on or before the date the 
corrective notice was issued.
    (If the plan was not required to issue a Participant Notice for a 
particular plan year, the safe-harbor requirements would apply as if 
the plan had been required to issue a Participant Notice for that plan 
year.) The PBGC encourages plan administrators to correct Participant 
Notice failures as soon as possible, both to ensure that participants 
receive more timely information and to minimize penalty exposure. 
However, depending on the timing, a plan administrator might choose to 
combine into a single document a ``safe-harbor'' corrective notice and 
a required Participant Notice for a later plan year. If so, the PBGC 
would not treat the required Participant Notice as violating the 
requirement in Sec.  4011.10(d) that additional information may be 
included only if it is in a separate document.

    Example: Assume that a Plan Administrator fails to issue a 
required Participant Notice for the 2004 plan year, is not required 
to issue a Participant Notice for the 2005 plan year, and is 
required to issue a Participant Notice for the 2006 plan year. 
Assume further that the Plan Administrator issues the 2006 
Participant Notice to the persons entitled to receive it and 
includes as part of the 2006 Participant Notice all information 
originally required in the 2004 Participant Notice and all 
information that would have been required in the 2005 Participant 
Notice if it had been required to be issued. The PBGC would treat 
the plan administrator as having issued a valid corrective notice, 
and the 2006 Participant Notice would not violate the requirement in 
Sec.  4011.10(d) that additional information may be included only if 
it is in a separate document.

    Plan administrators are encouraged to contact the PBGC for guidance 
on pre-audit corrections of Participant Notice failures by submitting 
questions electronically through the PBGC's Web site at http://www.pbgc.gov/participantnotice or by calling the toll-free telephone 
number at the PBGC's Practitioner Customer Service Center (1-800-736-
2444). Post-audit corrections: If the plan administrator corrects a 
Participant Notice failure after the date the PBGC issues a written 
notice to the plan that it is or may be auditing compliance with 
Participant Notice requirements, the PBGC would treat the correction as 
valid only if the corrective notice is approved by the PBGC.

Downward Adjustment to Guideline Penalty Amount for Partial Failure

    The PBGC would make an appropriate downward adjustment to the 
penalty amount where there was a partial failure to comply with the 
Participant Notice requirements other than a late issuance of an 
otherwise valid Participant Notice (e.g., a failure to issue the 
Participant Notice to some of the persons entitled to receive it or a 
failure to include in the Participant Notice some of the required 
information).

Upward Adjustment to Guideline Penalty Amount for Failure To Cooperate

    The PBGC would make an appropriate upward adjustment to the penalty 
amount where it determines upon audit that there was a failure to 
comply with the Participant Notice requirements and the plan 
administrator does not promptly issue a corrective notice approved by 
the PBGC. The upward adjustment would generally be to a penalty that is 
significantly higher.

[[Page 25799]]

Applicability

    The new Participant Notice penalty policy would apply to: (1) 2004 
and later Participant Notices, (2) 2002 and 2003 Participant Notices 
that do not meet the requirements for penalty relief under the VCP, and 
(3) pre-2002 Participant Notices, where there is a 2002 or 2003 
Participant Notice failure that is covered by the VCP but that does not 
meet the requirements for penalty relief under the VCP.
    The PBGC would generally use the new guideline penalty amounts for 
its penalty assessments and reviews of penalty assessments on and after 
the effective date of the new penalty policy, which the PBGC 
anticipates will be at least 30 days after the date it publishes its 
final penalty policy. However, the PBGC would apply a transition rule 
in the case of a Participant Notice failure that starts before the 
effective date of the new penalty policy and that is corrected no later 
than one year after the effective date of the new penalty policy 
(including a delinquency corrected before the new penalty policy 
becomes effective). For such delinquencies, the guideline penalty 
amount would be the lesser of the amount calculated under the current 
penalty policy and the amount calculated under the new penalty policy.

Compliance With Rulemaking Guidelines

    The PBGC has determined, in consultation with the Office of 
Management and Budget, that this proposed Statement of Policy is a 
``significant regulatory action'' under Executive Order 12866. The 
Office of Management and Budget has therefore reviewed this proposed 
Statement of Policy under Executive Order 12866.
    This action is not subject to notice and comment rulemaking 
requirements under section 553 of the Administrative Procedure Act 
because it deals only with a general statement of PBGC policy. However, 
the PBGC nonetheless is publishing this Statement of Policy in proposed 
form and invites public comment. Because no general notice of proposed 
rulemaking is required, the Regulatory Flexibility Act does not apply. 
See 5 U.S.C. 601(2), 603, 604.

    Issued in Washington, DC, this 3rd day of May, 2004.
Bradley D. Belt,
Executive Director, Pension Benefit Guaranty Corporation.
[FR Doc. 04-10407 Filed 5-6-04; 8:45 am]
BILLING CODE 7708-01-P