[Federal Register Volume 72, Number 104 (Thursday, May 31, 2007)]
[Proposed Rules]
[Pages 30308-30319]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-10412]


=======================================================================
-----------------------------------------------------------------------

PENSION BENEFIT GUARANTY CORPORATION

29 CFR Parts 4006 and 4007

RIN 1212-AB11


Premium Rates; Payment of Premiums; Variable-Rate Premium; 
Pension Protection Act of 2006

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Proposed rule.

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

SUMMARY: This is a proposed rule to amend PBGC's regulations on Premium 
Rates and Payment of Premiums. The amendments would implement 
provisions of the Pension Protection Act of 2006 (Pub. L. 109-280) that 
change the variable-rate premium for plan years beginning on or after 
January 1, 2008, and make other changes to the regulations. (Other 
provisions of the Pension Protection Act of 2006 that deal with PBGC 
premiums are the subject of separate rulemaking proceedings.)

DATES: Comments must be submitted on or before July 30, 2007.

ADDRESSES: Comments, identified by Regulatory Information Number (RIN) 
1212-AB11, may be submitted by any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the Web site instructions for submitting comments.
     E-mail: [email protected].
     Fax: 202-326-4224.
     Mail or Hand Delivery: Legislative and Regulatory 
Department, Pension Benefit Guaranty Corporation, 1200 K Street, NW., 
Washington, DC 20005-4026.
    All submissions must include the Regulatory Information Number for 
this rulemaking (RIN 1212-AB11). Comments received, including personal 
information provided, will be posted to http://www.pbgc.gov. Copies of 
comments may also be obtained by writing to Disclosure Division, Office 
of the General Counsel, Pension Benefit Guaranty Corporation, 1200 K 
Street, NW., Washington, DC 20005-4026, 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: John H. Hanley, Director, Legislative 
and Regulatory Department; or Catherine B. Klion, Manager, or Deborah 
C. Murphy, Attorney, Regulatory and Policy Division, Legislative and 
Regulatory Department, Pension Benefit Guaranty Corporation, 1200 K 
Street, NW., Washington, DC 20005-4026; 202-326-4024. (TTY/TDD users 
may call the Federal relay service toll-free at 1-800-877-8339 and ask 
to be connected to 202-326-4024.)

SUPPLEMENTARY INFORMATION:

Background

    Pension Benefit Guaranty Corporation (PBGC) administers the pension 
plan termination insurance program under Title IV of the Employee 
Retirement Income Security Act of 1974 (ERISA). Pension plans covered 
by Title IV must pay premiums to PBGC. The flat-rate premium applies to 
all covered plans; the variable-rate premium applies only to single-
employer plans. Section 4006 of ERISA deals with premium rates, 
including the computation of premiums. Section 4007 of ERISA deals with 
the payment of premiums, including premium due dates and interest and 
penalties on premiums not timely paid, and with recordkeeping and 
audits.
    On August 17, 2006, the President signed into law the Pension 
Protection Act of 2006, Pub. L. 109-280 (PPA 2006). PPA 2006 makes 
changes to the funding rules in Title I of ERISA and in the Internal 
Revenue Code of 1986 (Code) on which the variable-rate premium is 
based. Section 401(a) of PPA 2006 amends the variable-rate premium 
provisions of section 4006 of ERISA to conform to those changes in the 
funding rules and to eliminate the full-funding limit exemption from 
the variable-rate premium. This proposed rule would amend PBGC's 
regulations on Premium Rates (29 CFR part 4006) and Payment of Premiums 
(29 CFR part 4007) to implement the amendment to ERISA section 4006 
made by PPA 2006. (PPA 2006 also includes other provisions affecting 
PBGC premiums that are not addressed in this rule, including provisions 
that cap the variable-rate premium for certain plans of small 
employers, make permanent the new ``termination premium'' (created by 
the Deficit Reduction Act of 2005) that is payable in connection with 
certain distress and involuntary plan terminations, and authorize 
PBGC's payment of interest on refunds of overpaid premiums. Those 
provisions are or will be the subject of other rulemaking actions.)

Overview of Proposed Regulatory Changes

    For purposes of determining a plan's variable-rate premium (VRP) 
for a premium payment year beginning after 2007, the proposed rule 
would require unfunded vested benefits (UVBs) to be measured as of the 
funding valuation date for the premium payment year. The asset measure 
underlying the UVB calculation would be determined for premium purposes 
the same way it is determined for funding purposes, except that any 
averaging method adopted for funding purposes would be disregarded. The 
liability measure underlying the UVB calculation would be determined 
for premium purposes the same way it is determined for funding 
purposes, except that only vested benefits would be included and a 
special premium discount rate structure would be used. Filers would be 
able to make an election (irrevocable for five years) to use funding 
discount rates for premium purposes instead of the special premium 
discount rates.
    The proposed rule would revise the premium due date and penalty 
structure to give some plans more time to file and others the ability 
to make estimated VRP filings and then follow up with adjusted final 
filings without penalty. Three special relief rules for VRP filers 
would be eliminated as no longer appropriate or necessary, and two new 
relief rules would be added.
    The proposed rule would also explain when certain benefits are 
considered ``vested'' and would make some other changes unrelated to 
PPA 2006. For example, the proposed regulation would

[[Page 30309]]

provide explicitly that (in the absence of an exemption) a premium 
filing made on paper or in any other manner other than the prescribed 
electronic filing method (applicable to all plans for plan years 
beginning after 2006) does not satisfy the requirement to file. It 
would also clarify and strengthen recordkeeping and audit provisions.
    A more detailed discussion follows.

Variable-Rate Premium Determination Dates

    Under ERISA section 4006(a)(3)(E)(i) and (ii), a plan's per-
participant VRP for a plan year is generally--

    $9.00 for each $1,000 (or fraction thereof) of unfunded vested 
benefits [``UVBs''] under the plan as of the close of the preceding 
plan year

divided by the plan's participant count as of the close of the 
preceding plan year. (Under ERISA section 4006(a)(3)(H), added by 
section 405 of PPA 2006, the per-participant VRP is capped at $5 times 
the participant count as of the close of the prior plan year for 
certain plans of small employers. The cap provision is the subject of 
another rulemaking.) Under ERISA section 4006(a)(3)(A)(i), the per-
participant VRP is multiplied by the number of participants ``in [the] 
plan during the plan year'' to yield the total VRP. The existing 
premium rates regulation treats all of these provisions as referring to 
a single determination date. In most cases, this is the last day of the 
prior plan year; it is the first day of the premium payment year (the 
plan year for which the premium is being paid) for two categories of 
plans: new and newly covered plans (which are not in existence as 
covered plans on the last day of the prior plan year) and certain plans 
involved in plan spinoffs and mergers as of the beginning of the 
premium payment year (which otherwise would double-count or not count 
certain participants and UVBs for premium purposes).
    The term ``unfunded vested benefits'' (``UVBs'') is defined in 
ERISA section 4006(a)(3)(E)(iii). In pre-PPA section 
4006(a)(3)(E)(iii), ``UVBs'' is defined as unfunded current liability 
(a term found in the funding provisions of the Code and Title I of 
ERISA) determined by counting only vested benefits and using a special 
interest rate and (under certain circumstances) a special measure of 
plan assets. PPA 2006 changes the funding rules for single-employer 
plans, eliminating the concept of current liability for plan years 
beginning after 2007. (As discussed below, certain plans will not use 
the new funding rules until a later date.) To conform to this change, 
PPA 2006 changes the definition of UVBs in ERISA section 
4006(a)(3)(E)(iii). As amended by PPA 2006, for plan years beginning 
after 2007, section 4006(a)(3)(E)(iii) provides that ``UVBs''--

    Means, for a plan year, the excess (if any) of * * * the funding 
target of the plan as determined under [ERISA] section 303(d) 
[corresponding to Code section 430(d)] for the plan year by only 
taking into account vested benefits and by using the interest rate 
described in [ERISA section 4006(a)(3)(E)(iv)], over * * * the fair 
market value of plan assets for the plan year which are held by the 
plan on the valuation date.

    New ERISA section 303(g) says that with certain exceptions not 
relevant here, ``all determinations under this section [which includes 
the definition of ``funding target'' in section 303(d)(1)] for a plan 
year shall be made as of the valuation date of the plan for such plan 
year.'' Thus PBGC concludes that the ``valuation date'' for plan assets 
referred to in new section 4006(a)(3)(E)(iii) is the valuation date 
determined under section 303(g)(2). In general (under section 
303(g)(2)(A)), the valuation date for a plan year is the first day of 
the plan year, but certain small plans may designate a different 
valuation date (under section 303(g)(2)(B)), which may be any day in 
the plan year.
    The change in the definition of UVBs thus creates ambiguity about 
the date as of which UVBs are to be measured. Section 
4006(a)(3)(E)(ii), which was not changed by PPA 2006, refers to two 
plan years--the ``plan year'' for which the VRP is being paid (the 
premium payment year) and the ``preceding plan year,'' at the close of 
which UVBs are to be measured. New section 4006(a)(3)(E)(iii) refers 
only to the ``plan year'' in defining UVBs. And a plan's funding target 
and assets--the elements of UVBs--are to be measured as of the 
valuation date, which need not be the close of the plan year and which 
for many plans (those not small enough to elect otherwise) must be the 
beginning of the plan year.
    Accordingly, PBGC must resolve the statutory ambiguity by adopting 
a rule regarding the date as of which UVBs are to be measured. In view 
of the following considerations, PBGC proposes to require that UVBs be 
measured as of the valuation date in the premium payment year rather 
than a date in the prior plan year.
    Historical data indicate that most premium filers use beginning-of-
the-plan-year valuation dates for funding purposes; under PPA 2006 many 
of them will be required to do so. Although funding valuations don't 
themselves produce UVB numbers that can be used for VRP purposes, they 
involve the gathering of the same basic data for analysis, and the 
valuations are done in the same way, simply using different 
assumptions. It would be burdensome and impractical to require plans 
that must do funding valuations as of the first day of a plan year to 
do separate valuations as of the last day for VRP purposes.
    Requiring that a funding valuation done as of the first day of the 
prior plan year be ``rolled forward'' to the last day of the prior plan 
year is likewise burdensome and impractical. Instructions for ``roll-
forwards'' would necessarily be complex, especially in light of the new 
``segment rate'' interest assumption under section 303(h)(2)(C) of PPA 
2006 and section 4006(a)(3)(E)(iv) of ERISA. And ``rolled-forward'' 
valuations would tend to be inaccurate because correcting for the many 
changes in circumstances that can occur during the course of a year 
involves a significant element of estimation.
    Furthermore, basing the VRP on a valuation done in the premium 
payment year reflects a plan's current funding status much better than 
basing it on a valuation done in the prior year, especially a valuation 
done as of the first day of the prior year. And with some changes in 
PBGC's premium due date and penalty rules, there will be adequate time 
for plans to compute premiums based on a premium payment year 
valuation.
    Accordingly, this proposed rule requires that UVBs be measured as 
of the valuation date for the premium payment year (referred to as the 
``UVB valuation date'') and adjusts premium due dates and penalty rules 
to accommodate the fact that this UVB valuation date is later (by at 
least a day and in some cases perhaps as much as a year) than ``the 
close of the preceding plan year,'' the date used under pre-PPA section 
4006(a)(3)(E). (No change is proposed in the date as of which 
participants are counted, which the revised regulations refer to as the 
``participant count date.'')

Variable-Rate Premium Computation

    As noted above, UVBs under PPA 2006 are based on a plan's funding 
target and the market value of its assets. Under new ERISA section 
303(d)(1), as set forth in section 102 of PPA 2006, ``the funding 
target of a plan for a plan year is the present value of all benefits 
accrued or earned under the plan as of the beginning of the plan 
year.'' But new ERISA section 303(g) makes clear that the funding 
target is to be determined as of the valuation date, which for small

[[Page 30310]]

plans may not be the beginning of the plan year. PBGC thus believes 
that what ERISA section 303(d)(1) requires is that the benefits to be 
valued as of the valuation date are those accrued as of the beginning 
of the plan year. If the valuation date is later than the first day of 
the plan year, accruals after the beginning of the plan year are to be 
ignored.
    The situation regarding assets is similar. New ERISA section 
4006(a)(3)(E)(iii)(II) refers to ``the fair market value of plan assets 
for the plan year which are held by the plan on the valuation date.'' 
Under new ERISA section 303(g)(4)(B), however, plan assets as of a 
valuation date later than the first day of the plan year do not include 
contributions for the plan year made during the plan year but before 
the valuation date or interest thereon. PBGC interprets section 
4006(a)(3)(E)(iii)(II) as incorporating this rule, as well as the 
corresponding rule for prior-year contributions in section 
303(g)(4)(A). Thus for a valuation date later than the first day of the 
plan year, UVBs would reflect neither accruals nor contributions for 
the plan year.
    In general, a plan's funding target and the value of its assets 
would be determined for premium purposes the same way they are for 
funding purposes except as new ERISA section 4006(a)(3)(E)(iii) and 
(iv) provides otherwise. In order to distinguish the funding target 
used for premium purposes from that used for funding purposes, the 
proposed regulation introduces the term ``premium funding target.'' In 
general, this means the funding target determined by taking only vested 
benefits into account and by using the special segment rates described 
in new ERISA section 4006(a)(3)(E)(iv) (the ``standard premium funding 
target''). Those special segment rates are ``spot rates'' (based on 
bond yields for a single recent month), as opposed to the 24-month 
average segment rates used for funding purposes.
    But in certain circumstances (described below), PBGC proposes to 
permit filers to use an ``alternative premium funding target'' that may 
be less burdensome to use than the standard premium funding target. A 
plan's alternative premium funding target would be the vested portion 
of the plan's funding target under ERISA section 303(d)(1) that is used 
to determine the plan's minimum contribution under ERISA section 303 
for the premium payment year--that is, an amount calculated using the 
same assumptions as are used to calculate the plan's funding target 
under ERISA section 303(d)(1), but based only on vested benefits, 
rather than all benefits.
    Although instructions for post-PPA annual reports on Form 5500 
series are not final, PBGC expects plans to be required to compute the 
vested portion of the funding target (broken down by participant 
category) for Form 5500 filings. PBGC also expects that the final 
instructions will permit or require benefits to be categorized as 
vested or non-vested in a manner consistent with the provisions of the 
proposed rule (discussed below) that explain when certain benefits are 
considered vested for premium purposes. The advantage to a filer of 
using the alternative premium funding target would be that, if the plan 
determined the vested portion of its funding target for purposes of the 
annual report (Form 5500 series) in a manner consistent with PBGC's 
rules, it could use the same number for premium purposes and thus avoid 
having to do a second calculation for premium purposes alone.
    Under the proposal, the alternative premium funding target could be 
used where the plan made an election to do so that would be irrevocable 
for a period of five years. As financial markets fluctuate, the 
averaged rates used for the alternative premium funding target will 
fluctuate above and below the spot rates used for the standard premium 
funding target. Locking in the election for five years will keep plans 
from calculating the premium funding target both ways each year and 
using the smaller number; the reason for permitting use of the 
alternative premium funding target is to reduce not premiums but the 
burden of computing premiums. PBGC expects that normal interest rate 
fluctuations will make premiums computed with the alternative premium 
funding target--on average, over time--approximately equal to premiums 
calculated with the standard premium funding target. Requiring a five-
year commitment to use of the alternative premium funding target will 
give this averaging process time to work.
    Since new ERISA section 4006(a)(3)(E)(iii)(II) speaks explicitly of 
the ``fair market value'' of assets, PBGC concludes that it would be 
inconsistent with the statute to permit or require the use of the 
averaging process described in new ERISA section 303(g)(3)(B) or the 
reduction of assets by the prefunding and funding standard carryover 
balances described in new ERISA section 303(f)(4). (The existing 
premium rates regulation also provides that credit balances do not 
reduce assets for premium purposes.)
    As noted above, however, PBGC believes that adjustments must be 
made for contributions as described in new ERISA section 303(g)(4). 
Similar adjustments are required under the current premium rates 
regulation. For simplicity, PBGC proposes that the adjustments be made 
using the effective interest rates determined for funding purposes, 
rather than effective interest rates computed on the basis of the 
premium segment rates. This will mean that the adjustments do not have 
to be calculated twice (once for funding purposes and again for premium 
purposes), and plans can use for premium purposes a figure for the 
value of assets that they are expected to be entering in the annual 
report (Form 5500 series). PBGC anticipates that the differences 
between funding and premium rates and the periods of time over which 
these rates are applied for this purpose will be small enough to 
justify this simplification. And as funding rates fluctuate above and 
below premium rates, the differences in each direction should cancel 
out over time.
    PBGC's proposal does not include an ``alternative calculation 
method'' for rolling forward prior year values to the current year. The 
alternative calculation method (ACM) in Sec.  4006.4(c) of the current 
premium rates regulation was instituted when much actuarial valuation 
work was done using hand calculators and tables of factors. High-speed, 
high-memory computers are now the norm for handling both data and 
mathematical computations. Actuarial valuations are thus much faster 
now. Furthermore, the segment rate methodology for valuing benefits 
does not lend itself to the kind of formulaic transformation process 
exemplified by the existing ACM. PBGC accordingly believes that an 
alternative calculation method is both unnecessary and impracticable 
under PPA 2006.

Due Dates and Penalty Rules

    PBGC expects that most plans that are required (or choose) to do 
funding valuations as of the beginning of the plan year (and whose UVB 
valuation date is thus the first day of the premium payment year) will 
be able to determine their UVBs by the VRP due date currently provided 
for in PBGC's premium payment regulation (generally, ten and a half 
months after the beginning of the plan year). But there are some 
circumstances that can make timely determination of the VRP difficult 
or impossible: For example, use of a valuation date after the beginning 
of the plan year (applicable to small plans only) or difficulty in 
collecting data (e.g., because of the occurrence of unusual events 
during the preceding year). To deal with such circumstances,

[[Page 30311]]

PBGC proposes to revise its due date and penalty structure to give 
smaller plans more time to file and larger plans the ability to make 
estimated VRP filings and then correct them without penalty. The 
following detailed discussion of the proposed due date and penalty 
structure is followed by a summary table.
    PBGC's current due date structure for flat- and variable-rate 
premiums is based on two categories of plans: those that owed premiums 
for 500 or more participants for the plan year preceding the premium 
payment year (``large'' plans) and those that did not. The new 
structure is based on three categories. The large-plan category remains 
the same. A new ``mid-size'' category will consist of plans that owed 
premiums for 100 or more, but fewer than 500, participants for the plan 
year preceding the premium payment year. A category of ``small'' plans 
will include all other plans. The participant count for this purpose 
will continue to be the prior year's count; the proposed rule provides 
uniform language for determining both single- and multiemployer plans' 
participant counts for determining due dates, eliminating a slight 
language difference in the existing regulation.
    The 100-participant break-point between the small and mid-size 
categories approximates the break-point in the PPA 2006 funding rules 
between plans that are required to use beginning-of-the-year valuation 
dates under ERISA section 303(g)(2)(A) and those permitted to use 
another date under ERISA section 303(g)(2)(B). The correspondence with 
the valuation date provision is only approximate. Under the valuation 
date provision, PPA 2006 counts participants on each day of a plan year 
and aggregates plans within controlled groups; under its premium due 
date rules, PBGC counts participants in one plan on one day. 
Furthermore, PPA 2006 funding rules look back to the plan year 
preceding the valuation year; the PBGC participant count for the plan 
year preceding the premium payment year is typically as of the last day 
of the plan year before that. Accordingly, there may be plans that are 
eligible to elect valuation dates other than the first day of the plan 
year but that do not fall into PBGC's new small-plan category. But most 
plans that use valuation dates other than the first day of the plan 
year are expected to be ``small'' under the new due date structure, and 
there is enough flexibility in the due date rules for large and mid-
size plans to make premium filing manageable in most cases even for 
plans with valuation dates after the beginning of the plan year. In 
unusual cases, where a plan with a valuation date late in the year 
finds itself in the large or mid-size category, PBGC has authority to 
waive late premium penalties.

Small Plans

    For plans in the ``small'' category, PBGC proposes to make all 
premiums due on the last day of the sixteenth month that begins on or 
after the first day of the premium payment year (for calendar-year 
plans, April 30 of the year following the premium payment year). This 
will give any small plan at least four months to determine UVBs.
    The same due date will apply to both variable- and flat-rate 
premiums. While there is no reason these small plans cannot determine 
the flat-rate premium by the current due date (the 15th day of the 
tenth month that begins on or after the first day of the premium 
payment year), PBGC wants to avoid requiring them to make two filings 
per year. And for simplicity, PBGC is making no distinction for due 
date purposes between single-employer plans that pay the VRP and 
single-employer (and multiemployer) plans that do not. Small single-
employer plans that qualify for an exemption from the VRP and small 
multiemployer plans (which are not subject to the VRP) will have the 
same deferred due date as small single-employer plans that owe a VRP.

Mid-Size Plans

    For mid-size plans, PBGC proposes to retain the current premium due 
date--the 15th day of the tenth month that begins on or after the first 
day of the premium payment year (October 15th for calendar-year 
plans)--for both flat- and variable-rate premiums. With rare 
exceptions, these plans will perform valuations as of the first day of 
the premium payment year, and in most cases should be able to calculate 
UVBs by the current due date. However, in recognition of the 
possibility that circumstances might make a final UVB determination by 
the due date difficult or impossible, PBGC proposes to permit estimated 
VRP filings and to provide a penalty-free ``true-up'' period to correct 
an erroneous VRP estimate.
    Under this provision, the VRP penalty would be waived for a period 
of time after the VRP due date if, by the VRP due date, the plan 
administrator submits an estimate of the VRP that meets certain 
requirements and pays the estimated amount. The waiver of the penalty 
would cover the period from the VRP due date until the small-plan due 
date or, if earlier, the filing of the final VRP. Interest would not be 
suspended; if the VRP estimate fell short of the correct amount, 
interest would accrue on the amount of the underpayment from the date 
when the payment was due to the date the shortfall was paid, just as 
with the existing ``safe harbor'' rule for large plans'' flat-rate 
premium payments.
    The requirements for the VRP estimate would be that it be based on 
(1) a final determination of the market value of the plan's assets and 
(2) a reasonable estimate of the plan's premium funding target for the 
premium payment year that takes into account the most current data 
available to the plan's enrolled actuary and is determined in 
accordance with generally accepted actuarial principles and practices. 
The estimate of the premium funding target would have to be certified 
by the enrolled actuary and, like other premium information filed with 
PBGC, would be subject to audit. PBGC needs a good estimate of its VRP 
income for inclusion in its annual report, which is prepared during 
October (because its fiscal year ends September 30), when most plans 
(those with calendar plan years) submit VRP filings. Thus, it is 
important to have assurance that the estimate of the premium funding 
target has been prepared in good faith.
    Since this penalty relief is based on the plan's reporting a final 
figure for the value of assets by the VRP due date, the relief would be 
lost if there were a mistake in the assets figure so reported, whether 
the mistaken figure was lower or higher than the true figure. PBGC 
would consider a request for an appropriate penalty waiver in such a 
situation and in acting on the request would consider such facts and 
circumstances as the reason for the mistake, whether assets were over- 
or understated, and, if assets were overstated, the extent of the 
overstatement.

Large Plans

    The due date and penalty structure for ``large'' plans would be the 
same as for ``mid-size'' plans except that the early due date for the 
flat-rate premium under the existing regulation would be retained, 
along with the related ``safe harbor'' penalty rules. However, there 
would be a change in the ``safe harbor'' rules to accommodate the 
unlikely event that a plan might be in the small-plan category for one 
year but in the large-plan category for the next year. Under Sec. Sec.  
4007.8(f) and (g)(2)(ii) of the existing premium payment regulation, a 
plan may be entitled to safe harbor relief if its flat-rate filing is 
consistent with its reported participant count for the prior plan year, 
even if the reported count is later determined to be wrong. But under

[[Page 30312]]

the new rules, a plan that is small for one year and large for the next 
year would not have to report its participant count for the first year 
until after the flat-rate due date for the second year. Thus, to get 
the benefit of these special safe-harbor rules, a plan in such 
circumstances would have to make its final filing for the first year 
two months before it was due. To alleviate this problem, PBGC proposes 
to provide safe-harbor relief for any plan whose flat-rate due date for 
the plan year preceding the premium payment year is later than the 
large-plan flat-rate due date for the premium payment year.

Due Date Table

    The following table shows the relevant premium due dates for small, 
mid-size, and large calendar year plans (as described above) for the 
2008 premium payment year:

----------------------------------------------------------------------------------------------------------------
                                       Small plans  (under 100     Mid-size plans  (100-   Large plans  (500 or
                                            participants)            499 participants)      more participants)
----------------------------------------------------------------------------------------------------------------
Flat-rate premium due..............  April 30, 2009.............  October 15, 2008......  February 29, 2008 See
                                                                                           flat-rate premium
                                                                                           safe harbor rules.
Flat-rate premium reconciliation     N/A........................  N/A...................  October 15, 2008.
 due.
Variable-rate premium due..........  April 30, 2009.............  October 15, 2008        October 15, 2008
                                                                   Estimate may be filed   Estimate may be filed
                                                                   and paid. See rules     and paid. See rules
                                                                   on correcting VRP       on correcting VRP
                                                                   without penalty.        without penalty.
Latest VRP penalty starting date.    N/A........................  April 30, 2009........  April 30, 2009.
 If certain conditions are met,
 penalty is waived until this date
 or, if earlier, the date the final
 VRP is filed.
----------------------------------------------------------------------------------------------------------------

Special Variable-Rate Premium Rules

    The existing premium rates regulation includes a number of special 
``exemption'' or ``relief'' rules for VRP filers. One of these--the 
full-funding limit exemption, which was created by statute--has been 
eliminated by PPA 2006. Three others--created by PBGC regulation in 
1988--have lost their justification, as explained below, and PBGC 
proposes to eliminate them as well. PBGC is also introducing two new 
``relief'' rules.
    The three regulatory special rules to be eliminated are (1) the 
rule that a plan with fewer than 500 participants for the premium 
payment year is exempt from reporting its VRP information if the plan 
has no UVBs (the ``small well-funded plan rule''), (2) the rule that a 
plan with 500 or more participants may report (and compute its VRP on 
the basis of) accrued rather than vested benefits (the ``large plan 
accrued benefit rule''), and (3) the rule that a plan may value 
benefits using the funding interest rate rather than the variable-rate 
premium interest rate if the funding rate is less than the premium rate 
(the ``funding interest rate rule''). All three represent compromises 
between the need for accuracy in the determination of the VRP and the 
reporting of VRP data on the one hand and the need to reduce the burden 
of compliance on the other.
    PBGC needs accurate data about UVBs and assets--now as in 1988--to 
verify the correctness of the reported VRP and for financial 
projections. But whereas the cost of determining this information 20 
years ago could be very significant, because much actuarial valuation 
work was done using hand calculators and tables of factors, valuations 
are now computerized and thus cost less. PBGC's need for accurate data 
now outweighs the burden of determining and reporting the data. The 
elimination of these three special rules reflects that change in the 
balance between need and burden. Furthermore, both the ``large plan 
accrued benefit rule'' and the ``funding interest rate rule'' overstate 
UVBs and are used by very few plans--fewer than three dozen plans used 
each of these two special rules for the 2004 filing year (the last year 
for which data are available).
    In addition, one of the two new ``relief'' rules that PBGC is 
introducing--the new alternative premium funding target provision 
discussed above--would provide relief for filers that might otherwise 
have used any of these three special rules. The alternative premium 
funding target provision permits the use of funding rates for premium 
purposes (like the ``funding interest rate rule'') without the need for 
a comparison of rates (albeit with a requirement for a five-year 
commitment). And by using the alternative premium funding target 
provision, plans that might have used the ``large plan accrued benefit 
rule'' or the ``small well-funded plan rule'' may be able to base 
premium reporting on figures that are computed for and included in the 
annual report (Form 5500 series).
    PBGC's second new ``relief'' rule--in addition to the alternative 
premium funding target provision--is a reporting relief provision for 
certain small-employer plans. Section 405 of PPA 2006 caps the VRP for 
certain plans of small employers, a provision that is the subject of 
another PBGC rulemaking proceeding. This proposed rule would exempt 
plans that qualify for the VRP cap and pay the full amount of the cap 
from determining or reporting UVBs.

Meaning of ``Vested''

    As discussed above, the determination of UVBs--under pre-PPA law as 
well as under PPA 2006--requires that only vested benefits be taken 
into account. PBGC believes that there is some uncertainty among 
pension practitioners as to the meaning of the term ``vested'' as used 
in ERISA section 4006(a)(3)(E). With a view to reducing uncertainty and 
promoting consistency in the VRP determination process, PBGC proposes 
to explain--for premium purposes only--when certain benefits are 
considered vested.
    The proposal would specify two circumstances that do not prevent a 
benefit of a participant from being vested for premium purposes. One 
circumstance is that the benefit is not protected under Code section 
411(d)(6) and thus may be eliminated or reduced by the adoption of a 
plan amendment or by the occurrence of a condition or event (such as a 
change in marital status). PBGC considers such a benefit to be vested 
(if the other conditions of entitlement have been met) so long as the 
benefit has not actually been eliminated or reduced. The other 
circumstance--applicable to certain benefits payable upon a 
participant's death--is that the participant is living. The benefits to 
which this would apply are (1) a qualified pre-retirement survivor 
annuity, (2) a post-retirement survivor annuity such as the annuity 
paid after a participant's death under a joint and survivor or certain 
and continuous option, and (3) a benefit that returns a participant's 
accumulated

[[Page 30313]]

mandatory employee contributions. PBGC considers such benefits to be 
vested (if the other conditions of entitlement have been met) 
notwithstanding that the participant is alive.

Recordkeeping and Audits

    PBGC proposes to clarify and strengthen its rules on recordkeeping 
and audits. Most of the changes simply reflect existing recordkeeping 
and audit practices.
    In describing the premium records to be kept, the current premium 
payment regulation mentions explicitly only those prepared by enrolled 
actuaries and insurance carriers. The proposal broadens this to include 
plan sponsors and employers required to contribute to a plan for their 
employees and clarifies, with a list of examples of relevant records, 
that PBGC interprets the term ``records'' broadly. Similarly, the 
proposal refers explicitly to records supporting the amount of premiums 
that were required to be paid and the premium-related information that 
was required to be reported (rather than just what was actually paid or 
reported). Where a premium or premium-related information is determined 
through the use of a manual or automated system, the proposal allows 
PBGC to require that the operation of the system be demonstrated so 
that its effectiveness, and the reliability of the results produced, 
can be assessed. In addition, in situations where plan records are 
deficient, the proposal broadens the categories of data on which PBGC 
may rely to establish the amount of premiums due to include not just 
participant count data but UVB data.
    The proposal also makes clear that the 45 days permitted for 
producing records under Sec.  4007.10(c) applies to records sent to 
PBGC, not to records audited on-site (which PBGC expects to be produced 
much more promptly). And PBGC proposes to broaden the circumstances in 
which it can require faster submission of records. The existing 
regulation limits such circumstances to those where collection of money 
may be jeopardized. This would be changed to authorize shorter response 
times where the interests of PBGC may be prejudiced by delay--such as 
where PBGC has reason to fear that records might be destroyed or 
manipulated.

Miscellaneous Provisions

Plans Not Immediately Subject to New Funding Rules

    Sections 104, 105, and 106 of PPA 2006 defer the effective date of 
the funding amendments for certain plans described in those sections, 
which in general deal with plans of cooperatives, plans affected by 
settlement agreements with PBGC, and plans of government contractors. 
Section 402 of PPA 2006 applies special funding rules to certain plans 
of commercial passenger airlines and airline caterers. None of these 
provisions affects the applicability of the amendments to ERISA section 
4006 regarding the determination of the VRP. The proposed rule provides 
explicitly that plans in this small group must determine UVBs in the 
same manner as all other plans.

New and Newly Covered Plans

    The proposed rule would eliminate confusing language in the 
existing regulations that raised questions about the determination of 
due dates, participant count dates, and premium proration for new and 
newly covered plans in certain circumstances. The new language would 
make clear that the first day of a new plan's first plan year for 
premium purposes is the effective date of the plan. This change will 
obviate the need for plan administrators to choose between the 
effective date and the adoption date as the first day of the plan year 
for premium filing.

Electronic Filing Requirement

    Effective July 1, 2006, PBGC amended its regulations to require 
that annual premium filings be made electronically (71 FR 31077, June 
1, 2006). (Exemptions from the e-filing requirement may be granted for 
good cause in appropriate circumstances.) In order for PBGC's premium 
processing systems to work effectively and efficiently, information 
must be received in an electronic format compatible with those systems; 
the burden of reformatting information received on paper or in other 
incompatible formats is significant, and the reformatting process gives 
rise to data errors. PBGC therefore proposes to provide explicitly in 
the premium payment regulation that, in the absence of an exemption, 
premium filing on paper or in any other manner other than the 
prescribed electronic filing method does not satisfy the requirement to 
file. Thus, a penalty under ERISA section 4071 could be assessed for 
the period from the due date of the premium filing until it was made 
electronically, even if a timely paper filing was made.

Billing ``Grace Period'' for Interest

    PBGC proposes to consolidate paragraphs (b) and (c) of Sec.  
4007.7, both of which deal with the ``grace period'' for interest on 
premium underpayments where a bill is paid within 30 days. No 
substantive change is intended.

VRP Rate

    ERISA section 4006(a)(3)(E)(ii) sets the variable-rate premium at 
$9 for each $1,000 (or fraction thereof) of UVBs. Section 4006.3(b) of 
the existing premium rates regulation omits the phrase ``(or fraction 
thereof).'' The requirement is made clear in PBGC's premium 
instructions, but PBGC proposes to add this phrase to the regulatory 
text.

Pre-1996 Penalty Accrual Rules

    PBGC proposes to eliminate the pre-1996 penalty accrual rules as 
anachronistic.

Other Changes

    The proposal includes a number of clarifying and editorial changes.

Applicability

    The regulatory changes made by this rule would apply to plan years 
beginning after 2007.

Compliance With Rulemaking Guidelines

E.O. 12866

    The PBGC has determined, in consultation with the Office of 
Management and Budget, that this rule is a ``significant regulatory 
action'' under Executive Order 12866. The Office of Management and 
Budget has therefore reviewed this notice under E.O. 12866. Pursuant to 
section 1(b)(1) of E.O. 12866 (as amended by E.O. 13422), PBGC 
identifies the following specific problems that warrant this agency
     There is ambiguity in ERISA section 4006(a)(3)(E) 
regarding the date as of which UVBs are to be measured. This problem is 
significant because, unless the statutory ambiguity is resolved, it 
will be unclear what date UVBs are to be measured as of.
     The statute lacks clarity and specificity in describing 
how UVBs are calculated. This problem is significant because, unless 
clarity and specificity are provided, it will be unclear how to compute 
UVBs.
     The statute does not expressly provide for an alternative 
premium funding target as described above. This problem is significant 
because the standard premium funding target provided for in the statute 
is more burdensome to use than the alternative premium funding target 
described above without generating significantly different premium 
revenue than the less burdensome alternative premium funding target.

[[Page 30314]]

     PBGC's existing premium due date and penalty rules do not 
accord well with the new rules for the date as of which and manner in 
which UVBs are to be determined. This problem is significant because, 
without changes in the due date and penalty rules, some plans may 
experience difficulties in paying premiums timely and without late 
payment penalties.
     Some existing PBGC VRP relief rules are anachronistic and 
some new relief provisions are warranted by statutory changes. This 
problem is significant because the outmoded relief rules detract from 
accuracy in determining the VRP and deprive PBGC of VRP data without 
significantly reducing burden, while statutory changes have made it 
possible to grant new relief without significant adverse consequences 
for the PBGC insurance program.
     There is uncertainty as to the meaning of the term 
``vested'' that is used in the statute to describe benefits taken into 
account in determining the VRP. This problem is significant because, 
without improved clarity in the meaning of ``vested'' as applied to VRP 
determinations, those determinations may be inconsistent.
     PBGC's current recordkeeping and audit rules do not match 
current recordkeeping and audit practices in scope and specificity, and 
provide relatively narrow circumstances in which PBGC may require 
expedited submission of records. This problem is significant because 
inadequate recordkeeping and audit rules could compromise PBGC's 
ability to enforce the premium rules in the statute and PBGC's 
regulations thereunder.
     PBGC's existing premium payment regulation does not 
provide explicitly that, in the absence of an exemption, premium filing 
on paper or in any other manner other than the prescribed electronic 
filing method does not satisfy the requirement to file. This problem is 
significant because, in the absence of an explicit statement, filers 
might believe they had a basis for taking the position that penalties 
for late filing would not apply if they timely filed on paper or in 
some other non-approved manner.

Regulatory Flexibility Act

    PBGC certifies under section 605(b) of the Regulatory Flexibility 
Act (5 U.S.C. 601 et seq.) that the amendments in this proposed rule 
would not have a significant economic impact on a substantial number of 
small entities. Accordingly, as provided in section 605 of the 
Regulatory Flexibility Act (5 U.S.C. 601 et seq.), sections 603 and 604 
do not apply.
    Most of the amendments would implement statutory changes made by 
Congress. They would provide procedures for calculating, 
substantiating, and paying the premiums prescribed by statute and 
impose no significant burden beyond the burden imposed by statute. To 
the extent that this rule would make changes that are outside the 
explicit scope of the statute, they would affect primarily the 
requirement to perform and manner of performing VRP calculations. When 
the VRP provisions were added to PBGC's regulations nearly 20 years 
ago, these calculations were mostly done using actuarial tables and 
hand calculators. Today they are almost universally done using high-
memory, high-speed computers. The VRP calculations parallel funding 
calculations that must be done independently of PBGC premium 
requirements. Thus, the VRP calculations can be done for the most part 
by plugging in different parameters (such as interest rates) to 
computer programs that are used for funding purposes. The incremental 
cost of such calculations for entities of any size is insignificant. 
Not including a computation option like the existing alternative 
computation method (ACM) in the new rules would not significantly 
affect compliance costs because such an option would itself be complex 
and thus burdensome to use and because a simplified computation method 
is no longer needed in the current environment of computerized 
actuarial computations.
    Changes that would tend to increase compliance costs (e.g., 
elimination of the VRP exemption for well-funded small plans) would be 
offset by changes tending to reduce compliance costs (e.g., the 
introduction of the reporting exemption for plans of small employers 
paying the maximum capped VRP).
    The shift from prior-year to current-year data and the deferral of 
the due date for small plans (those with fewer than 100 participants) 
should not affect the cost of compliance. Under existing rules, UVBs 
are determined as of the end of the prior year (or in some cases the 
beginning of the current year) and the VRP is due 9\1/2\ months later. 
Under the new rules, UVBs would be determined as of the UVB valuation 
date, which for most small plans may be any day in the current year. 
For plans that choose a valuation date at the beginning of the year, 
the VRP would now be due 16 months later. For those that choose a 
valuation date at the end of the year, the VRP would now be due 4 
months later. For a plan that chooses a mid-year valuation date, the 
VRP would be due 10 months later, providing about the same time for 
data-gathering and computations as under the existing rules. But even a 
4-month period between the valuation date and the due date should be 
adequate for the data-gathering and UVB computations of small plans, 
and the change in timing should not affect the cost of compliance.
    PBGC believes that the changes to the recordkeeping requirements in 
general simply codify existing practices. The changes to the audit 
rules will not affect a significant number of plans of any size.

Paperwork Reduction Act

    PBGC is submitting the information requirements under this proposed 
rule to the Office of Management and Budget for review and approval 
under the Paperwork Reduction Act. The OMB control number for this 
collection of information is 1212-0009. Copies of PBGC's request may be 
obtained free of charge by contacting the Disclosure Division of the 
Office of the General Counsel of PBGC, 1200 K Street, NW., Washington, 
DC 20005, 202-326-4040.
    PBGC is proposing the following changes to the information 
requirements under the premium rates and premium payment regulations 
(except for 2008 estimated flat-rate premium filings, as noted below):
     Filers will be required to include in the addresses of the 
plan sponsor and plan administrator the countries where the addresses 
are located (if other than the United States).
     Filers will no longer be required to report coverage 
status.
     Filers will be required to provide an e-mail address for 
the plan contact.
     Filers will no longer be required to provide information 
on participant notices under ERISA section 4011 (that requirement 
having been eliminated by PPA 2006).
     Filers will be required to report if they qualify for 
premium proration (for a short plan year) and if so, to report the 
number of months in the proration period. Proration will be reported 
separately from credits. (This change will not apply to 2008 estimated 
flat-rate premium filings.)
     Filers will be required to report plan size (small, mid-
size, or large) based on the prior year's participant count (or report 
that the plan is new).
     Filers will have an opportunity to make alternative 
premium funding target elections as part of the premium filing.
     Filers will be required to report the participant count 
date.
     Most existing VRP information items will be eliminated in 
connection

[[Page 30315]]

with the implementation of the new VRP rules. Items retained will be 
the identification of any applicable VRP exemption and the amount of 
UVBs.
     New VRP data required will be qualification for the VRP 
cap for certain plans of small employers, the UVB valuation date, the 
premium funding target as of the UVB valuation date, the premium 
funding target method (standard or alternative), whether the reported 
premium funding target is an estimate, the segment rates used to 
compute the premium funding target (or indication that the full yield 
curve was used), the market value of assets as of the UVB valuation 
date, the (unprorated) VRP cap (for plans eligible for the cap), and 
the (unprorated) uncapped VRP (for plans not eligible for the cap).
     For a final filing, filers will be required to report the 
date and type of event that results in the cessation of the filing 
obligation.
     The existing item on transfers from disappearing plans 
will be replaced by two new items: Information about transfers from 
other plans (whether disappearing or not) and information about 
transfers to other plans. (This change will not apply to 2008 estimated 
flat-rate premium filings.)
     For frozen plans, filers will be required to identify the 
type of freeze and its effective date.
     For amended filings, filers will be required to report any 
change in the beginning and ending dates of the plan year being 
reported and any change in the plan identifying numbers being reported 
from those in the original filing.
    PBGC needs this information to identify the plan for which premiums 
are paid to PBGC, to verify the determination of the premium, and to 
help the PBGC determine the magnitude of its exposure in the event of 
plan termination.
    PBGC estimates that it will receive annual premium filings from 
about 28,409 plan administrators each year and that the total annual 
burden of the collection of information will be about 9,002 hours and 
$47,037,645.
    Comments on the paperwork provisions under this proposed rule 
should be sent to the Office of Information and Regulatory Affairs, 
Office of Management and Budget, Attention: Desk Officer for Pension 
Benefit Guaranty Corporation, via electronic mail at [email protected] or by fax to (202) 395-6974. Although comments may 
be submitted through July 30, 2007, the Office of Management and Budget 
requests that comments be received on or before July 2, 2007 to ensure 
their consideration. Comments may address (among other things)--
     Whether the proposed collection of information is needed 
for the proper performance of PBGC's functions and will have practical 
utility;
     The accuracy of PBGC's estimate of the burden of the 
proposed collection of information, including the validity of the 
methodology and assumptions used;
     Enhancement of the quality, utility, and clarity of the 
information to be collected; and
     Minimizing the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, e.g., permitting 
electronic submission of responses.

List of Subjects

29 CFR Part 4006

    Pension insurance, Pensions.

29 CFR Part 4007

    Penalties, Pension insurance, Pensions, Reporting and recordkeeping 
requirements.

    For the reasons given above, PBGC proposes to amend 29 CFR parts 
4006 and 4007 as follows.

PART 4006--PREMIUM RATES

    1. The authority citation for part 4006 continues to read as 
follows:

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

    2. In Sec.  4006.2, the definition of ``short plan year'' is 
revised, and four new definitions are added, to read as follows:


Sec.  4006.2  Definitions.

* * * * *
    Participant count of a plan for a plan year means the number of 
participants in the plan on the participant count date of the plan for 
the plan year.
    Participant count date of a plan for a plan year means the date 
provided for in Sec.  4006.5(c), (d), or (e) as applicable.
    Premium funding target has the meaning described in Sec.  
4006.4(b)(1).
* * * * *
    Short plan year means a plan year of coverage that is shorter than 
a normal plan year.
    UVB valuation date of a plan for a plan year means the plan's 
funding valuation date for the plan year determined in accordance with 
ERISA section 303(g)(2).
    3. In Sec.  4006.3:
    a. Paragraph (a) introductory text is amended by removing the words 
``last day of the plan year preceding the premium payment year,'' and 
adding in their place the words ``participant count date''.
    b. Paragraph (b) is amended by removing the words ``$1,000 of a 
single-employer plan's unfunded vested benefits'' and adding in their 
place the words ``$1,000 (or fraction thereof) of a single-employer 
plan's unfunded vested benefits for the premium payment year''.
    4. Section 4006.4 is revised to read as follows:


Sec.  4006.4  Determination of unfunded vested benefits.

    (a) In general. Except as provided in the exemptions and special 
rules under Sec.  4006.5, the amount of a plan's unfunded vested 
benefits for the premium payment year is the excess (if any) of the 
plan's premium funding target for the premium payment year (determined 
under paragraph (b) of this section) over the fair market value of the 
plan's assets for the premium payment year (determined under paragraph 
(c) of this section). Unfunded vested benefits for the premium payment 
year must be determined as of the plan's UVB valuation date for the 
premium payment year, based on the plan provisions and the plan's 
population as of that date. The determination must be made in a manner 
consistent with generally accepted actuarial principles and practices.
    (b) Premium funding target--(1) In general. A plan's premium 
funding target is its standard premium funding target under paragraph 
(b)(2) of this section or, if an election to use the alternative 
premium funding target under Sec.  4006.5(g) is in effect, its 
alternative premium funding target.
    (2) Standard premium funding target. A plan's standard premium 
funding target under this section is the plan's funding target as 
determined under ERISA section 303(d) (or 303(i), if applicable) for 
the premium payment year using the same assumptions that are used for 
funding purposes, except that--
    (i) Only vested benefits are taken into account, and
    (ii) The interest rates to be used are the segment rates for the 
month preceding the month in which the premium payment year begins that 
are determined in accordance with ERISA section 4006(a)(3)(E)(iv). 
These are the rates that would be determined under ERISA section 
303(h)(2)(C) if ERISA section 303(h)(2)(D) were applied by using the 
monthly yields for the month preceding the month in which the premium 
payment year begins on

[[Page 30316]]

investment grade corporate bonds with varying maturities and in the top 
3 quality levels rather than the average of such yields for a 24-month 
period.
    (c) Value of assets. The fair market value of a plan's assets under 
this section is determined in the same manner as for funding purposes 
under ERISA section 303(g)(3) and (4), except that averaging as 
described in ERISA section 303(g)(3)(B) must not be used and prior year 
contributions are included only to the extent received by the plan by 
the date of a premium filing. Contribution receipts must be accounted 
for as described in ERISA section 303(g)(4), using effective interest 
rates determined under ERISA section 303(h)(2)(A) (not rates that could 
be determined based on the segment rates described in paragraph (b)(2) 
of this section).
    (d) ``Vested.'' For purposes of ERISA section 4006(a)(3)(E), this 
part, and part 4007 of this chapter, a benefit otherwise vested does 
not fail to be vested merely because of the following circumstances:
    (1) The circumstance that the participant is living, in the case of 
the following death benefits:
    (i) A qualified pre-retirement survivor annuity (as described in 
ERISA section 205(e)),
    (ii) A post-retirement survivor annuity that pays some or all of 
the participant's benefit amount for a fixed or contingent period (such 
as a joint and survivor annuity or a certain and continuous annuity), 
and
    (iii) A benefit that returns the participant's accumulated 
mandatory employee contributions (as described in ERISA section 
204(c)(2)(C)).
    (2) The circumstance that the benefit may be eliminated or reduced 
by the adoption of a plan amendment or by the occurrence of a condition 
or event (such as a change in marital status).
    (e) Plans for which new funding rules are not immediately 
effective. In the case of a plan to which the funding rules as amended 
by subtitles A and B of Title I of the Pension Protection Act of 2006 
do not apply for a plan year, unfunded vested benefits must be 
determined for that plan year as if those funding rules did apply.
    5. In Sec.  4006.5:
    a. Paragraph (a) introductory text is amended by removing the words 
``paragraphs (a)(1)-(a)(5)'' and adding in their place the words 
``paragraphs (a)(1)-(a)(3)''; and by removing the words ``determine its 
unfunded vested benefits'' and adding in their place the words 
``determine or report its unfunded vested benefits''.
    b. Paragraphs (a)(1) and (a)(5) are removed.
    c. Paragraphs (a)(2), (a)(3), and (a)(4) are redesignated as 
paragraphs (a)(1), (a)(2), and (a)(3) respectively.
    d. Redesignated paragraph (a)(1) is amended by removing the words 
``benefit liabilities'' from the heading and adding in their place the 
word ``participants''; by removing the word ``did'' and adding in its 
place the word ``does''; and by removing the words ``last day of the 
plan year preceding the premium payment year'' and adding in their 
place the words ``UVB valuation date''.
    e. Redesignated paragraph (a)(2) is amended by removing the figures 
``412(i)'' where they appear once in the heading and once in the body 
of the paragraph and adding in their place the figures ``412(e)(3)''; 
by removing the word ``was'' and adding in its place the word ``is''; 
and by removing the words ``last day of the plan year preceding the 
premium payment year'' and adding in their place the words ``UVB 
valuation date''.
    f. Redesignated paragraph (a)(3)(ii) is amended by removing the 
words ``last day of the plan year preceding the premium payment year'' 
and adding in their place the words ``UVB valuation date''.
    g. The heading of paragraph (e) is amended by removing the words 
``Special determination date rule for'' and adding in their place the 
words ``Participant count date;''.
    h. Paragraph (e)(2) is amended by removing the words ``paragraph 
(e)(2) if'' and adding in their place the words ``paragraph (e)(2) for 
a plan year if''.
    i. Paragraph (e)(2)(ii) is amended by removing the words ``on the 
first day of the plan's premium payment year'' and adding in their 
place the words ``at the beginning of the plan year''.
    j. Paragraph (f) introductory text is amended by removing the words 
``year as described'' and adding in their place the words ``year 
described''.
    k. Paragraphs (b), (c), (d), (e)(1), and (f)(1) are revised, and 
paragraph (g) is added, to read as follows:


Sec.  4006.5  Exemptions and special rules.

* * * * *
    (b) Reporting exemption for plans paying capped variable-rate 
premium. A plan that qualifies for the variable-rate premium cap 
described in ERISA section 4006(a)(3)(H) is not required to determine 
or report its unfunded vested benefits under Sec.  4006.4 if it reports 
that it qualifies for the cap and pays a variable-rate premium equal to 
the amount of the cap.
    (c) Participant count date; in general. Except as provided in 
paragraphs (d) and (e) of this section, the participant count date of a 
plan for a plan year is the last day of the prior plan year.
    (d) Participant count date; new and newly-covered plans. The 
participant count date of a new plan or a newly-covered plan for a plan 
year is the first day of the plan year. For this purpose, a new plan's 
first plan year begins on the plan's effective date.
    (e) Participant count date; certain mergers and spinoffs. (1) The 
participant count date of a plan described in paragraph (e)(2) of this 
section for a plan year is the first day of the plan year.
* * * * *
    (f) Proration for certain short plan years. * * *
    (1) New or newly covered plan. A new plan becomes effective less 
than one full year before the beginning of its second plan year, or a 
newly-covered plan becomes covered on a date other than the first day 
of its plan year. (Cessation of coverage before the end of a plan year 
does not give rise to proration under this section.)
* * * * *
    (g) Alternative premium funding target. A plan's alternative 
premium funding target is the vested portion of the plan's funding 
target under ERISA section 303(d)(1) that is used to determine the 
plan's minimum contribution under ERISA section 303 for the premium 
payment year, that is, the amount that would be determined under ERISA 
section 303(d)(1) if only vested benefits were taken into account. A 
plan may elect to compute unfunded vested benefits using the 
alternative premium funding target instead of the standard premium 
funding target described in Sec.  4006.4(b)(2), and may revoke such an 
election, in accordance with the provisions of this paragraph (g). A 
plan must compute its unfunded vested benefits using the alternative 
premium funding target instead of the standard premium funding target 
described in Sec.  4006.4(b)(2) if an election under this paragraph (g) 
to use the alternative premium funding target is in effect for the 
premium payment year.
    (1) An election under this paragraph (g) to use the alternative 
premium funding target must specify the first plan year to which it 
applies and must be filed before the end of that plan year. The first 
plan year to which the election applies must begin at least five years 
after the first plan year to which a revocation of a prior election 
applied. The election will be effective--
    (i) For the plan year for which made and for all plan years that 
begin less than five years thereafter, and

[[Page 30317]]

    (ii) For all succeeding plan years until the first plan year to 
which a revocation of the election applies.
    (2) A revocation of an election under this paragraph (g) to use the 
alternative premium funding target must specify the first plan year to 
which it applies and must be filed before the end of that plan year. 
The first plan year to which the revocation applies must begin at least 
five years after the first plan year to which the election applied.
    6. In paragraph (c) of Sec.  4006.6:
    a. Example 1 is amended by removing the words ``July 1, 2000'' and 
adding in their place the words ``July 1, 2008''; by removing the words 
``December 31, 2000'' where they appear twice and adding in their place 
the words ``December 31, 2008''; by removing the words ``snapshot 
date'' and adding in their place the words ``participant count date''; 
and by removing the words ``2001 premium'' where they appear twice and 
adding in their place the words ``2009 premium''.
    b. Example 2 is amended by removing the words ``February 1, 2002'' 
where they appear twice and adding in their place the words ``February 
1, 2010''; by removing the words ``July 1, 2000'' and adding in their 
place the words ``July 1, 2008''; by removing the words ``July 1, 
2001'' and adding in their place the words ``July 1, 2009''; by 
removing the words ``December 31, 2002'' and adding in their place the 
words ``December 31, 2010''; by removing the words ``snapshot date'' 
and adding in their place the words ``participant count date''; and by 
removing the words ``2003 premium'' where they appear twice and adding 
in their place the words ``2011 premium''.
    c. Example 3 is amended by removing the words ``January 1, 2004'' 
and adding in their place the words ``January 1, 2012''; by removing 
the words ``December 30, 2005'' where they appear twice and adding in 
their place the words ``December 30, 2013''; by removing the words 
``January 9, 2006'' and adding in their place the words ``January 9, 
2014''; by removing the words ``December 31, 2005'' and adding in their 
place the words ``December 31, 2013''; by removing the words ``snapshot 
date'' and adding in their place the words ``participant count date''; 
and by removing the words ``2006 premium'' where they appear twice and 
adding in their place the words ``2014 premium''.
    d. Example 4 is amended by removing the words ``January 1, 2006'' 
and adding in their place the words ``January 1, 2014''; by removing 
the words ``December 31, 2005'' and adding in their place the words 
``December 31, 2013''; and by removing the words ``2006 premium'' and 
adding in their place the words ``2014 premium''.

PART 4007--PAYMENT OF PREMIUMS

    7. The authority citation for part 4007 continues to read as 
follows:

    Authority: 29 U.S.C. 1302(b)(3), 1303(a), 1306, 1307.

    8. In Sec.  4007.2:
    a. Paragraph (a) is amended by removing the word ``insurer,''; and 
by removing the words ``multiemployer plan,''.
    b. Paragraph (b) is amended by removing the words ``participant, 
premium payment year'' and adding in their place the words 
``participant, participant count, premium funding target, premium 
payment year''.
    9. In Sec.  4007.3:
    a. The first three sentences (ending with the words ``prescribed in 
the instructions.'') of the text of Sec.  4007.3 are designated as 
paragraph (a), and the remainder of the text (beginning with the words 
``Information must be filed electronically'') is designated as 
paragraph (b).
    b. Newly designated paragraph (a) is amended by adding the heading 
``In general.''; and by removing the words ``estimation, declaration, 
reconciliation, and payment'' and adding in their place the words 
``estimation, determination, declaration, and payment''.
    c. Newly designated paragraph (b) is amended by adding the heading 
``Electronic filing.''; by removing the words ``requirement to file 
electronically does not apply'' and adding in their place the words 
``requirement to file electronically applies to all estimated and final 
flat-rate and variable-rate premium filings (including amended filings) 
but does not apply''; and by adding two new sentences to the end of the 
paragraph to read as follows:


Sec.  4007.3  Filing requirement; method of filing.

* * * * *
    (b) Electronic filing. * * * Unless an exemption applies, filing on 
paper or in any other manner other than by a prescribed electronic 
filing method does not satisfy the requirement to file. Failure to file 
electronically as required is subject to penalty under ERISA section 
4071.
    10. In Sec.  4007.7, paragraph (c) is removed, and paragraph (b) is 
revised to read as follows:


Sec.  4007.7  Late payment interest charges.

* * * * *
    (b) With respect to any PBGC bill for a premium underpayment and/or 
interest thereon, interest will accrue only until the date of the bill, 
provided the premium underpayment and interest billed are paid within 
30 days after the date of the bill.
    11. In Sec.  4007.8:
    a. Paragraph (a) introductory text is amended by adding at the end 
of the paragraph the words ``The penalty rate is--''.
    b. Paragraph (a)(1) introductory text and paragraph (a)(2) are 
removed, and paragraphs (a)(1)(i) and (a)(1)(ii) are redesignated as 
paragraphs (a)(1) and (a)(2) respectively.
    c. Paragraph (f) is amended by removing the figures ``Sec.  
4007.11(a)(2)(iii)'' and adding in their place the figures ``Sec.  
4007.11(a)(3)(iii)''; by removing the words ``filing is due if fewer'' 
and adding in their place the words ``filing is due if either--Fewer''; 
by removing the period at the end of paragraph (f) and adding in its 
place ``, or''; and by designating as paragraph (f)(1) the portion of 
the text of paragraph (f) that begins with the words ``Fewer than 
500''.
    d. Paragraph (i) is amended by removing the figures ``Sec.  
4007.11(a)(2)(iii)'' and adding in their place the figures ``Sec.  
4007.11(a)(3)(iii)''.
    e. New paragraphs (f)(2) and (j) are added to read as follows:


Sec.  4007.8  Late payment penalty charges.

* * * * *
    (f) Safe-harbor relief for certain large plans. * * *
* * * * *
    (2) The due date for paying the flat-rate premium for the plan year 
preceding the premium payment year is later than the due date for 
paying the flat-rate premium for the premium payment year.
* * * * *
    (j) Variable-rate premium penalty relief. This waiver applies in 
the case of a plan for which a reconciliation filing is required under 
Sec.  4007.11(a)(2)(ii) or (a)(3)(iv). PBGC will waive the penalty on 
any underpayment of the variable-rate premium for the period that ends 
on the earlier of the date the reconciliation filing is due or the date 
the reconciliation filing is made if, by the date the variable-rate 
premium for the premium payment year is due under Sec.  
4007.11(a)(2)(i) or (a)(3)(ii)--
    (1) The plan administrator reports--
    (i) The fair market value of the plan's assets for the premium 
payment year, and
    (ii) An estimate of the plan's premium funding target for the 
premium payment year that is certified by an enrolled actuary to be a 
reasonable estimate that

[[Page 30318]]

takes into account the most current data available to the enrolled 
actuary and that has been determined in accordance with generally 
accepted actuarial principles and practices; and
    (2) The plan administrator pays at least the amount of variable-
rate premium determined from the value of assets and estimated premium 
funding target so reported.
    12. In Sec.  4007.10:
    a. Paragraph (c)(3) is amended by removing the words ``that 
collection of unpaid premiums (or any associated interest or penalties) 
would otherwise be jeopardized'' and adding in their place the words 
``that the interests of PBGC may be prejudiced by a delay in the 
receipt of the information (e.g., where collection of unpaid premiums 
(or any associated interest or penalties) would otherwise be 
jeopardized)''.
    b. Paragraphs (a)(1), (b), and (c)(1) are revised, and paragraph 
(a)(3) is added, to read as follows:


Sec.  4007.10  Recordkeeping; audits; disclosure of information.

    (a) Retention of records to support premium payments--(1) In 
general. The plan administrator must retain, for a period of six years 
after the premium due date, all plan records that are necessary to 
establish, support, and validate the amount of any premium required to 
be paid and any information required to be reported (``premium-related 
information'') under this part and part 4006 of this chapter and under 
PBGC's premium filing instructions. Records that must be retained 
pursuant to this paragraph include, but are not limited to, records 
that establish the number of plan participants and that support and 
demonstrate the calculation of unfunded vested benefits.
* * * * *
    (3) Records (i) Records that must be retained pursuant to paragraph 
(a)(1) of this section include, but are not limited to, records 
prepared by the plan administrator, a plan sponsor, an employer 
required to contribute to the plan with respect to its employees, an 
enrolled actuary performing services for the plan, or an insurance 
carrier issuing any contract to pay benefits under the plan.
    (ii) For purposes of this section, ``records'' include, but are not 
limited to, plan documents; participant data records; personnel and 
payroll records; actuarial tables, worksheets, and reports; records of 
computations, projections, and estimates; benefit statements, 
disclosures, and applications; financial and tax records; insurance 
contracts; records of plan procedures and practices; and any other 
records, whether in written, electronic, or other format, that are 
relevant to the determination of the amount of any premium required to 
be paid or any premium-related information required to be reported.
    (iii) When a record to be produced for PBGC inspection and copying 
exists in more than one format, it must be produced in the format 
specified by PBGC.
    (b) PBGC audit--(1) In general. In order to determine the 
correctness of any premium paid or premium-related information reported 
or to determine the amount of any premium required to be paid or any 
premium-related information required to be reported, PBGC may--
    (i) Audit any premium filing,
    (ii) Inspect and copy any records that are relevant to the 
determination of the amount of any premium required to be paid and any 
premium-related information required to be reported, including (without 
limitation) the records described in paragraph (a) of this section, and
    (iii) Require disclosure of any manual or automated system used to 
determine any premium paid or premium-related information reported, and 
demonstration of its operation in order to permit PBGC to determine the 
effectiveness of the system and the reliability of information produced 
by the system.
    (2) Deficiencies found on audit. If, upon audit, the PBGC 
determines that a premium due under this part was underpaid, late 
payment interest and penalty charges will apply as provided for in this 
part. If, upon audit, PBGC determines that required information was not 
timely and accurately reported, a penalty may be assessed under ERISA 
section 4071.
    (3) Insufficient records. In determining the premium due, if, in 
the judgment of the PBGC, the plan's records fail to establish the 
participant count or (for a single-employer plan) the plan's unfunded 
vested benefits for any premium payment year, the PBGC may rely on data 
it obtains from other sources (including the IRS and the Department of 
Labor) for presumptively establishing the participant count and/or 
unfunded vested benefits for premium computation purposes.
    (c) Providing record information--(1) In general. The plan 
administrator shall make the records retained pursuant to paragraph (a) 
of this section available to the PBGC promptly upon request for 
inspection and photocopying (or, for electronic records, inspection, 
electronic copying, and printout) at the location where they are kept 
(or another, mutually agreeable, location). If PBGC requests in writing 
that records retained pursuant to paragraph (a) of this section, or 
information in such records, be submitted to PBGC, the plan 
administrator must submit the requested materials to PBGC either 
electronically or by hand, mail, or commercial delivery service within 
45 days of the date of PBGC's request therefor, or by a different time 
specified in the request.
* * * * *
    13. In Sec.  4007.11, paragraphs (a), (b), and (c) are revised to 
read as follows:


Sec.  4007.11  Due dates.

    (a) In general. The premium filing due date for small plans is 
prescribed in paragraph (a)(1) of this section, the premium filing due 
date for mid-size plans is prescribed in paragraph (a)(2) of this 
section, and the premium filing due dates for large plans are 
prescribed in paragraph (a)(3) of this section.
    (1) Small plans. If the plan had fewer than 100 participants for 
whom premiums were payable for the plan year preceding the premium 
payment year, the due date is the last day of the sixteenth full 
calendar month following the end of the plan year preceding the premium 
payment year.
    (2) Mid-size plans. If the plan had 100 or more but fewer than 500 
participants for whom premiums were payable for the plan year preceding 
the premium payment year:
    (i) The due date is the fifteenth day of the tenth full calendar 
month following the end of the plan year preceding the premium payment 
year.
    (ii) If the premium funding target is not known by the date 
specified in paragraph (a)(2)(i) of this section, a reconciliation 
filing and any required premium payment must be made by the last day of 
the sixteenth full calendar month following the end of the plan year 
preceding the premium payment year.
    (3) Large plans. If the plan had 500 or more participants for whom 
premiums were payable for the plan year preceding the premium payment 
year:
    (i) The due date for the flat-rate premium required by Sec.  
4006.3(a) of this chapter is the last day of the second full calendar 
month following the close of the plan year preceding the premium 
payment year.
    (ii) The due date for the variable-rate premium required by Sec.  
4006.3(b) of this chapter for single-employer plans is the fifteenth 
day of the tenth full calendar month following the end of the plan year 
preceding the premium payment year.
    (iii) If the participant count is not known by the date specified 
in

[[Page 30319]]

paragraph (a)(3)(i) of this section, a reconciliation filing and any 
required premium payment must be made by the date specified in 
paragraph (a)(3)(ii) of this section.
    (iv) If the premium funding target is not known by the date 
specified in paragraph (a)(3)(ii) of this section, a reconciliation 
filing and any required premium payment must be made by the last day of 
the sixteenth full calendar month following the end of the plan year 
preceding the premium payment year.
    (b) Due dates for plans that change plan years. For any plan that 
changes its plan year, the due date or due dates for the short plan 
year are as specified in paragraph (a)(1), (a)(2), (a)(3), or (c) of 
this section (whichever applies). For the plan year that follows a 
short plan year, each due date is the later of--
    (i) The applicable due date specified in paragraph (a)(1), (a)(2), 
or (a)(3) of this section, or
    (ii) 30 days after the date on which the amendment changing the 
plan year was adopted.
    (c) Due dates for new and newly covered plans. Notwithstanding 
paragraph (a) of this section, the due date for the first plan year of 
coverage of any new plan or newly covered plan is the latest of--
    (1) The last day of the sixteenth full calendar month that began on 
or after the first day of the premium payment year (the effective date, 
in the case of a new plan),
    (2) 90 days after the date of the plan's adoption, or
    (3) 90 days after the date on which the plan became covered by 
title IV of ERISA.
* * * * *

    Issued in Washington, DC, this 24th day of May, 2007.
Vincent K. Snowbarger,
Interim Director, Pension Benefit Guaranty Corporation.
[FR Doc. E7-10412 Filed 5-30-07; 8:45 am]
BILLING CODE 7709-01-P