[Federal Register Volume 79, Number 47 (Tuesday, March 11, 2014)]
[Rules and Regulations]
[Pages 13547-13562]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-05212]


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PENSION BENEFIT GUARANTY CORPORATION

29 CFR Parts 4000, 4006, 4007, and 4047

RIN 1212-AB26


Premium Rates; Payment of Premiums; Reducing Regulatory Burden

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Final rule.

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SUMMARY: The Pension Benefit Corporation (PBGC) is making its premium 
rules more effective and less burdensome. Based on its regulatory 
review under Executive Order 13563 (Improving Regulation and Regulatory 
Review), PBGC proposed to simplify due dates, coordinate the due date 
for terminating plans with the termination process, make conforming and 
clarifying changes to the variable-rate premium rules, give small plans 
more time to value benefits, provide for relief from penalties, and 
make other changes. PBGC recently finalized the part of the proposal 
that eliminated the early payment requirement for large plans' flat-
rate premiums. This action finalizes the rest of the proposal.

DATES: Effective April 10, 2014. The changes are generally applicable 
for plan years starting on or after January 1, 2014. See Applicability 
later in the preamble for details.

FOR FURTHER INFORMATION CONTACT: Catherine B. Klion, Assistant General 
Counsel for Regulatory Affairs ([email protected]), or Deborah 
C. Murphy, Deputy Assistant General Counsel for Regulatory Affairs 
([email protected]), Office of the General Counsel, Pension 
Benefit Guaranty Corporation, 1200 K Street NW., Washington, DC 20005-
4026; 202-326-4024. (TTY and TDD users may call the Federal relay 
service toll-free at 800-877-8339 and ask to be connected to 202-326-
4024.)

SUPPLEMENTARY INFORMATION: 

Executive Summary--Purpose of the Regulatory Action

    This rulemaking is needed to make PBGC's premium rules more 
effective and less burdensome. The rule simplifies and streamlines due 
dates, coordinates the due date for terminating plans with the 
termination process, makes conforming changes to the variable-rate 
premium rules, clarifies the computation of the premium funding target, 
reduces the maximum penalty for delinquent filers that self-correct, 
and expands premium penalty relief.
    PBGC's legal authority for this action comes from section 
4002(b)(3) of the Employee Retirement Income Security Act of 1974 
(ERISA), which authorizes PBGC to issue regulations to carry out the 
purposes of title IV of ERISA, and section 4007 of ERISA, which gives 
PBGC authority to set premium due dates and to assess late payment 
penalties.

Executive Summary--Major Provisions of the Regulatory Action

Due Date Changes

    In recent years, premium due dates have generally depended on plan 
size. Large plans have paid the flat-rate premium early in the premium 
payment year and the variable-rate premium later in the year. Mid-size 
plans have paid both the flat- and variable-rate premiums by that same 
later due date. Small plans have paid the flat- and variable-rate 
premiums in the following year. PBGC recently eliminated the early due 
date for large plans' flat-rate premiums. PBGC is now completing the 
process of simplifying the due-date rules by making small plans' 
premiums due at the same time as large and mid-size plans' premiums. 
However, because of a transition rule that gives small

[[Page 13548]]

plans more time to adjust to the new provisions, the due dates will not 
be completely uniform until 2015. The following table shows how due 
dates differ under the previous and the new due date rules for 
calendar-year plans for 2014 (the transition year) and 2015 (the year 
full uniformity is achieved).

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                                                                               2014                                            2015
                                                         -----------------------------------------------------------------------------------------------
                                                                     Old rules               New rules               Old rules               New rules
                        Plan size                        -----------------------------------------------------------------------------------------------
                                                             Flat-rate     Variable-rate                     Flat-rate     Variable-rate
                                                              premium         premium     Entire premium      premium         premium     Entire premium
--------------------------------------------------------------------------------------------------------------------------------------------------------
Large...................................................       2/28/2014      10/15/2014      10/15/2014       2/28/2015      10/15/2015      10/15/2015
Mid-size................................................      10/15/2014      10/15/2014      10/15/2014      10/15/2015      10/15/2015      10/15/2015
Small...................................................       4/30/2015       4/30/2015       2/15/2015       4/30/2016       4/30/2016      10/15/2015
--------------------------------------------------------------------------------------------------------------------------------------------------------

    For the special case of a plan terminating in a standard 
termination, the final premium might come due months after the plan 
closed its books and thus be forgotten. Correcting such defaults has 
been inconvenient for both plans and PBGC. To forestall such problems, 
PBGC is setting the final premium due date no later than the date when 
the post-distribution certification is filed. PBGC is also making 
conforming changes to other special case due date rules.

Variable-Rate Premium Changes

    Some small plans determine funding levels too late in the year to 
be able to use current-year figures for the variable-rate premium by 
the new uniform due date. To address this problem, PBGC is providing 
that small plans generally use prior-year figures for the variable-rate 
premium (with a provision for opting to use current-year figures).
    To facilitate the due date changes, a plan will generally be exempt 
from the variable-rate premium for the year in which it completes a 
standard termination or (if it is small) for the first year of 
coverage.
    In response to inquiries from pension practitioners, PBGC is 
clarifying the computation of the premium funding target for plans in 
``at-risk'' status for funding purposes.

Penalty Changes

    PBGC assesses late premium payment penalties at 1 percent per month 
for filers that self-correct and 5 percent per month for those that do 
not. The differential is to encourage and reward self-correction. But 
both penalty schedules have had the same cap--100 percent of the 
underpayment--and once the cap was reached, the differential 
disappeared. To preserve the self-correction incentive and reward for 
long-overdue premiums, PBGC is reducing the 1-percent penalty cap from 
100 percent to 50 percent.
    PBGC is also codifying in its regulations the penalty relief policy 
for payments made not more than seven days late that it established in 
a Federal Register notice in September 2011 and is giving itself more 
flexibility in exercising its authority to waive premium penalties.

Other Changes

    PBGC is also amending its regulations to accord with the Moving 
Ahead for Progress in the 21st Century Act and the Bipartisan Budget 
Act of 2013 and to avoid retroactivity of PBGC's rule on plan liability 
for premiums in distress and involuntary terminations.

Background

    PBGC administers the pension plan termination insurance program 
under title IV of the Employee Retirement Income Security Act of 1974 
(ERISA). Under ERISA sections 4006 and 4007, plans covered by the 
program must pay premiums to PBGC. PBGC's premium regulations--on 
Premium Rates (29 CFR part 4006) and on Payment of Premiums (29 CFR 
part 4007)--implement ERISA sections 4006 and 4007.
    On January 18, 2011, the President issued Executive Order 13563, 
``Improving Regulation and Regulatory Review,'' to ensure that Federal 
regulations seek more affordable, less intrusive means to achieve 
policy goals, and that agencies give careful consideration to the 
benefits and costs of those regulations. In response to and in support 
of the Executive Order, PBGC on August 23, 2011, promulgated its Plan 
for Regulatory Review,\1\ noting several regulatory areas--including 
premiums--for immediate review.
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    \1\ See http://www.pbgc.gov/documents/plan-for-regulatory-review.pdf.
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    PBGC reviewed its premium regulations and identified a number of 
ways to simplify and clarify the regulations, reduce burden, provide 
penalty relief, and generally make the regulations work better. On July 
23, 2013 (at 78 FR 44056), PBGC published a proposed rule to replace 
the system of three premium due dates (based on plan size and premium 
type) with a single due date corresponding to the Form 5500 extended 
due date, to coordinate the due date for terminating plans with the 
termination process, to make conforming and clarifying changes to the 
variable-rate premium rules, to provide for relief from penalties, and 
to make other changes.
    PBGC received comments on its proposed rule from six commenters--
two employer associations, two associations of pension practitioners, 
an actuarial firm, and an individual actuary. All of the commenters 
approved of the proposal, and one specifically urged that it be made 
effective for 2014. The commenters also had suggestions for additional 
changes PBGC might make in its premium regulations or procedures. Those 
suggestions are discussed below with the topics they relate to. In 
response to the comments, PBGC has made changes both to the regulatory 
text and to its premium forms and instructions. Changes have also been 
made to reflect adoption of the Bipartisan Budget Act of 2013 and a 
minor due-date simplification that PBGC introduced on its own 
initiative (also discussed below).
    Because the proposed change in the large-plan flat-rate due date 
was time-sensitive (and received only positive comments from the 
public), PBGC expedited a final rule limited to that change (and 
related changes in penalty provisions). That final rule was published 
January 3, 2014 (at 79 FR 347).

Current and Historical Context

    There are two kinds of annual premiums.\2\ The flat-rate premium is 
based on the number of plan participants, determined as of the 
participant count date. The participant count date is generally the 
last day of the plan year preceding the premium payment year; in some 
cases, however (such as for plans that are new or are

[[Page 13549]]

involved in certain mergers or spinoffs), the participant count date is 
the first day of the premium payment year. The variable-rate premium 
(which applies only to single-employer plans) is based on a plan's 
unfunded vested benefits (UVBs)--the excess of its premium funding 
target over its assets. The premium funding target and asset values are 
determined as of the plan's UVB valuation date, which is the same as 
the valuation date used for funding purposes. In general, the UVB 
valuation date is the beginning of the plan year, but some small plans 
(with fewer than 100 participants) may have UVB valuation dates as late 
as the end of the year.
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    \2\ There is also a termination premium, which is unaffected by 
this final rule.
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    Section 4007 of ERISA authorizes PBGC to set premium due dates and 
assess penalties for failure to pay premiums timely. Beginning in 
1999,\3\ PBGC set the variable-rate premium due date for plans of all 
sizes as 9\1/2\ calendar months after the beginning of the premium 
payment year (October 15 for calendar-year plans). This was done so 
that the due date would correspond with the extended due date for the 
annual report for the prior year that is filed on Form 5500. 
Coordination of the premium and Form 5500 due dates promotes 
consistency and simplicity and avoids confusion and administrative 
burden. In 2008, however, to conform to changes made by the Pension 
Protection Act of 2006 (PPA 2006), small-plan due dates were extended 
to 16 months after the beginning of the premium payment year (April 30 
of the following year for calendar-year plans).
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    \3\ See PBGC final rule at 63 FR 68684 (Dec. 14, 1998).
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    Flat-rate premiums for large plans (those with 500 or more 
participants) were previously due two calendar months after the 
beginning of the premium payment year (the end of February for 
calendar-year plans). PBGC recently eliminated that early due date, and 
large plans' flat-rate premiums are now due at the same time as 
variable-rate premiums.
    Under ERISA section 4007, premiums accrue until plan assets are 
distributed in a standard termination or a failing plan is taken over 
by a trustee. A plan undergoing a standard termination is exempt from 
the variable-rate premium for any plan year after the year in which the 
plan's termination date falls.\4\
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    \4\ See Exemption for Standard Terminations, below.
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    Late payment penalties accrue at the rate of 1 percent or 5 percent 
per month of the unpaid amount, depending on whether the underpayment 
is ``self-corrected'' or not. Self-correction refers to payment of the 
delinquent amount before PBGC gives written notice of a possible 
delinquency. Penalties are capped by statute at 100 percent of the 
unpaid amount.
    The changes to the premium regulations affecting due dates, 
variable-rate premiums, and penalties are discussed below in that 
order.

New Due Date Rules

Uniform Due Dates for Plans of All Sizes

    PBGC is setting the premium due date for small plans as 9\1/2\ 
months after the beginning of the premium payment year (subject to a 
one-year transition rule, discussed below). This date corresponds with 
the extended due date for the annual report for the prior year that is 
filed on Form 5500. (For calendar-year plans, the due date will be 
October 15.) Having recently made the same change for large plans' 
flat-rate premium due date, PBGC has now eliminated the system of three 
premium due dates tied to plan size and premium type and replaced it 
with a uniform due date system for both flat- and variable-rate 
premiums of plans of all sizes.
    For small plans, the new unified due date raises a timing issue. 
Unlike large plans, which by statute must value benefits at the 
beginning of the year, small plans are permitted by statute to value 
benefits as late as the end of the year and thus might be unable to 
calculate variable-rate premiums by a due date within the year using 
current-year data. (For example, a small calendar-year plan that valued 
benefits as of December 31 could not determine the premium by the 
preceding October 15.) PBGC's solution to this timing problem is for 
small plans to determine the variable-rate premium using data, 
assumptions, and methodology for the year before the premium payment 
year. (This solution also accommodates situations where (although 
timely action might be possible) sponsors prefer to put off giving plan 
actuaries information for plan valuations until after other close-of-
the-year matters are dealt with.) A more detailed discussion of this 
provision is set forth below under the heading ``Look-Back'' Rule for 
Small Plans, below.
    These changes mean that plan consultants can do all premium and 
Form 5500 filing chores at one time, once a year. PBGC will receive all 
premium filings for each plan year at one time, specific to that year, 
and will be able to process a plan's entire annual premium in a single 
operation. Going from three due dates to one will be simpler for all 
concerned--even for mid-size plans, whose due date is not changing. 
Simpler rules mean shorter and simpler filing instructions--
instructions that PBGC must update annually and that plan 
administrators of plans of all sizes must read, understand, and follow. 
Less complexity means less chance for mistakes and the time and expense 
of correcting them. Moving to one uniform due date will also simplify 
PBGC's premium processing systems and save PBGC money on future 
periodic changes to those systems (because it is less expensive to 
modify simpler systems).
    In short, PBGC believes that this change will produce a significant 
reduction in administrative burden for both plans and PBGC. It will 
also shift the earnings on premium payments between plans and PBGC for 
the time between the old and new due dates, but overall, plans will 
gain.\5\
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    \5\ See Uniform Due Dates under Executive Orders 12866 and 
13563, below, for detailed discussion of costs and benefits.
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    However, shifting immediately from the old to the new due date 
schedule would result in two premium due dates for small plans in the 
transition year: using a calendar-year plan as an example, the 2013 
premium would be due at the end of April 2014, and the 2014 premium 
would be due in mid-October 2014.\6\ This ``doubling up'' of premiums 
for one year prompted one commenter to express concern about potential 
cash flow problems for some small plan sponsors and to recommend that 
PBGC permit payment of the transition-year premium in three annual 
installments. Another commenter requested transition rules generally.
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    \6\ In the transition year for the old due date system, small 
plans made no premium payments.
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    Although PBGC is not persuaded that the due date change poses a 
significant cash flow problem for most small plan sponsors (in part 
because premiums can be paid from plan assets), the fact that a comment 
raised this issue indicates that it may exist in some cases. But PBGC 
believes that a regime of installment payments is more complex than is 
necessary to deal with the problem. Instead, PBGC is addressing this 
concern by extending the transition year due date by four months (from 
October 15, 2014, to February 15, 2015, for calendar-year plans) for 
small plans that would otherwise have two premium due dates in the 
transition year. With this one-time extension, a small plan's 
transition-year premium and its premiums for the preceding and 
following plan years can be spaced about equally over a 17\1/2\-month 
period (from April 30, 2014, to October 15,

[[Page 13550]]

2015, for calendar-year plans), with about eight or nine months between 
each two payments.\7\
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    \7\ A calendar-year filer that wanted to pay the second premium 
halfway between the due dates for the first and third premiums would 
pay it in late January 2015. The extension to mid-February provides 
some leeway.
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    In addition, a 60-day penalty waiver is available in cases of 
financial hardship,\8\ which could extend the 17\1/2\-month period to 
19\1/2\ months. And case-by-case relief from late-payment penalties is 
also available. In combination with the transition-year due date 
extension, PBGC believes these provisions adequate to relieve any cash-
flow problems caused by transition-year due-date bunching.
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    \8\ The waiver is available if timely payment of a premium would 
cause substantial hardship but payment can be made within 60 days. 
See section 4007(b) of ERISA and Sec.  4007.8(b) of the premium 
payment regulation.
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Terminating Plans' Due Date

    The foregoing discussion focuses on the normal due dates for annual 
premiums. There are also special due date rules for new and newly 
covered plans and for plans that change plan year. But there has been 
no special due date provision for terminating plans--and yet such plans 
have posed a special problem, because their final premium due date 
might come months after all benefits were distributed and their books 
were closed. Although the standard termination rules require that 
provision be made for PBGC premiums,\9\ PBGC's experience has been that 
once the sometimes-difficult process of distributing benefits was 
over--and with the premium due date often months in the future--plan 
administrators might simply forget about premiums and consider their 
work done. Months later, when PBGC contacted them after they failed to 
make the final premium filing, it was typically an inconvenience, and 
sometimes an annoyance, to go back to (or reconstruct) the records to 
calculate and pay premium--and interest and penalties, because the due 
date had been missed.
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    \9\ See 29 CFR 4041.28(b).
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    With a view to ensuring that final-year premiums are routinely paid 
for plans winding up standard terminations, PBGC is changing the due 
date for such plans to bring it within the standard termination 
timeline.\10\ The final event in the standard termination timeline is 
the filing of the post-distribution certification under Sec.  4041.29 
of PBGC's regulation on Termination of Single-Employer Plans (29 CFR 
part 4041). The plan administrator of a terminating plan must file the 
certification (on PBGC Form 501) within 30 days after the last benefit 
distribution date, but no late filing penalty is assessed if the filing 
is no later than 90 days after the distribution deadline under Sec.  
4041.28(a) of the termination regulation (the ``penalty-free zone''). 
The proposed rule provided that the premium due date for a terminating 
plan's final year would be the earliest of (1) the normal premium due 
date, (2) the end of the penalty-free zone, or (3) the date when the 
post-distribution certification is actually filed. In the interest of 
simplicity, the final rule eliminates the second of these three dates 
and sets the due date for such final filings as the earlier of (1) the 
normal premium due date and (2) the date when the post-distribution 
certification is actually filed.
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    \10\ See p. 3 of the Standard Termination Filing Instructions, 
http://www.pbgc.gov/documents/500_instructions.pdf.
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    Thus plans will in effect have at least 90 days after distributions 
are complete to make the final year premium filing. And since in 
addition the normal unified premium due date is nine-and-a-half months 
after the plan year begins, only plans closing out in the first six-
and-a-half months of the final year will face an accelerated premium 
deadline. For plans closing out in the last five-and-a-half months of 
the final year, the normal premium due date will come before the end of 
the penalty-free zone.
    The 90 days (or more) between the completion of final distributions 
and the accelerated premium deadline will also give a plan at least 
that much time to determine the flat-rate premium (which is based on 
the participant count at the end of the prior year). For a terminating 
plan, counting participants should be relatively easy. Because it is in 
the process of providing benefits for (or for the survivors of) each 
participant, a terminating plan must necessarily have a roster of all 
participants. By simply subtracting from the roster the participants 
who received distributions before the participant count date, the plan 
can determine the participant count.
    Computing a variable-rate premium in three months might be more 
challenging, but under this final rule it will not be necessary. If the 
termination date for a standard termination is before the beginning of 
the final plan year, the regulation already provides an exemption from 
the variable-rate premium for the final year. PBGC is expanding this 
exemption to apply to a plan's final year, even if the termination date 
comes during that year.\11\ Thus, the final-year premium will be flat-
rate only. This change will provide relief for the significant number 
of plans that close out in the same year in which their termination 
dates fall (as indicated by PBGC data on the number of plans that pay 
variable-rate premiums for the final year).
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    \11\ See Final-Year Variable-Rate Premium Exemption, below.
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    Advancing the premium due date for some terminating plans will 
shift earnings on the premiums from those plans to PBGC. But some of 
those plans should enjoy reduced administrative expenses (and possibly 
save on late charges) because the advanced deadline will prompt them to 
prepare premium filings while files are open for paying benefits. And 
some plans will avoid paying a final-year variable-rate premium under 
PBGC's expansion of the exemption for plans doing standard 
terminations.\12\ On balance, PBGC expects there to be no significant 
net cost to plans and significant administrative benefits for PBGC.
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    \12\ See Final-Year Due Date under Executive Orders 12866 and 
13563, below, for detailed discussion of costs and benefits.
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    One commenter recommended that the new terminating plan due date be 
extended by 30 days so that the final-year premium filing would not 
have to be made at the same time as the post-distribution certification 
(Form 501), citing the time necessary to prepare Form 501. PBGC 
believes that the simplicity of making the final flat-rate-only premium 
filing, as discussed above, suggests that plan administrators will 
typically be able to avoid simultaneous filing of the premium and post-
distribution certification forms by simply filing the premium form 
before the deadline. If circumstances make that difficult, the seven-
day penalty waiver (see Codification of Seven-Day Penalty Waiver Rule, 
below) will provide relief from late payment penalties. If, in an 
unusual situation, preparation of the premium filing takes more than a 
week, case-by-case relief from late-payment penalties is also 
available. (See Expansion of Penalty Waiver Authority, below).

New Plan Due Date Modifications

    As noted above, the premium payment regulation already includes a 
special due date provision for new and newly covered plans. PBGC is 
making two technical modifications to this provision in support of the 
primary changes in this rulemaking.
    The first modification is to restore--for newly covered plans--the 
alternative due date of 90 days after title IV coverage begins. This 
alternative was available before the PPA 2006

[[Page 13551]]

amendments to the premium regulations, but those amendments set newly 
covered plans' normal due date four months after the end of the premium 
payment year--and thus more than 90 days after the latest possible 
coverage date. This made the alternative due date superfluous, and it 
was removed. Now that PBGC is returning the normal due date to 2\1/2\ 
months before the end of the plan year, it will again be possible for a 
plan's coverage date to be too late in the premium payment year to make 
filing by the normal due date feasible. Hence the restoration of this 
alternative due date.
    The second modification is to provide a due date extension for a 
subset of plans that are excluded from the normal rule that small plans 
base the variable-rate premium on prior-year data.\13\ This subset 
consists of new small plans resulting from non-de minimis 
consolidations and spinoffs. These plans will have to pay a variable-
rate premium based on current-year data.\14\ But being small, a plan in 
this subset might have a UVB valuation date too late in the premium 
payment year to enable the plan to meet the normal filing deadline. 
This second modification to the new-plan due date provision extends the 
due date for such plans until 90 days after the UVB valuation date, to 
give them time to calculate the variable-rate premium.\15\
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    \13\ See ``Look-Back'' Rule for Small Plans, below.
    \14\ See First-Year Variable-Rate Premium Exemption, below.
    \15\ To give any plan with a deferred due date adequate time to 
reconcile an estimated variable-rate premium, the reconciliation 
date keys off the due date rather than the premium payment year 
commencement date. For a normal due date, the reconciliation date 
remains the same.
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    One commenter recommended that PBGC adopt a very different due date 
rule for new plans and some newly covered plans. The suggestion was 
basically to provide for filing by the following year's normal due date 
in situations where one of the 90-day extension rules would otherwise 
apply. The commenter indicated that the suggested change would not 
apply to newly covered plans that had previously gone in and out of 
coverage, but even without this complication, PBGC is not persuaded 
that the change would be an improvement. The commenter argued that the 
existing rule is likely to result in missed filings, but the 90-day 
extension has been in the regulation for years, and no significant 
problems with it have come to PBGC's attention. Thus PBGC's concern 
would be that changing this long-standing pattern of due date 
extensions would be more likely to cause than cure problems. 
Furthermore, the commenter's recommendation for the new and newly 
covered plan due date would put plans in the position of owing two 
years' premiums on the same day, a result that the same commenter was 
concerned with in connection with the transition to the new unified due 
date for small plans (see Uniform Due Dates for Plans of All Sizes, 
above). Accordingly, PBGC is not adopting this suggestion.

Variable-Rate Premium Changes

``Look-Back'' Rule for Small Plans

    As noted in the discussion of the unified due date above, some 
small plans value benefits too late in the premium payment year to be 
able to compute variable-rate premiums by the new uniform due date, 
which is 2\1/2\ months before the end of the premium payment year. (As 
also noted, some small-plan sponsors prefer to defer plan valuation 
matters until after year-end.) To solve this problem, small plans will 
determine UVBs, on which variable-rate premiums are based, by looking 
back to data for the prior year.\16\ Because a new plan does not have a 
prior year to look back to, new small plans will generally be exempt 
from the variable-rate premium. This new variable-rate premium 
exemption is discussed in more detail under First-Year Variable-Rate 
Premium Exemption below.
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    \16\ This revives a concept that was in the premium regulations 
before PPA 2006: the alternative calculation method, which permitted 
plans to determine UVBs by ``rolling forward'' prior-year data using 
a set of complex formulae. No ``rolling forward'' or other 
modification of prior-year data is involved in the approach that 
PBGC is now taking.
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    The term ``UVB valuation year'' is used in the text of the 
regulation to mean the year that the plan administrator looks to for 
the UVBs used to calculate the variable-rate premium for the premium 
payment year. As a general rule, the UVB valuation year is the plan 
year preceding the premium payment year for small plans, and is the 
premium payment year for other plans. (Using the term ``UVB valuation 
year'' avoids the need to have the regulation describe two versions of 
all the UVB determination rules--one version for small plans and a 
second version for the others.)
    This ``look-back'' rule applies only to the variable-rate premium, 
not to the flat-rate premium. The participant count on which the flat-
rate premium is based is determined not as of the UVB valuation date 
but as of the participant count date. This date is still the same as it 
was before PPA 2006, when small plans' premium due date was the 
historical date that this final rule reinstates for them (October 15 
for calendar-year plans). From the perspective of the flat-rate 
premium, the final rule returns small plans to their situation before 
PPA 2006, and no special accommodation is needed.

Plans Subject to Look-Back Rule

    In general, the look-back rule applies to any plan with a 
participant count for the premium payment year of up to 100, or a 
funding valuation date that is not at the beginning of the premium 
payment year. Thus the ``small plans'' to which the look-back rule 
applies are a slightly different group, compared to the ``small plans'' 
whose premium due date under the PPA 2006 amendment is four months 
after the end of the plan year. The difference in approach reflects the 
difference in the implications of plan size under the old and new 
premium payment regulations. Heretofore, all plans had the same UVB 
valuation year, and plan size determined due date; under the amended 
regulation, all plans have the same due date, and plan size generally 
determines UVB valuation year (i.e., whether the look-back rule 
applies).
    Until now, the regulation based plan size on the participant count 
for the year before the premium payment year, so that plans could 
determine well in advance whether they were large and thus required to 
pay the flat-rate premium early in the year. New plans (which have no 
prior year) were treated as small, which meant that they paid their 
first-year premiums according to the small-plan payment schedule, 
regardless of size. Newly covered plans were grouped with new plans. If 
a new or newly covered plan in fact covered more than 100 participants, 
it enjoyed the luxury of the delayed small-plan due date for its first 
year, but the most PBGC could be said to have ``lost'' was 6\1/2\ 
months' interest on the premium.
    Under the new rules, in contrast, if a new plan covering more than 
100 participants were treated as small, PBGC would lose not just 
interest but (because of the new variable-rate premium exemption for 
new small plans) the whole variable-rate premium. For some new plans--
particularly those created by consolidation or spinoff--this could be a 
very substantial sum. To avoid this unintended consequence of the look-
back rule, which is meant for plans that are genuinely small, the 
small-plan category is based on the participant count for the premium 
payment year rather than the preceding year. This change is possible 
because PBGC's elimination of the early flat-rate premium due date for 
large plans has eliminated the pressure to determine plan size early in 
the premium payment

[[Page 13552]]

year. By the time a plan needs to know whether it is small (and thus 
subject to the look-back rule), it will have had plenty of time to 
determine its current-year participant count.
    Changing from the prior year's to the current year's participant 
count brings PBGC's definition of ``small plan'' into closer alignment 
with the category of plans eligible by statute to use non-first-day-of-
the-year valuation dates.\17\ The somewhat complex statutory provision 
is based on participant-count data from the prior year,\18\ and PBGC's 
participant count date for the current year is generally the last day 
of the prior year. To improve the correspondence with the statutory 
provision, PBGC is changing the small-plan numerical size range from 
fewer than 100 participants to 100 or fewer participants (the numerical 
size range of plans permitted by statute to use non-first-day-of-the-
plan-year valuation dates).
---------------------------------------------------------------------------

    \17\ The old small-plan category corresponds only approximately 
with the category of plans permitted by statute to use non-first-
day-of-the-plan-year valuation dates. See preamble to PBGC's final 
PPA 2006 premium rule, 73 FR 15065 at 15069 (Mar. 21, 2008).
    \18\ ERISA section 303(g)(2)(B) provides that ``if, on each day 
during the preceding plan year, a plan had 100 or fewer 
participants, the plan may designate any day during the plan year as 
its valuation date for such plan year and succeeding plan years. For 
purposes of this subparagraph, all defined benefit plans which are 
single-employer plans and are maintained by the same employer (or 
any member of such employer's controlled group) shall be treated as 
1 plan, but only participants with respect to such employer or 
member shall be taken into account.'' ERISA section 303(g)(2)(C) 
provides additional rules dealing with predecessor employers and 
providing that a plan may qualify as ``small'' for its first year 
based on reasonable expectations about its participant count during 
that year.
---------------------------------------------------------------------------

    As a general matter, PBGC wants every plan that in fact has a non-
first-day-of-the-plan-year valuation date to be included in the 
definition of ``small plan'' that the look-back rule applies to. But 
because of the complexity of the statutory category of plans eligible 
to use non-first-of-the-year valuation dates, PBGC has not matched its 
``small plan'' definition closely to every aspect of that statutory 
category. Instead, PBGC is combining a simple ``small plan'' concept 
with a ``catch-all'' clause.\19\ The look-back rule thus applies to any 
plan that has a participant count of 100 or fewer for the premium 
payment year or that in fact has a funding valuation date for the 
premium payment year that is not the first day of the year.\20\
---------------------------------------------------------------------------

    \19\ PBGC also considered having the look-back rule apply only 
to plans that actually have non-first-day-of-the-plan-year valuation 
dates, or only to plans eligible to elect such dates under the 
statute. PBGC rejected the former course because it believes that 
small plans generally will prefer the look-back rule. PBGC rejected 
the latter course because of the complexity of the statutory 
description of plans eligible to make the valuation date election.
    \20\ As discussed above, new plans resulting from non-de minimis 
consolidations and spinoffs are excluded from the look-back 
provision.
---------------------------------------------------------------------------

    One commenter argued that small plans with first-day-of-the-plan-
year valuation dates should be allowed to opt out of the look-back 
rule. The commenter noted that such plans would have plenty of time to 
compute the variable-rate premium based on a UVB valuation date in the 
premium payment year. Because the same can be said of a plan whose 
valuation date is the second day of the plan year, or indeed any day up 
to shortly before the due date (depending on the plan actuary's 
diligence), equity would seem to suggest that the proposed scope of the 
option would be too narrow and that the proposal should be evaluated on 
the assumption that it would apply to a much larger category of plans.
    The commenter supported the proposal to permit opt-outs by 
observing that year-old data would not include prior-year contributions 
made to improve plans' funded status. PBGC is aware that some small-
plan sponsors make additional contributions to reduce the variable-rate 
premium and that under the look-back rule, reductions would come a year 
later than if the look-back rule did not apply. Other correspondence 
and comments made at meetings have noted the importance of this 
opportunity for some small-plan sponsors (especially in view of the 
recent increase in the variable-rate premium \21\). While PBGC doesn't 
know how many such plan sponsors there are, evidence suggests that 
there may be enough to warrant the introduction of some flexibility in 
the application of the look-back rule.
---------------------------------------------------------------------------

    \21\ See ERISA section 4006(a)(8) as added by the Moving Ahead 
for Progress in the 21st Century Act (Pub. L. No. 112-141) and 
amended by the Bipartisan Budget Act of 2013 (Pub. L. No. 113-67).
---------------------------------------------------------------------------

    Accordingly, to accommodate these concerns, the final rule contains 
a special exception allowing for a procedure to be provided in PBGC's 
premium instructions whereby a small plan may opt out of the look-back 
rule and instead base the variable-rate premium on current-year UVBs. 
Details will be incorporated in the premium instructions and may be 
modified over time in response to experience or suggestions from the 
public.\22\
---------------------------------------------------------------------------

    \22\ See p. 5 of PBGC's Plan for Regulatory Review.
---------------------------------------------------------------------------

Effects of Due Date and Look-Back Rules

    PBGC's look-back rule has the advantage that it permits use of a 
more convenient premium due date, and it avoids the use of complicated 
mathematical manipulations aimed at making the prior-year figures more 
reflective of current conditions. For small plans, the combination of 
the new due date and the look-back rule means not only that the premium 
due date aligns with the Form 5500 due date (as typically extended), 
but that the due dates that align correspond to the same valuation. The 
following table illustrates, for filings due October 15, 2016,\23\ how 
the alignment of valuations and due dates for small plans differ from 
the alignment for other plans.
---------------------------------------------------------------------------

    \23\ Future years are used in this and the following table to 
avoid confusion relating to the small-plan due-date phase-in 
provision.

----------------------------------------------------------------------------------------------------------------
                                                          Premium payment     UVB valuation      5500 valuation
                                                                year               year               year
----------------------------------------------------------------------------------------------------------------
Small Plans............................................               2016               2015               2015
Other Plans............................................               2016               2016               2015
----------------------------------------------------------------------------------------------------------------

Thus, not only do small plans enjoy the convenience of a convergence 
between the premium and Form 5500 due dates, but the due dates that 
converge are tied to the same valuation. This accommodates the desire 
of many small plan sponsors to defer the plan valuation until after the 
beginning of the year following the valuation date, when profits and 
taxes can be computed.
    For small plans, the combination of the new due date and the look-
back rule has basically the same result as if the old small-plan due 
date (four months after the end of the premium payment year) were 
extended for 5\1/2\ months without a look-back. For example, consider 
the following table comparing the final rule with a 5\1/2\-month due 
date extension (without a look-back) for a calendar-year plan:

[[Page 13553]]



----------------------------------------------------------------------------------------------------------------
                                          Premium payment     UVB valuation
                                                year               year                     Due date
----------------------------------------------------------------------------------------------------------------
Final rule.............................               2016               2015  October 15, 2016.
Due date extension without look-back...               2015               2015  October 15, 2016.
----------------------------------------------------------------------------------------------------------------

In both cases, the premium due October 15, 2016, is based on UVBs 
determined for 2015. The difference is that under the amended 
regulation, the premium is being paid for 2016, whereas if the due date 
had been extended 5\1/2\ months, the premium would be for 2015.
    PBGC in fact considered the alternative of extending the due date 
5\1/2\ months for small plans. But premium filings contain, in addition 
to premium data, other data that PBGC uses to help determine the 
magnitude of its exposure in the event of plan termination, to help 
track the creation of new plans and transfer of participants and plan 
assets and liabilities among plans, and to keep PBGC's insured-plan 
inventory up to date. It is important that these data be as current as 
possible. Furthermore, PBGC decided it was administratively simpler to 
have all premium filings for a year be due in that year--avoiding (for 
example) the need to determine whether a filing made October 15, 2016, 
was for 2016 or 2015.
    The comparison of the advanced and deferred due date approaches 
shows why it is not clear how to analyze the financial impact of the 
final rule. On the one hand, the change can be viewed as a simple 
acceleration of the premium due date, with small plans losing 6\1/2\ 
months' interest on their annual premium payments. On the other hand, 
it can be viewed as a deferral of the due date (with small plans 
gaining 5\1/2\ months' interest on their premiums each year) preceded 
by a one-time ``extra'' premium in the transition year. For purposes of 
the analyses in this preamble of the effects of the changes for small 
plans, PBGC views the due date as being accelerated rather than 
deferred.
    Under the look-back rule, small plans pay variable-rate premiums 
based on year-old data. Plans may view this either positively or 
negatively, depending on whether UVBs are trending up or down; using 
year-old data to compute variable-rate premiums shifts by one year the 
effect of changes in those data, which are typically modest but may at 
times be dramatic. And for the first year to which the look-back rule 
applies, small plans' variable-rate premiums are based on the same UVBs 
as for the year before, which each small plan may consider either 
beneficial or detrimental depending on its circumstances.

First-Year Variable-Rate Premium Exemption

    The look-back rule faces the difficulty, noted above, that a new 
plan does not have a prior year to look back to. The typical new plan 
has no vested benefits, and so would owe no variable-rate premium with 
or without the look-back rule. But some new plans do have UVBs--for 
example, newly created plans that grant past-service credits. This 
circumstance creates a dilemma: a new small plan cannot look back to 
prior-year UVBs (because it has no prior year), but it may be unable to 
base its first year's premium on its first year's UVBs (because its 
valuation date may be too late in the year). To resolve this problem, 
PBGC is providing an exemption from the variable-rate premium for most 
small plans that are new or newly covered.\24\ PBGC considers it 
reasonable to forgo variable-rate premiums from a few new small plans 
in the interest of greatly simplifying its premium due date 
structure.\25\
---------------------------------------------------------------------------

    \24\ Newly covered plans are often not subject to the funding 
rules, on which the premium rules are based, for the year that would 
be their look-back year. It is possible for a newly covered plan to 
have been in existence as a covered plan for a portion of the 
preceding year. Such a plan would have a look-back year and would 
not need an exemption from the variable-rate premium. In the 
interest of simplicity, PBGC's first-year variable-rate premium 
exemption ignores this rare possible situation.
    \25\ Between 2008 and 2011, about 65 new small plans per year 
paid total average variable-rate premiums of a little over $82,000--
less than 2 percent of total average annual new-plan variable-rate 
premiums.
---------------------------------------------------------------------------

    However, PBGC considers plans created by consolidation or spinoff 
to be new plans. To avoid creating an incentive to sponsors of 
underfunded small plans to turn them (in effect) into new plans by 
spinoff or consolidation, simply to avoid paying variable-rate 
premiums, PBGC is excluding from this variable-rate premium exemption 
any new small plan that results from a non-de minimis consolidation or 
spinoff. These consolidated or spunoff plans are not subject to the 
look-back rule, but instead base their variable-rate premiums on 
current-year data, with an extended due date available (as discussed 
above) to provide time to calculate the premium where the UVB valuation 
date is late in the premium payment year.

Final-Year Variable-Rate Premium Exemption

    Although the premium rates regulation exempts a plan in a standard 
termination from the variable-rate premium for any plan year beginning 
after the plan's termination date,\26\ it is possible to carry out a 
standard termination so that the termination date and final 
distribution come within the same plan year. In that case, the plan is 
subject to the variable-rate premium--based on underfunding of vested 
benefits--for the very year in which it demonstrates, by closing out, 
that its assets are sufficient to satisfy not merely all vested 
benefits but all non-vested benefits as well.
---------------------------------------------------------------------------

    \26\ See Exemption for Standard Terminations, below.
---------------------------------------------------------------------------

    As mentioned above, PBGC is expanding the exemption from the 
variable-rate premium to include the year in which a plan closes out, 
regardless of when the termination date is. Like the existing 
exemption, the new exemption is conditioned on completion of a standard 
termination. If the exemption is claimed in a premium filing made 
before (but in anticipation of) close-out, and close-out does not in 
fact occur by the end of the plan year, the exemption is lost, and the 
variable-rate premium is owed for that year (with applicable late 
charges).
    As previously noted, variable-rate premium amounts not owed because 
of this change in the variable-rate premium exemption will 
significantly offset costs attributable to the revised final-year due 
date rule for plans in standard terminations, to which this change is 
related.\27\
---------------------------------------------------------------------------

    \27\ See Final-Year Due Date under Executive Orders 12866 and 
13563, below, for detailed discussion of costs and benefits.
---------------------------------------------------------------------------

Premium Funding Target for Plans in At-Risk Status for Funding Purposes

    ERISA section 4006(a)(3)(E) makes the funding target in ERISA 
section 303(d) (with modifications) the basis for the premium funding 
target. The definition of ``funding target'' in section 303(d) in turn 
incorporates the provisions of ERISA section 303(i)(1), dealing with 
``at-risk'' plans. (A plan is in ``at-risk'' status if it fails certain 
funding-status tests.) ERISA section 303(i)(5) provides for phasing in 
changes between normal and at-risk funding targets over five

[[Page 13554]]

years and thus ameliorates the effects of section 303(i)(1). Although 
neither section 303(d) nor section 303(i)(1) refers explicitly to 
section 303(i)(5), PBGC believes that section 303(i)(5) clearly applies 
to the determination of the premium funding target. PBGC is adding a 
provision to the premium rates regulation clarifying this point.
    ERISA section 303(i)(1)(A)(i) requires the use of special actuarial 
assumptions in calculating an at-risk plan's funding target, and 
section 303(i)(1)(A)(ii) requires that a ``loading factor'' be included 
in the funding target of an at-risk plan that has been at-risk for two 
of the past four plan years. The loading factor, described in section 
303(i)(1)(C), is the sum of (i) an additional amount equal to $700 
times the number of plan participants and (ii) an additional amount 
equal to 4 percent of the funding target determined as if the plan were 
not in at-risk status.
    In response to inquiries from pension practitioners, PBGC is 
amending the premium rates regulation to clarify the application of the 
loading factor to the calculation of the premium funding target for 
plans in at-risk status.
    The statutory variable-rate premium provision refers explicitly to 
the defined term ``funding target,'' which for at-risk plans clearly 
includes the section 303(i)(1) modifications. PBGC thus considers it 
clear that all of the at-risk modifications must be reflected in the 
premium funding target. And considering that the funding target and the 
premium funding target are so closely analogous, it seems natural that 
for premium purposes, the 4 percent increment referred to in section 
303(i)(1)(C)(ii) should be taken to mean 4 percent of the premium 
funding target determined as if the plan were not in at-risk status.
    But for premium purposes, the term ``participant'' in the loading 
factor provision is ambiguous. Because the premium funding target 
reflects only vested benefits, while the funding target reflects all 
accrued benefits, there is a suggestion that the term ``participant'' 
should in the premium context be understood to refer to vested 
participants. But many participants are partially vested (as in plans 
with graded vesting) or are vested in one benefit but not another (for 
example, vested in a lump-sum death benefit but not in a retirement 
annuity) and thus are not clearly either vested or non-vested. 
Furthermore (putting vesting aside), the premium regulations (Sec.  
4006.6 of the premium rates regulation) and the Internal Revenue 
Service's regulation on special rules for plans in at-risk status (26 
CFR 1.430(i)-1(c)(2)(ii)(A)) count participants differently.
    PBGC is resolving the statutory ambiguity by providing that the 
participant count to use in calculating the loading factor to be 
reflected in the premium funding target is the same participant count 
used to compute the load for funding purposes. This solution has the 
advantage that it avoids introducing new participant-counting rules and 
does not impose on filers the burden of determining two different 
participant counts for two similar purposes.
    One commenter argued that the loading factor should not be included 
in the premium funding target. The commenter noted that ERISA section 
4006 could have referred to both ERISA sections 303(d) and 303(i), but 
refers only to section 303(d). However, as the commenter notes, section 
303(d) refers to section 303(i). Thus section 4006, by referring to 
section 303(d), is referring to section 303(i) as well.
    The commenter also supported the argument against incorporation of 
the loading factor by appealing to the difference in the purposes of 
sections 303 and 4006, the former dealing with plan funding and taking 
unvested benefits into account, the latter dealing with PBGC premiums 
and not taking unvested benefits into account. PBGC acknowledges these 
differences, but points out that the two sections are linked, in that 
section 4006 refers to section 303 for the methodology for calculating 
premiums. In fact, section 4006(a)(3)(E)(iii)(I) specifies how the 
premium methodology differs from the funding methodology. Two 
differences are noted: disregarding unvested benefits and using 
different interest assumptions. The load is not mentioned. PBGC thus 
believes that the statutory language adequately supports the 
applicability of the loading factor to the calculation of premiums.
    Finally, the commenter claimed that participants in at-risk plans 
are better off if funds are devoted to benefits rather than premiums. 
But even if each dollar spent on pension insurance premiums is a dollar 
not spent on benefits, pension insurance is for the protection of those 
very benefits. PBGC insurance would appear to be even more valuable for 
participants in at-risk plans than in plans not in at-risk status.
    Finding none of the commenter's reasoning persuasive, PBGC 
continues to hew to the position that the loading factor applies to the 
premium funding target.

Penalties

Lowering the Self-Correction Penalty Cap

    The difference between the normal penalty rate of 5 percent per 
month and the self-correction rate of 1 percent per month provides an 
incentive to self-correct and reflects PBGC's judgment that those that 
come forward voluntarily to correct underpayments deserve more lenient 
treatment than those that PBGC ferrets out through its premium 
enforcement programs. But because of a penalty cap of 100 percent of 
the underpayment, regardless of the rate it accrues at, a plan that 
self-corrects after 100 months pays the same penalty as if it had been 
tracked down by PBGC. PBGC occasionally encounters situations in 
which--typically when there is a change in plan sponsor or plan 
actuary--a plan with a long history of underpaying or not paying 
premiums ``comes in from the cold.'' PBGC believes that in fairness to 
such filers (and to persuade others to emulate them), the maximum 
penalty for self-correctors should be substantially less than that for 
those that do not self-correct.\28\
---------------------------------------------------------------------------

    \28\ PBGC took a step in this direction with its policy notice 
of February 9, 2012 (see discussion under Background above). 
However, the waiver of all penalties announced in that notice 
applied only for a limited time and only to plans that had never 
paid premiums.
---------------------------------------------------------------------------

    To preserve the self-correction penalty differential for long-
overdue premiums, PBGC is capping the self-correction penalty at 50 
percent of the unpaid amount. While this will reduce PBGC's penalty 
income in these cases, acceptance of the reduction is consistent with 
the view of penalties as a means to encourage compliance, rather than 
as a source of revenue.

Expansion of Penalty Waiver Authority

    The premium payment regulation and its appendix include many 
specific penalty waiver provisions that provide guidance to the public 
about the circumstances in which PBGC considers waivers appropriate--
circumstances such as reasonable cause and mistake of law. To deal with 
unanticipated situations that nevertheless seem to warrant penalty 
relief, Sec.  4007.8(d) refers to the policy guidelines in the 
appendix, and Sec.  21(b)(5) of the appendix says that PBGC may waive 
all or part of a premium penalty if it determines that it is 
appropriate to do so, and that PBGC intends to exercise this waiver 
authority only in narrow circumstances.
    In reviewing the circumstances where it has exercised its waiver 
authority, PBGC has concluded that the term

[[Page 13555]]

``narrow'' may not capture well the scope of that exercise and may thus 
be misleading. To avoid an implication that PBGC considers its waiver 
authority more narrowly circumscribed than in fact it does, the 
sentence about narrow circumstances is being removed from the appendix.

Codification of Seven-Day Penalty Waiver Rule

    On September 15, 2011 (at 76 FR 57082), PBGC published a policy 
notice announcing (among other things) that for plan years beginning 
after 2010, it would waive premium payment penalties assessed solely 
because premium payments were late by not more than seven calendar 
days.
    In applying this policy, PBGC assumes that each premium payment is 
made seven calendar days before it is actually made. All other rules 
are then applied as usual. If the result of this procedure is that no 
penalty would arise, then any penalty assessed on the basis of the 
actual payment dates is waived.
    PBGC is codifying this policy in the premium payment regulation.
    One commenter complained that by the time PBGC notifies a late 
filer that an expected filing has not been received, the seven-day 
grace period has expired, and the filer becomes liable for a five 
percent penalty. The commenter requested that tardy filers in such 
circumstances be given an additional 15 days to pay and incur a one-
percent penalty or that PBGC notify plans immediately when expected 
filings are not received, to give them the full benefit of the seven-
day grace period within which to file.
    Plan administrators are expected to know the law and to be capable 
of setting up tickler files and computerized reminders for legal 
obligations they may otherwise forget to fulfill. Nonetheless, PBGC 
does offer a reminder service. Reminders are sent shortly after the 
beginning of each month to practitioners who have signed up for 
reminders for that month. Plan administrators may sign up for reminders 
at http://www.pbgc.gov/prac/pg/other/practitioner-filing-reminders.html.
    PBGC believes no modification of its premium regulations is called 
for to accommodate this comment.

Small-Plan Penalty Relief for Variable-Rate Premium Estimates

    The premium payment regulation provides an option for paying an 
estimate of the variable-rate premium at the due date and ``truing up'' 
within 6\1/2\ months without penalty. The availability of this option 
has been restricted to mid-size and large plans. With the elimination 
of different due dates based on plan size, the option is being made 
available to plans of any size. PBGC expects that very few small plans 
will take advantage of the option, since in virtually all cases, the 
variable-rate premium will be known by the uniform due date. But the 
only comment PBGC received on this issue was in favor of making the 
option available to small plans.

Other Changes

Variable-Rate Premium Cap

    Before amendment to conform to statutory changes made by PPA 2006, 
PBGC's premium regulations used the same date for counting participants 
for purposes of the flat-rate premium and for determining UVBs for 
purposes of the variable-rate premium. This date was (generally) ``the 
last day of the plan year preceding the premium payment year.''
    When PBGC amended the premium regulations to conform to PPA 2006, 
the amendments provided that in general, UVBs were to be determined as 
of a different date from the date used to count participants. Thus 
references in the regulations to ``the last day of the plan year 
preceding the premium payment year'' in some cases were changed to 
refer to ``the participant count date'' and in other cases were changed 
to refer to ``the UVB valuation date.''
    The regulatory provision dealing with the variable-rate premium cap 
for plans of small employers includes two references to ``the last day 
of the plan year preceding the premium payment year'' that should have 
been amended to refer to ``the participant count date'' but were 
overlooked. PBGC is correcting the variable-rate premium cap provision 
to remedy this oversight.

Exemption for Standard Terminations

    When PBGC added to the premium regulations the exemption from the 
variable-rate premium for plans terminating in standard terminations, 
it stated that the exemption would apply to ``a standard termination 
with a proposed termination date during a plan year preceding the 
premium payment year.'' \29\ This reflects the provision in Rev. Rul. 
79-237 (1979-2 C.B. 190) that minimum funding standards apply only 
until the end of the plan year that includes the termination date. In 
the text of the regulation, this requirement was expressed by requiring 
that the proposed termination date be on or before ``the last day of 
the plan year preceding the premium payment year'' -- the same words 
used to identify the date as of which participants were to be counted 
for purposes of the flat-rate premium and the date as of which UVBs 
were to be determined for purposes of the variable-rate premium.
---------------------------------------------------------------------------

    \29\ See preamble to final rule, 54 FR 28950 (July 10, 1989).
---------------------------------------------------------------------------

    When PBGC amended the premium regulations to conform to statutory 
changes made by PPA 2006, as described above, the phrase ``the last day 
of the plan year preceding the premium payment year'' in the standard 
termination exemption from the variable-rate premium should have been 
left unchanged. Instead, it was inadvertently amended to read ``the UVB 
valuation date.'' PBGC is correcting the exemption to require that the 
proposed termination date be ``before the beginning of the premium 
payment year,'' which also makes the provision clearer and simpler.\30\
---------------------------------------------------------------------------

    \30\ As discussed above, PBGC is broadening the scope of this 
exemption to include the year in which a standard termination is 
completed, regardless of the timing of the termination date.
---------------------------------------------------------------------------

Liability for Premiums in Distress and Involuntary Terminations

    The premium payment regulation provides that a single-employer plan 
does not have an obligation to pay premiums if the plan is the subject 
of distress or involuntary termination proceedings, with a view to 
conserving plan assets in such situations. The premium payment 
obligation then falls solely on the plan sponsor's controlled group. 
Heretofore, the regulation focused on the plan year for which a premium 
is due; the plan's obligation was tolled with respect to premiums for 
the year in which the termination was initiated and future years.
    PBGC has encountered cases in which plan administrators have used 
plan assets to pay premiums for which the plans had no obligation 
because termination proceedings began later in the plan year, after 
payment was made. To address this problem, PBGC is revising the 
regulation so that a plan's obligation to pay premiums ceases when 
termination proceedings begin--an event of which the plan administrator 
will have notice--at which time the premium payment obligation falls 
solely on the plan sponsor's controlled group.
    This change does not affect the amount of premiums due. It simply 
reduces administrative burden by making it easier for a plan 
administrator to determine whether the plan has an obligation to make a 
premium payment.

[[Page 13556]]

Definition of Newly Covered Plan

    The current definition of newly covered plan excludes new plans. In 
rare cases, a new plan might not initially be covered by title IV of 
ERISA and might then become covered later in its first year of 
existence. PBGC is revising the definition to remove the exclusion of 
new plans so that in the rare case described, the plan will be a newly 
covered plan (as well as a new plan) and thus entitled to prorate its 
premium based on its coverage date (as newly covered plans are 
permitted to do) rather than its effective date (as new plans are 
permitted to do).

Changes Related to MAP-21 and BBA 2013

    On July 6, 2012, and December 26, 2013 (respectively), the 
President signed into law the Moving Ahead for Progress in the 21st 
Century Act (MAP-21) (Pub. L. No. 112-141) and the Bipartisan Budget 
Act of 2013 (BBA 2013) (Pub. L. No. 113-67). MAP-21 and BBA 2013 
included provisions about PBGC premiums that, without the need for 
implementing action by PBGC, have already become effective.\31\ PBGC is 
amending the premium rates regulation in accordance with MAP-21 and BBA 
2013.
---------------------------------------------------------------------------

    \31\ Technical Update 12-1, http://www.pbgc.gov/res/other-guidance/tu/tu12-1.html provides guidance on the effect of MAP-21 on 
PBGC premiums.
---------------------------------------------------------------------------

    Under sections 40221 and 40222 of MAP-21, effective for plan years 
beginning after 2012, each flat or variable premium rate has a 
different annual inflation adjustment formula, and the variable-rate 
premium is limited by a cap (the ``MAP-21 cap'') with its own annual 
inflation adjustment. BBA 2013 added more adjustment provisions. 
Because of the multiplicity and complexity of the adjustment formulas, 
PBGC has concluded that it is not useful to repeat the statutory 
premium rate rules in the premium rates regulation. Instead, PBGC is 
replacing existing premium rate provisions with statutory references 
and will simply announce each year the new rates generated by the 
statutory rate formulas.
    Effective for plan years beginning after 2011, section 40211 of 
MAP-21 establishes a ``segment rate stabilization'' corridor for 
certain interest assumptions used for funding purposes but provides (in 
section 40211(b)(3)(C)) for disregarding rate stabilization in 
determining PBGC variable-rate premiums. PBGC is revising the 
description of the alternative premium funding target to make clear 
that it is determined using discount rates unconstrained by the segment 
rate stabilization rules of MAP-21.

Editorial Changes

    PBGC is revising the language that describes the ``reconciliation'' 
date--associated with the penalty waiver for underestimation of the 
variable-rate premium--to clarify that the waiver does not require a 
particular state of mind (of the plan administrator, sponsor, actuary, 
or other person) regarding the correctness or ``finality'' of the 
estimate. This clarification is not substantive but merely reflects the 
fact that (as noted in the 2008 preamble to the PPA 2006 amendment to 
the regulation) the waiver is provided ``in recognition of the 
possibility that circumstances might make a final UVB determination by 
the due date difficult or impossible''.\32\
---------------------------------------------------------------------------

    \32\ See 73 FR 15069 (emphasis supplied).
---------------------------------------------------------------------------

    PBGC is also making some other non-substantive editorial changes, 
including provision of an additional example, deletion of anachronistic 
text, and addition of a definitional cross-reference.

Conforming Changes to Other Regulations

    PBGC's regulation on Restoration of Terminating and Terminated 
Plans (29 CFR part 4047) has a cross-reference to Sec.  4006.4(c) of 
the premium rates regulation, which used to describe the alternative 
calculation method for determining the variable-rate premium \33\ but 
no longer does so. To avoid confusion, PBGC is removing the obsolete 
cross-reference.
---------------------------------------------------------------------------

    \33\ The alternative calculation method is also described in the 
premium filing instructions for years to which it applies.
---------------------------------------------------------------------------

    PBGC is deleting from its regulation on Filing, Issuance, 
Computation of Time, and Record Retention (29 CFR part 4000) a 
provision that parallels anachronistic text that is being deleted from 
the premium rates regulation.

Comments Unrelated to Proposed Regulatory Changes

De Minimis Plan Transactions

    One commenter proposed a change to the ``merger-spinoff rule.'' 
That provision applies where there is a plan merger or spinoff at the 
very beginning of the premium payment year (the ``stroke of midnight'' 
between the prior year and the premium payment year). The provision 
shifts the participant count date from the day before the premium 
payment year begins to the first day of the premium payment year for 
certain plans involved in such mergers or spinoffs. The participant 
count date shifts for the transferee plan in a non-de minimis merger 
and for the transferor plan in a non-de minimis spinoff. Participants 
for whom the transferor plan in a merger will pay no premiums get 
picked up in the transferee plan's participant count, and participants 
for whom the transferee plan in a spinoff will pay premiums get dropped 
from the transferor plan's participant count. In general, a transaction 
is de minimis if the liabilities of one of the two plans involved in 
the transaction are less than three percent of the other plan's assets.
    The commenter suggested that the exception for de minimis 
transactions be eliminated. PBGC believes consideration of this 
suggestion should be deferred. The suggestion deals with a feature of 
the premium rates regulation not directly focused on by the proposed 
rule. While the suggestion would tend to lower premiums for transferor 
plans in de minimis spinoffs, it would tend to raise premiums for 
transferee plans in de minimis mergers. For both types of transaction, 
it would mean counting participants on a different date, which might be 
inconvenient. And PBGC notes that de minimis transactions are also 
disregarded in determining whether a plan is a continuation plan for 
purposes of applying the due date and look-back rules. There is a 
question whether de minimis transactions should be taken account of for 
that purpose too or whether de minimis transactions should be treated 
in different ways for the two different purposes. Thus PBGC is taking 
no action on this suggestion now.

Post-Filing Events

    PBGC's premium filing instructions require that a plan making its 
final premium filing report the reason why the filing is the plan's 
final filing. But when the event that leads to the cessation of the 
filing requirement--such as a plan merger or consolidation--occurs 
after the premium filing is made, the instructions say no amended 
filing is required. To avoid the need for correspondence to clarify why 
a plan has stopped filing, the instructions recommend contacting PBGC 
in such cases unless a termination, merger, or consolidation is 
involved.
    One commenter complained that PBGC requires amended filings in 
final-filing circumstances where its premium instructions say amended 
filings are not required. (PBGC assumes the comment reflects informal 
guidance provided by PBGC's premium information call center.)

[[Page 13557]]

    PBGC's position on amended filings in such cases is as stated in 
its filing instructions. Amended filings are not required for post-
filing events that lead to cessation of the premium filing requirement, 
although voluntary informal reporting is encouraged.
    Where informal guidance from a PBGC source seems to conflict with 
other PBGC guidance (such as premium filing instructions), PBGC 
encourages filers to contact PBGC's Problem Resolution Officer 
(Practitioners) as described in item 7 of appendix 2 to PBGC's premium 
filing instructions, available on PBGC's Web site (www.pbgc.gov).
    This issue appears not to implicate anything in PBGC's premium 
regulations.

Penalty Relief for Premium Estimates

    Two comments requested that PBGC modify the premium forms and 
instructions to permit a plan to take advantage of the penalty waiver 
for underestimation of the variable-rate premium without the need to 
declare the initial filing an estimate by checking a box. Since the 
introduction of this waiver, the instructions have required that a plan 
that checks the box make a reconciliation filing even when the 
estimated variable-rate premium turns out to be correct, and plans that 
fail to make the required second filing have been contacted by PBGC to 
enforce the requirement. Eliminating the check box would obviate the 
burden of making a second filing when there is no change in the premium 
and would conserve PBGC resources by eliminating the need for 
correspondence with such plans.
    Although PBGC is always interested in simplifying the premium 
filing process, it is not taking action on this suggestion at this 
time. PBGC is not convinced that it has an adequate basis for 
concluding that the burden of the checkbox procedure outweighs the 
utility of the checkbox. For example, for 2012, only about 70 plans 
checked the estimated-filing checkbox; about 40 filed timely 
reconciliations and 30 did not. About another 30 plans made amended 
filings by the reconciliation deadline and might have qualified for 
penalty relief if they had checked the box to indicate that their 
initial filings were estimated. One commenter's assertion that plans 
routinely check the estimated-filing checkbox to preserve the option to 
amend without penalty seems unsupported by these data. Nor do the data 
bear out the hypothesis that many plans fail to qualify for the penalty 
waiver simply because they neglect to check the box. In short, so few 
plans seem to be affected by the checkbox requirement that PBGC 
believes other options, such as providing more guidance or cautions in 
PBGC's electronic premium filing interface, could ameliorate the 
commenters' concerns. PBGC thinks it prudent to explore such other 
options and to gather and analyze further data before deciding whether 
to take the checkbox off the electronic premium filing form.
    PBGC welcomes further public comment on this suggestion.

Applicability

    Except as indicated below, the amendments in this final rule are 
applicable for 2014 and later plan years.
    The change in the due date and the exemption from the variable-rate 
premium for a plan closing out in a standard termination are applicable 
to plans that complete distribution of assets in satisfaction of all 
plan benefits under the single-employer termination regulation on or 
after the effective date of this final rule.
    The change in the date when a plan ceases to be liable for premiums 
in a distress or involuntary termination is applicable to terminations 
with respect to which the plan administrator issues the first notice of 
intent to terminate, or the PBGC issues a notice of determination, on 
or after the effective date of this final rule.
    MAP-21 became effective on July 6, 2012. BBA 2013 is effective for 
plan years beginning after 2013. The changes to premium rates in this 
final rule apply to plan years beginning after 2012 (to the extent 
attributable to MAP-21) or after 2013 (to the extent attributable to 
BBA 2013). The clarification to the definition of the alternative 
premium funding target after MAP-21 applies to plan years beginning 
after 2011.

Executive Orders 12866 and 13563

    PBGC has determined, in consultation with the Office of Management 
and Budget, that this rulemaking is not a ``significant regulatory 
action'' under Executive Order 12866.
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This final rule is associated with retrospective review 
and analysis in PBGC's Plan for Regulatory Review issued in accordance 
with Executive Order 13563.
    In accordance with OMB Circular A-4, PBGC has examined the economic 
and policy implications of this final rule and has concluded that the 
action's benefits justify its costs. That conclusion is based on the 
following analysis of the impact of the due date changes in this rule. 
(The other changes have essentially no cost-benefit impact.)

Uniform Due Dates

    PBGC estimates that the reduction in administrative burden 
attributable to adoption of the new unified due date translates into 
average annual savings of 1.2 hours for each small plan. (PBGC arrived 
at this estimate on the basis of inquiries made to pension 
practitioners.) The dollar equivalent of this saving for the roughly 
15,000 small plans is about $400 per plan.\34\
---------------------------------------------------------------------------

    \34\ PBGC assumes for this purpose that enrolled actuaries 
charge about $350 per hour.
---------------------------------------------------------------------------

    Adoption of the uniform due date also shifts the earnings on 
premium payments between plans and PBGC for the time between the old 
and new due dates. Because earning rates differ between PBGC and plans, 
the losses and gains will not balance out exactly. But the earnings 
shift for small plans will be virtually negligible. The analysis is not 
straightforward because of the concomitant shift from current-year to 
prior-year data. See the discussion under the heading Combined Effects 
of Due Date and Look-Back Proposals, above. But based on 2011 data, and 
assuming aggregate small-plan premiums of about $36 million, a 6\1/2\-
month advance in the small-plan due date, and a plan earnings rate of 6 
percent, small plans in the aggregate will lose about $1.2 million a 
year--on average, about $85 per plan. A plan's lost interest earnings 
will be proportional to its premium; the premium may vary widely among 
plans, and thus the loss may do the same.
    Accordingly, PBGC foresees an average net benefit (in dollar terms) 
from adoption of the new uniform due date of about $315 for each small 
plan--about $400 in administrative cost savings offset by about $85 in 
lost interest earnings.
    PBGC's gain will be about one-third the amount lost by plans. PBGC 
estimates its rate of return, from investment in U.S. Government 
securities, at about 2 percent. PBGC estimates plans' rate of return at 
6 percent. The following table shows the estimated average interest 
earnings calculated with four rates: Two percent

[[Page 13558]]

(our best estimate for PBGC's rate of return), six percent (our best 
estimate for plans' rate of return), and three and seven percent (the 
discount rates recommended by OMB Circular A-4).

------------------------------------------------------------------------
        Approximate average interest earnings per small plan at--
-------------------------------------------------------------------------
            2 percent               3 percent    6 percent    7 percent
------------------------------------------------------------------------
$30..............................         $40          $85          $95
------------------------------------------------------------------------

Final-Year Due Date

    Advancing the premium due date for some terminating plans will also 
shift earnings on the premiums from plans to PBGC. Since plans that do 
standard terminations are almost all small,\35\ the amounts involved 
are also small.
---------------------------------------------------------------------------

    \35\ For 2011, only about 7 percent of standard terminations 
involved plans with more than 100 participants.
---------------------------------------------------------------------------

    On average (over the period 2001-2010), about 1,300 plans terminate 
each year. About half of them will have their final-year due dates 
advanced by an average of about 100 days; for the other half, the due 
date will not be advanced. Thus on average, this rule requires payment 
of the premium about 50 days early. The average single-employer flat-
rate premium is about $950 for small plans and about $176,000 for 
larger plans.\36\ At a rate of 6 percent, 50 days' interest on an 
average small-plan flat-rate premium of $950 is about $8. For larger 
plans, the average figure using the same methodology is about $1,450. 
But so few larger plans do standard terminations that the weighted 
average earnings loss for plans of all sizes will be only about $110 
per plan, or an aggregate estimated earnings loss of $143,000.
---------------------------------------------------------------------------

    \36\ This discussion and the discussion of variable-rate premium 
savings below are based on (increased) 2014 premium rates applied to 
2010 data on plans, participants, and unfunded vested benefits.
---------------------------------------------------------------------------

    On the other hand, there should be some savings to plans arising 
from calculating and paying the final-year premium while plan books and 
records are still open and in use for paying benefits--as opposed to 
later, when they would have to be found and reopened. If one-tenth of 
final-year filers (130 plans) each save one hour of actuarial time at 
an average of $350 per hour, the total savings will be over $45,500 
(or, if averaged over all terminating plans, about $35 per plan).
    Further, historical data indicate that plans doing standard 
terminations could be expected to pay an aggregate of about $117,000 in 
variable-rate premiums in their final year. This represents an estimate 
of the savings to plans under the expansion of the standard termination 
variable-rate premium exemption. The savings will of course be realized 
only by the small minority of terminating plans that would owe 
variable-rate premium in their final year in the absence of this final 
rule. Averaged over all plans closing out in a year, however, the 
savings will be about $90 per plan.
    Accordingly, PBGC foresees no significant economic impact from the 
due date change for terminating plans because the loss of earnings on 
flat-rate premiums paid earlier (about $110 per plan) will be offset by 
the gain from variable-rate premiums not paid (about $90 per plan) and 
cost reductions from improvement in administrative procedures (about 
$35 per plan).

Regulatory Flexibility Act

    The Regulatory Flexibility Act imposes certain requirements with 
respect to rules that are subject to the notice and comment 
requirements of section 553(b) of the Administrative Procedure Act. 
Unless an agency determines that a final rule is not likely to have a 
significant economic impact on a substantial number of small entities, 
section 604 of the Regulatory Flexibility Act requires that the agency 
present a final regulatory flexibility analysis at the time of the 
publication of the final rule describing the impact of the rule on 
small entities and steps taken to minimize the impact. Small entities 
include small businesses, organizations and governmental jurisdictions.

Small Entities

    For purposes of the Regulatory Flexibility Act requirements with 
respect to this final rule, PBGC considers a small entity to be a plan 
with fewer than 100 participants. This is substantially the same 
criterion used to determine what plans would be subject to the look-
back rule under the proposal, and is consistent with certain 
requirements in title I of ERISA \37\ and the Internal Revenue 
Code,\38\ as well as the definition of a small entity that the 
Department of Labor (DOL) has used for purposes of the Regulatory 
Flexibility Act.\39\ Using this proposed definition, about 64 percent 
(16,700 of 26,100) of plans covered by title IV of ERISA in 2010 were 
small plans.\40\
---------------------------------------------------------------------------

    \37\ See, e.g., ERISA section 104(a)(2), which permits the 
Secretary of Labor to prescribe simplified annual reports for 
pension plans that cover fewer than 100 participants.
    \38\ See, e.g., Code section 430(g)(2)(B), which permits plans 
with 100 or fewer participants to use valuation dates other than the 
first day of the plan year.
    \39\ See, e.g., DOL's final rule on Prohibited Transaction 
Exemption Procedures, 76 Fed. Reg. 66,637, 66,644 (Oct. 27, 2011).
    \40\ See PBGC 2010 pension insurance data table S-31, http://www.pbgc.gov/Documents/pension-insurance-data-tables-2010.pdf.
---------------------------------------------------------------------------

    Further, while some large employers may have small plans, in 
general most small plans are maintained by small employers. Thus, PBGC 
believes that assessing the impact of the proposal on small plans is an 
appropriate substitute for evaluating the effect on small entities. The 
definition of small entity considered appropriate for this purpose 
differs, however, from a definition of small business based on size 
standards promulgated by the Small Business Administration (13 CFR 
121.201) pursuant to the Small Business Act. In its proposed rule, 
therefore, PBGC requested comments on the appropriateness of the size 
standard used in evaluating the impact of the proposed rule on small 
entities. No comments were received.

Certification

    On the basis of its definition of small entity, PBGC certifies 
under section 605(b) of the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.) that the amendments in this final rule will not have a 
significant economic impact on a substantial number of small entities. 
Accordingly, as provided in section 605 of the Regulatory Flexibility 
Act, sections 603 and 604 do not apply. This certification is based on 
PBGC's estimate (discussed above) that the change to uniform due dates 
will create an average annual net economic benefit for each small plan 
of about $315. This is not a significant impact.

Paperwork Reduction Act

    PBGC is submitting the information requirements under this final 
rule for approval by the Office of Management and Budget under the 
Paperwork

[[Page 13559]]

Reduction Act (OMB control number 1212-0009; expires February 29, 
2016). An agency may not conduct or sponsor, and a person is not 
required to respond to, a collection of information unless it displays 
a currently valid OMB control number.
    PBGC is making only small changes in the data filers are required 
to submit. A plan's filing will be required to state whether the plan 
is a new small plan created by non-de minimis consolidation or spinoff 
(to which special rules apply) and to indicate if an exemption from the 
variable-rate premium is claimed under one of the new exemption rules. 
The participant count will have to be broken down into active, 
terminated, and retired categories. Changes to the filing instructions 
clarify how to calculate premiums, set forth the new due date rules, 
and deal with other routine matters such as updating examples and 
premium rates.
    PBGC needs the information in a premium filing to identify the plan 
for which the premium is paid to PBGC, to verify the amount of the 
premium, to help PBGC determine the magnitude of its exposure in the 
event of plan termination, to help PBGC track the creation of new plans 
and the transfer of plan assets and liabilities among plans, and to 
keep PBGC's inventory of insured plans up to date. PBGC receives 
premium filings from about 25,700 respondents each year and estimates 
that the total annual burden of the collection of information will be 
about 8,000 hours and $53,255,000.
    In comparison with the burden that OMB had approved for this 
information collection before PBGC's recent final rule eliminating the 
early due date for large plans' flat-rate premiums, this burden 
estimate reflects both a decrease in burden attributable to changes in 
the premium due dates (under both the large-plan final rule and this 
final rule) and an increase in burden attributable to a re-estimate of 
the existing premium filing burden. The increase in burden due to re-
estimation is about 31,300 hours, and the decrease due to the due date 
changes is about 35,000 hours (about 17,000 hours for large plans and 
about 18,000 hours for small plans), a net decrease of about 3,700 
hours from the burden approved before the large-plan final rule (about 
163,600 hours). PBGC assumes that about 95 percent of the work is 
contracted out at $350 per hour, so the 35,000-hour decrease 
attributable to the two final rules is equivalent to about 1,750 hours 
of in-house labor and about $11,600,000 of contractor costs.
    The burden for which PBGC sought OMB approval in connection with 
the recent final rule eliminating the early due date for large plans' 
flat-rate premiums was about 178,000 hours (about 8,900 in-house hours 
plus about $59,250,000 in contractor costs for the remaining 169,100 
hours). This burden estimate reflected both the increase due to re-
estimation and the decrease due to the large-plan flat-rate due date 
change.
    In comparison with the 178,000-hour burden estimate, the new burden 
estimate reflects a decrease of about 18,000 hours, attributable to the 
due date change for small plans. Since PBGC assumes that about 95 
percent of the work is contracted out at $350 per hour, this 18,000-
hour decrease is equivalent to about 900 hours of in-house labor and 
about $6 million of contractor costs.

List of Subjects

29 CFR Part 4000

    Pension insurance, Pensions, Reporting and recordkeeping 
requirements.

29 CFR Part 4006

    Employee benefit plans, Pension insurance.

29 CFR Part 4007

    Employee benefit plans, Penalties, Pension insurance, Reporting and 
recordkeeping requirements.

29 CFR Part 4047

    Employee benefit plans, Pension insurance.

    In consideration of the foregoing, PBGC amends 29 CFR parts 4000, 
4006, 4007, and 4047 as follows:

PART 4000--FILING, ISSUANCE, COMPUTATION OF TIME, AND RECORD 
RETENTION

0
1. The authority citation for part 4000 continues to read as follows:

    Authority: 29 U.S.C. 1082(f), 1302(b)(3).


Sec.  4000.3  [Amended]

0
2. In Sec.  4000.3(b):
0
a. Paragraph (b)(1)(i) is removed.
0
b. Paragraphs (b)(1)(ii), (b) (1)(iii), and (b)(1)(iv) are redesignated 
as paragraphs (b)(1)(i), (b)(1)(ii), and (b)(1)(iii) respectively.

PART 4006--PREMIUM RATES

0
3. The authority citation for part 4006 continues to read as follows:

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


0
4. In Sec.  4006.2:
0
a. The introductory text is amended by removing the words ``and single-
employer plan'' and adding in their place the words ``single-employer 
plan, and termination date''.
0
b. The definition of participant count is amended by removing the words 
``for a plan year'' and by removing the words ``for the plan year''.
0
c. The definition of participant count date is amended by removing the 
words ``for a plan year''.
0
d. The definition of UVB valuation date is amended by removing the 
words ``for a plan year''; and by removing the words ``plan year 
determined'' and adding in their place the words ``UVB valuation year, 
determined''.
0
e. The definition of newly-covered plan is revised, and new definitions 
of continuation plan, small plan, and UVB valuation year are added, in 
alphabetical order, to read as follows:


Sec.  4006.2  Definitions.

* * * * *
    Continuation plan means a new plan resulting from a consolidation 
or spinoff that is not de minimis pursuant to the regulations under 
section 414(l) of the Code.
* * * * *
    Newly covered plan means a plan that becomes covered by title IV of 
ERISA during the premium payment year and that existed as an uncovered 
plan immediately before the first date in the premium payment year on 
which it was a covered plan.
* * * * *
    Small plan means a plan--
    (1) Whose participant count is not more than 100, or
    (2) Whose funding valuation date for the premium payment year, 
determined in accordance with ERISA section 303(g)(2), is not the first 
day of the premium payment year.
* * * * *
    UVB valuation year of a plan means--
    (1) In general,--
    (i) The plan year preceding the premium payment year, if the plan 
is a small plan other than a continuation plan, or
    (ii) The premium payment year, in any other case; or
    (2) For a small plan that so opts subject to PBGC premium 
instructions, the premium payment year.

0
5. In Sec.  4006.3:
0
a. Paragraphs (c) and (d) are removed.
0
b. A sentence is added to the end of the introductory text, and 
paragraphs (a) and (b) are revised, to read as follows:


Sec.  4006.3  Premium rate.

    * * * Premium rates (and the MAP-21 cap rate referred to in 
paragraph (b)(2) of this section) are subject to

[[Page 13560]]

change each year under inflation indexing provisions in section 4006 of 
ERISA.
    (a) Flat-rate premium. The flat-rate premium for a plan is equal to 
the applicable flat premium rate multiplied by the plan's participant 
count. The applicable flat premium rate is the amount prescribed for 
the calendar year in which the premium payment year begins by the 
applicable provisions of--
    (1) ERISA section 4006(a)(3)(A), (F), and (G) for a single-employer 
plan, or
    (2) ERISA section 4006(a)(3)(A), (H), and (J) for a multiemployer 
plan.
    (b) Variable-rate premium.
    (1) In general. Subject to the cap provisions in paragraphs (b)(2) 
and (b)(3) of this section, the variable-rate premium for a single-
employer plan is equal to a specified dollar amount for each $1,000 (or 
fraction thereof) of the plan's unfunded vested benefits as determined 
under Sec.  4006.4 for the UVB valuation year. The specified dollar 
amount is the applicable variable premium rate prescribed by the 
applicable provisions of ERISA section 4006(a)(8) for the calendar year 
in which the premium payment year begins.
    (2) MAP-21 cap. The variable-rate premium for a plan is not more 
than the applicable MAP-21 cap rate multiplied by the plan's 
participant count. The applicable MAP-21 cap rate is the amount 
prescribed by the applicable provisions of ERISA section 
4006(a)(3)(E)(i)(II), (E)(i)(III), (K), and (L) for the calendar year 
in which the premium payment year begins.
    (3) Small-employer cap. (i) In general. If a plan is described in 
paragraph (b)(3)(ii) of this section for the premium payment year, the 
variable-rate premium is not more than $5 multiplied by the square of 
the participant count. For example, if the participant count is 20, the 
variable-rate premium is not more than $2,000 ($5 x 20\2\ = $5 x 400 = 
$2,000).
    (ii) Plans eligible for cap. A plan is described in paragraph 
(b)(3)(ii) of this section for the premium payment year if the 
aggregate number of employees of all employers in the plan's controlled 
group on the first day of the premium payment year is 25 or fewer.
    (iii) Meaning of ``employee.'' For purposes of paragraph (b)(3)(ii) 
of this section, the aggregate number of employees is determined in the 
same manner as under section 410(b)(1) of the Code, taking into account 
the provisions of section 414(m) and (n) of the Code, but without 
regard to section 410(b)(3), (4), and (5) of the Code.

0
6. In Sec.  4006.4:
0
a. Paragraph (a) is amended by removing the words ``for the premium 
payment year'' where they appear five times in the paragraph and adding 
in their place the first four times (but not the fifth time) the words 
``for the UVB valuation year''.
0
b. Paragraph (b)(2) introductory text is amended by removing the words 
``premium payment year'' and adding in their place the words ``UVB 
valuation year''.
0
c. Paragraph (b)(2)(ii) is amended by removing the words ``premium 
payment year'' where they appear twice in the paragraph and adding in 
their place (in both places) the words ``UVB valuation year''.
0
d. New paragraph (b)(3) is added to read as follows:


Sec.  4006.4  Determination of unfunded vested benefits.

* * * * *
    (b) * * *
    (3) ``At-risk'' plans; transition rules; loading factor. The 
transition rules in ERISA section 303(i)(5) apply to the determination 
of the premium funding target of a plan in at-risk status for funding 
purposes. If a plan in at-risk status is also described in ERISA 
section 303(i)(1)(A)(ii) for the UVB valuation year, its premium 
funding target reflects a loading factor pursuant to ERISA section 
303(i)(1)(C) equal to the sum of--
    (i) Per-participant portion of loading factor. The amount 
determined for funding purposes under ERISA section 303(i)(1)(C)(i) for 
the UVB valuation year, and
    (ii) Four percent portion of loading factor. Four percent of the 
premium funding target determined as if the plan were not in at-risk 
status.
* * * * *

0
7. In Sec.  4006.5:
0
a. Paragraph (a) introductory text is amended by removing the reference 
``paragraphs (a)(1)-(a)(3) of this section'' and adding in its place 
the reference ``paragraphs (a)(1)-(a)(4) of this section''.
0
b. Paragraph (a)(3) introductory text is amended by removing the words 
``described in this paragraph if'' and adding in their place the words 
``described in this paragraph if it makes a final distribution of 
assets in a standard termination during the premium payment year or 
if''.
0
c. Paragraph (a)(3)(ii) is amended by removing the words ``on or before 
the UVB valuation date'' and adding in their place the words ``before 
the beginning of the premium payment year''.
0
d. Paragraph (e)(2)(ii) is amended by removing the words ``plan year'' 
and adding in their place the words ``premium payment year''.
0
e. Paragraph (f)(1) is amended by removing the words ``newly-covered'' 
(with a hyphen) and adding in their place the words ``newly covered'' 
(without a hyphen).
0
f. Paragraph (a)(4) is added, and paragraphs (c), (d), (e)(1), and (g) 
are revised, to read as follows:


Sec.  4006.5  Exemptions and special rules.

* * * * *
    (a) * * *
    (4) Certain small new and newly covered plans. A plan is described 
in this paragraph if--
    (i) It is a small plan other than a continuation plan, and
    (ii) It is a new plan or a newly covered plan.
* * * * *
    (c) Participant count date; in general. Except as provided in 
paragraphs (d) and (e) of this section, the participant count date of a 
plan is the last day of the plan year preceding the premium payment 
year.
    (d) Participant count date; new and newly covered plans. The 
participant count date of a new plan or a newly covered plan is the 
first day of the premium payment year. For this purpose, a new plan's 
premium payment 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 is the first day of the premium payment year.
* * * * *
    (g) Alternative premium funding target. A plan's alternative 
premium funding target is determined in the same way as its standard 
premium funding target except that the discount rates described in 
ERISA section 4006(a)(3)(E)(iv) are not used. Instead, the alternative 
premium funding target is determined using the discount rates that 
would have been used to determine the funding target for the plan under 
ERISA section 303 for the purpose of determining the plan's minimum 
contribution under ERISA section 303 for the UVB valuation year if the 
segment rate stabilization provisions of ERISA section 303(h)(2)(iv) 
were disregarded. 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

[[Page 13561]]

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 for a plan must specify the premium payment year 
to which it first applies and must be filed by the plan's variable-rate 
premium due date for that premium payment year. The premium payment 
year to which the election first applies must begin at least five years 
after the beginning of the premium payment year to which a revocation 
of a prior election first applied. The election will be effective--
    (i) For the premium payment year for which made and for all plan 
years that begin less than five years thereafter, and
    (ii) For all succeeding plan years until the premium payment year 
to which a revocation of the election first applies.
    (2) A revocation of an election under this paragraph (g) to use the 
alternative premium funding target for a plan must specify the premium 
payment year to which it first applies and must be filed by the plan's 
variable-rate premium due date for that premium payment year. The 
premium payment year to which the revocation first applies must begin 
at least five years after the beginning of the premium payment year to 
which the election first applied.


Sec.  4006.7  [Amended]

0
8. In Sec.  4006.7, paragraph (b) is amended by removing the words 
``under section 4048 of ERISA''.

PART 4007--PAYMENT OF PREMIUMS

0
9. The authority citation for part 4007 continues to read as follows:

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


Sec.  4007.2  [Amended]

0
10. In Sec.  4007.2:
0
a. Paragraph (a) is amended by removing the words ``and single-employer 
plan'' and adding in their place the words ``single-employer plan, and 
termination date''.
0
b. Paragraph (b) is amended by removing the words ``new plan'' and 
adding in their place the words ``continuation plan, new plan''; and by 
removing the words ``and short plan year'' and adding in their place 
the words ``short plan year, small plan, and UVB valuation date''.

0
11. In Sec.  4007.3:
0
a. Paragraph (b) is amended by removing the words ``the PBGC'' and 
adding in their place the word ``PBGC''; and by removing the second 
sentence (which begins ``The requirement . . .'' and ends ``. . . after 
2006'').
0
b. Paragraph (a) is revised to read as follows:


Sec.  4007.3  Filing requirement; method of filing.

    (a) In general. The estimation, determination, declaration, and 
payment of premiums must be made in accordance with the premium 
instructions on PBGC's Web site (www.pbgc.gov). Subject to the 
provisions of Sec.  4007.13, the plan administrator of each covered 
plan is responsible for filing prescribed premium information and 
payments. Each required premium payment and related information, 
certified as provided in the premium instructions, must be filed by the 
applicable due date specified in this part in the manner and format 
prescribed in the instructions.
* * * * *

0
12. In Sec.  4007.8:
0
a. Paragraph (a) introductory text is amended by removing the words 
``the PBGC'' and adding in their place the word ``PBGC''; and by 
removing the second sentence (which begins ``The charge . . .'' and 
ends ``. . . unpaid premium'').
0
b. Paragraphs (f), (g), (h), and (i) are removed, and paragraph (j) is 
redesignated as paragraph (g).
0
c. Paragraphs (a)(1) and (a)(2) and the introductory text of 
redesignated paragraph (g) are revised, and new paragraph (f) is added, 
to read as follows:


Sec.  4007.8  Late payment penalty charges.

    (a) * * *
    (1) For any amount of unpaid premium that is paid on or before the 
date PBGC issues a written notice to any person liable for the premium 
that there is or may be a premium delinquency (for example, a premium 
bill, a letter initiating a premium compliance review, a notice of 
filing error in premium determination, or a letter questioning a 
failure to make a premium filing), 1 percent per month, to a maximum 
penalty charge of 50 percent of the unpaid premium; or
    (2) For any amount of unpaid premium that is paid after that date, 
5 percent per month, to a maximum penalty charge of 100 percent of the 
unpaid premium.
* * * * *
    (f) Filings not more than 7 days late. PBGC will waive premium 
payment penalties that arise solely because premium payments are late 
by not more than seven calendar days, as described in this paragraph 
(f). In applying this waiver, PBGC will assume that each premium 
payment with respect to a plan year was made seven calendar days before 
it was actually made. All other rules will then be applied as usual. If 
the result of this procedure is that no penalty would arise for that 
plan year, then any penalty that would apply on the basis of the actual 
payment date(s) will be waived.
    (g) Variable-rate premium penalty relief. 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)(1),--
* * * * *

0
13. Section 4007.11 is revised to read as follows:


Sec.  4007.11  Due dates.

    (a) In general. In general:
    (1) The flat-rate and variable-rate premium filing due date is the 
fifteenth day of the tenth calendar month that begins on or after the 
first day of the premium payment year.
    (2) If the variable-rate premium paid by the premium filing due 
date is estimated as described in Sec.  4007.8(g)(1)(ii), a 
reconciliation filing and any required variable-rate premium payment 
must be made by the end of the sixth calendar month that begins on or 
after the premium filing due date.
    (3) Small plan transition rule. Notwithstanding paragraph (a)(1) of 
this section, if a plan had fewer than 100 participants for whom flat-
rate premiums were payable for the plan year preceding the last plan 
year that began before 2014, then the plan's due date for the first 
plan year beginning after 2013 is the fifteenth day of the fourteenth 
calendar month that begins on or after the first day of that plan year.
    (b) Plans that change plan years. For a plan that changes its plan 
year, the flat-rate and variable-rate premium filing due date for the 
short plan year is as specified in paragraph (a) of this section. For 
the plan year that follows a short plan year, the due date is the later 
of --
    (1) The due date specified in paragraph (a) of this section, or
    (2) 30 days after the date on which the amendment changing the plan 
year was adopted.
    (c) New and newly covered plans. For a new plan or newly covered 
plan, the

[[Page 13562]]

flat-rate and variable-rate premium filing due date for the first plan 
year of coverage is the latest of--
    (1) The due date specified in paragraph (a) of this section, or
    (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, or
    (4) In the case of a small plan that is a continuation plan, 90 
days after the plan's UVB valuation date.
    (d) Terminating plans. For a plan that terminates in a standard 
termination, the flat-rate and variable-rate premium filing due date 
for the plan year in which all plan assets are distributed pursuant to 
the plan's termination is the earlier of--
    (1) The due date specified in paragraph (a) of this section, or
    (2) The date when the post-distribution certification under Sec.  
4041.29 of this chapter is filed.
    (e) Continuing obligation to file. The obligation to make flat-rate 
and variable-rate premium filings and payments under this part 
continues through the plan year in which all plan assets are 
distributed pursuant to a plan's termination or in which a trustee is 
appointed under section 4042 of ERISA, whichever occurs earlier.

0
14. Section 4007.12 is amended by revising paragraph (b) to read as 
follows:


Sec.  4007.12  Liability for single-employer premiums.

* * * * *
    (b) After a plan administrator issues (pursuant to section 
4041(a)(2) of ERISA) the first notice of intent to terminate in a 
distress termination under section 4041(c) of ERISA or PBGC issues a 
notice of determination under section 4042(a) of ERISA, the obligation 
to pay the premiums (and any interest or penalties thereon) imposed by 
ERISA and this part for a single-employer plan shall be an obligation 
solely of the contributing sponsor and the members of its controlled 
group, if any.


Sec.  4007.13  [Amended]

0
15. Section 4007.13 is amended by removing the words ``under section 
4048 of ERISA'' where they appear once in paragraph (a)(1) introductory 
text, once in paragraph (a)(2) introductory text, once in paragraph 
(d)(1), once in paragraph (e)(3) introductory text, once in paragraph 
(e)(4) introductory text, once in paragraph (e)(4)(i), and once in 
paragraph (f) introductory text.

Appendix to Part 4007 [Amended]

0
16. In the Appendix to part 4007:
0
a. Section 21(b)(1) is amended by removing the words ``for waivers if 
certain `safe harbor' tests are met, and''; and by removing the words 
``30 days after the date of the bill'' and adding in their place the 
words ``30 days after the date of the bill, and for waivers in certain 
cases where you pay not more than a week late or where you estimate the 
variable-rate premium and then timely correct any underpayment''.
0
b. Section 21(b)(5) is amended by removing the second sentence (which 
begins ``We intend . . .'' and ends ``. . . narrow circumstances'').

PART 4047--RESTORATION OF TERMINATING AND TERMINATED PLANS

0
17. The authority citation for part 4047 continues to read as follows:

    Authority:  29 U.S.C. 1302(b)(3), 1347.


Sec.  4047.4  [Amended]

0
18. In Sec.  4047.4, paragraph (c) is amended by removing the words 
``in Sec.  4006.4(c) of this chapter''.

    Issued in Washington, DC, this 5th day of March 2014.
Joshua Gotbaum,
Director, Pension Benefit Guaranty Corporation.
[FR Doc. 2014-05212 Filed 3-10-14; 8:45 am]
BILLING CODE 7709-02-P