As part of the Obama administration’s mandate that government agencies review
existing regulations in an effort to make them more effective or less
burdensome, the Pension Benefit Guaranty Corporation (PBGC) recently announced
that it will provide a limited opportunity for administrators of defined benefit
pension plans that have never paid required PBGC termination-insurance premiums
to make up those payment deficiencies without penalty. This opportunity is
available only to plans for which premiums were never paid and not to plans for
which PBGC has received some, but not all, premiums. Late payment of PBGC
premiums can result in penalty and interest charges, as described below.
Under ERISA, the administrator of a covered plan and the contributing sponsor
of such plan (and all members of such sponsor’s controlled group) are liable for
premium payments. The PBGC regulations impose upon the administrator of a
covered plan the responsibility to file prescribed premium information.
The temporary penalty relief is available through a special voluntary
compliance program. To participate in the program, which is open until July 31,
2012, the administrator of an eligible plan (or the administrator’s
representative) must contact the PBGC and disclose the nature and extent of
premium nonpayment. The administrator must then file premium information and pay
the missed premiums by Aug. 31, 2012.
Participation in the compliance program relieves plan administrators of the
penalty for the late payments. Unless waived by the PBGC after a showing of
hardship or reasonable cause, the penalty is 1 percent of the late payment per
month if the underpayment or late payment is “self-corrected” by the plan
administrator (i.e, if the payment is made on or before the date the PBGC issues
a written notification that there is a premium delinquency, a past-due filing
notice or a letter initiating an audit). A penalty rate of 5 percent per month
applies to payments made after PBGC notification.
The compliance program does not, however, provide relief from interest charges
for the late premium payments. Interest charges, which may not be waived by the
PBGC, accrue based on IRS tax underpayment rates. The interest rate for the
current quarter is 3 percent.
Late premiums for the 2006 plan year and thereafter will need to be paid using
the PBGC’s electronic filing system. The PBGC will make other arrangements for
late premiums attributable to earlier plan years. In addition, the PBGC has
stated that it is “willing to discuss” allowing a plan administrator to pay less
than the full amount of missed premiums in certain circumstances (such as for
plan years in the distant past for which, presumably, records needed to
calculate premiums may no longer be available or may be materially incomplete).
Finally, the PBGC has indicated that once the compliance program closes, it will
step up its efforts to enforce premium payment requirements for covered plans
that have not paid any premiums, and will assess applicable penalties.
Given the limited amount of time the PBGC is offering relief, employers
should take affirmative steps to determine whether they maintain plans covered
by the PBGC premium requirements for which premiums have never been paid.
Potential situations in which relief under the compliance program may be used
include the following:
- A plan that was formerly exempt from paying PBGC premiums becomes
covered, such as a plan initially maintained only for an owner-employee that
later includes a nonowner participant.
- A plan that was incorrectly assumed to be exempt, such as a plan that
was assumed to be a “governmental plan” when adopted but which did not meet
all the applicable requirements fAor exemption.
- Plans assumed in acquisitions.
- A supplemental executive retirement plan that inadvertently covers more
than a “select group of management or highly compensated employees” and is
therefore not exempt.
If required PBGC premiums were never paid for a plan, it is also possible
that annual Form 5500s were not filed for that plan. If so, the administrator
should take advantage of the Department of Labor’s Delinquent Filer Voluntary
Compliance Program to file all required past-year Form 5500s.
For more information regarding the compliance program, please contact the
authors or any other members of McGuireWoods’