Waiver of PBGC Premium Penalties

The Pension Benefit Guaranty Corporation has codified it policy guidance on premium penalty waivers as an appendix to its premium payment regulation, effective for PBGC actions taken on or after December 18, 2006. [FR E6-19436]

The PBGC waives the penalty on failure to pay PBGC premiums most often in the case of “reasonable cause,” generally described as facts and circumstances meeting two conditions –

• Circumstances Beyond Control – The premium payment violation occurs due to circumstances beyond the control of the person on whose action or inaction the penalty assessment may be based; and

• Ordinary Business Care and Prudence – The violation could not have been avoided by exercising ordinary business care and prudence, taking into account the size of the organization and premium.

Specific situations that might be characterized as reasonable cause include a sudden and unexpected absence of the individual with the responsibility to deal with premium payment, destruction of relevant records because of a casualty or natural disaster, and reasonable reliance on erroneous communication from a PBGC employee. Failure to exercise care in the selection of a company’s advisors, such as its lawyers or actuaries, will not be considered a basis for reasonable cause, whether or not the advisors are employees or outside advisors.

In addition to waivers for reasonable cause, the PBGC may waive premium penalties in various other situations –

• Statutory or Regulatory Requirement – When a statute or regulation requires the penalty to be waived.

• Legal Error – When the premium violation arises from reliance on an erroneous legal interpretation or, in appropriate circumstances, from a recent change in the law.

• PBGC Procedure Pendency – When the violation is attributable to a PBGC review or other procedure is pending.

• Other Circumstances – When appropriate, in other narrow circumstances.