Blogging Employee Benefits

November 17, 2006

Waiver of PBGC Premium Penalties

Filed under: PBGC, Regulations — Fuguerre @ 7:45 am

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.

October 17, 2006

Past Imperfect Blooper

Filed under: IRS, Regulations — Fuguerre @ 8:47 pm

If this one doesn’t at least tempt a smile, you’re probably taking our work way too seriously.

But I must confess, not only did this one elude me completely, but I didn’t even catch it now at first, not until I had it brought to my attention today over morning cappuccino. Admit it, this is the first you’ve heard of this too. What I’d like to know is who out there pointed it out to the IRS, and how many of there were you.

In the September 21 Federal Register, the IRS corrected bloopers found in its August final regulations on the 411(d)(6) anti-cutback rule. Among the mistakes, which the correction observes “may prove to be misleading and are in need of clarification,” one key sentence of 1.411(d)-3(a)(3) is corrected to read as follows –

However, such an amendment does not violate section 411(d)(6) to the extent it applies with respect to benefits that accrue after the applicable amendment date.

The original version of the final regulations, published August 9, had that sentence as follows –

However, such an amendment does not violate section 411(d)(6) to the extent it applies with respect to benefits that accrued prior to the applicable amendment date.

Oops. Interesting bit of “clarification.” Run 411(d)(6) by me again, please. But hey, that slipped by me too, back when I posted on the final regs here, not to mention several dozen times since then when I’ve discussed Heinz with clients. Besides, we all knew what the agency meant. Like, no legitimate counsel would try to sneak in a quick loophole amendment in on this blooper, one would certainly expect. (Or if we wish to extend the clarification to the ridiculously obvious, the fact that the IRS correction is only explicitly stated as being retroactive to August 9, 2006, should not persuade anyone to try to find any false relief with respect to certain pre-8/9/2006 applicability expressed in the original final regulation. Quite obviously this particular amendment does apply to the past!)

So it gets a quick little chuckle, then I’m back to juggling to keep my own future separate and distinct from its past.

August 24, 2006

PPA Interest Rates for 2006 PBGC Variable Rate Premiums

Filed under: PBGC, Pensions — Fuguerre @ 7:26 am

Along with the extension of the pre-2006 corporate bond basis replacing the 30-year Treasury bond basis for valuation of current liabilities of a pension plan, the Pension Protection Act of 2006 similarly extended the corporate bond basis for the interest rate used to value vested benefits for purposes of the PBGC variable rate premium. [PPA §301(a)(3)] The Pension Benefit Guaranty Corporation has updated its page on Valuing vested benefits for PBGC variable rate to reflect the PPA provision. (Previously, these PPA rates had been available on the PBGC’s page for the 4010 temporary gateway test, which had waived 4010 reporting on the basis of the anticipated PPA rates.)

Note that although PPA §401(a) eliminates the full funding limit exemption of ERISA §4006(a)(3)(E)(iv) after 2007 (i.e., hitting the FFL in 2007 will not relieve you from the VRP in 2008), that exemption does remain intact for the 2006 and 2007 premium years.

August 18, 2006

PPA Interest Rates for 2006 Plan Year Funding

Filed under: IRS, Legislation, Pensions — Fuguerre @ 2:28 pm

The IRS has published interest rates for determination of current liability for single employer pension plans for plan years beginning during 2006, as modified by PPA §301. [Notice 2006-75]

August 13, 2006

Exec Comp Disclosures: Pension Table

Filed under: Executive Compensation, Pensions, SEC — Fuguerre @ 12:47 am

The actuarial present value of accumulated pension benefits and deferred compensation for each named executive officer must be disclosed in the new Pension Table prescribed by the SEC’s final regulation on executive compensation disclosure. [33-8732] See §229.402(h) and the associated discussion in Preamble Section II.C.5.a. Detailed disclosure is required separately for each qualified defined benefit plan and non-qualified deferred compensation plan (other than non-qualified defined contribution arrangements) under which a named executive officer benefits. [§229.402 Instructions to Item (h)(2) item 1]

Pension values should be determined as of the same pension plan measurement date used for the financial statements for the most recent fiscal year. Given FASB’s 7/29 decision (as previously discussed here) to delay until 2008 the effective date of the requirement to synchronize the pension measurement date with the financial statement date, employers that continue to use an early measurement date for their pensions under FAS 87 would be using that same early measurement date for the executive pension disclosures for several more years.

The measurement should assume that the executive will retire at the normal retirement age defined in the plan (or absent a normal retirement age under the plan, at the earliest time when a participant may retire under the plan without any benefit reduction due to age). Since the value of currently accumulated benefits based on current compensation is to be disclosed, no assumption of future compensation levels would be used, even for a pay-related benefit formula (although narrative text should sufficiently describe the benefit design). Otherwise, present values should be determined using the same actuarial assumptions used for financial reporting purposes, i.e., generally as under FAS 87 (except in the case of individual deferred compensation contracts). Narrative text should disclose the valuation method and all material assumptions used to quantify the present value. [§229.402 Instructions to Item (h)(2) item 2.] A “succinct narrative description” of any material factors necessary to understanding each plan covered within the Pension Table should describe material terms and conditions of benefits available under the plan, including amounts that could be paid immediately for any executive currently eligible for early retirement. [§229.402(h)(3)]

In addition to the present value of pension benefits, the pension table should also disclose the dollar amount of any pension payments actually made to each named executive during the most recent fiscal year [§229.402(h)(2)(v)], as well as the credited service for each executive under each plan [§229.402(h)(2)(iii)].

August 11, 2006

SEC Exec Comp Disclosures: Transition

Filed under: Executive Compensation, Regulations, SEC — Fuguerre @ 7:56 pm

Give it another week or so before we lock in the initial key effective date here, which will be when this gets published in the Federal Register, but the SEC has posted its final regulations on executive compensation and related person disclosure on its website. [33-8732]

I’ll start my own reading here with the compliance dates for the new rules:

  • 60 days Federal Register publication, for triggering events occuring on or after – Forms 8-K.
  • 12/15/2006, for fiscal years ending on or after – Forms 10-K and 10-KSB.
  • 12/15/2006, for proxy or information statements filed on or after, required to include relevant disclosures for fiscal years ending on or after – Proxy and information statements covering registrants other than registered investment companies.
  • 12/15/2006, for registration statements filed on or after, required to include relevant disclosures for fiscal years ending on or after – Securities Act statements covering registrants other than registered investment companies; and Exchange Act registration statements.
  • 12/15/2006, for initial registration statements and post-effective amendments filed on or after – Initial statements and post-effective amendments filed on Forms N-1A, N-2, and N-3 (excluding those filed by business development companies).
  • 12/15/2006, for proxy or information statements filed on or after – Proxy and information statements covering registered investment companies.

Disclosures under the new rules are not required to restate compensation or related party disclosures for prior fiscal years. For example, only the most recent fiscal year need be displayed in the revised Summary Compensation Table.

I’ll bite into more substance on this through the weekend, if I can distract myself from PPA long enough to do it any justice.

August 9, 2006

A Notice of Some Passing Interest

Filed under: IRS, Pensions — Fuguerre @ 7:00 am

Yes, PPA §301(b) amended IRC §412(b)(5)(B)(ii)(II) to extend PFEA relief from use of 30-year Treasury rates for current liability valuation through the 2006 and 2007 plan years. And yes, we expect the President to sign PPA into law next week. But until actual enactment of PPA, technically the snap-back interest rates remain the prevailing law. So the IRS gives us Notice 2006-74, quite certain to be obsolete well before its scheduled August 28 publication in Internal Revenue Bulletin 2006-35.

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