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.

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.

July 21, 2006

PBGC Waives Pension Liability Claim in GMAC Sale

Filed under: PBGC, Pensions — Fuguerre @ 5:49 am

The PBGC has assured General Motors that as a result of its sale of a majority interest in General Motors Acceptance Corporation, the agency will not take action to terminate the GM pension plan nor impose liability on the GMAC purchaser.  Resolution of the threat that the agency would view the GMAC sale as a stretegy designed to evade pension obligations had been a major condition of the sale.  [GM 8-K]

June 1, 2006

Electronic Filing of PBGC Premium Declarations

Filed under: PBGC — Fuguerre @ 7:19 am

PBGC premium declarations must be filed electronically, under final regulations published today by the Pension Benefit Guaranty Corporation. [71 FR 31077] For pension plans with at least 500 participants in the plan year beginning in 2005, the electronic filing requirement first applies to filings made on or after July 1, 2006, for plan years beginning in 2006. For all other plans, the requirement first applies to filings for plan years beginning after 2006. The electronic filing requirement does not apply to information submitted in response to a PBGC request in connection with a premium compliance review.

PBGC premium information may be filed electronically either through the agency's online application, "My Plan Administration Account," or by uploading information to the agency through independent private-sector software. Although premium information must be submitted electronically, electronic payment of the premium itself is not yet required.

The PBGC's final electronic filing regulation made various technical corrections and included areas being considered for future enhancements to the My PAA system.

May 3, 2006

Pilot Retirees’ Suit Against PBGC Dismissed

Filed under: Litigation, PBGC, Termination (Plan) — Fuguerre @ 12:31 am

Retired U.S. Airways pilots' lawsuit against the Pension Benefit Guaranty Corporation alleging errors in the calculation of estimated benefits under their terminated pension plan has been dismissed by the D.C. appellate court, which found that the retirees had not yet exhausted administrative remedies. [Boivin v. U.S. Airways, No. 03cv02373jr]

When the pension plan terminated in 2003, the PBGC began paying estimated benefits. Without waiting for the conclusion of final benefit determinations, retirees filed suit against U.S. Airways and the PBGC on the basis of the estimated benefit amounts, alleging four primary errors in the calculations and claiming that waiting through the usual 2-3 year formal benefit would cause irreparable harm. The PBGC has since changed its estimates on two of the contested issues in favor of the retirees, but argued against litigation of the remaining issues outside of the agency's established administrative remedies for individuals dissatisfied with its benefit determinations. Finding retirees' arguments for an exception unpersuasive, the appellate court sided with the PBGC without directly addressing the merits of the two remaining alleged errors.

March 13, 2006

Guerre: Pension Reform Focus on 4010

Filed under: Legislation, PBGC, Pensions — Fuguerre @ 10:02 am

Speaking last Friday in an interview with the Associated Press, PBGC Executive Director Bradley Belt reiterated the Administration’s concern over provisions relating to ERISA 4010 in pending pension reform legislation. Whereas last year 429 companies filed 4010 reports with the agency, representing $350 billion of underfunded pension liability by the PBGC’s estimate, the agency fears the House version of the legislation would cut the number of companies required to file to 40.

Under ERISA 4010 and corresponding regulations, if the aggregate unfunded vested benefits under single-employer defined benefit pension plans maintained by an employer’s controlled group members exceeds $50 million, then a report must be filed with the PBGC containing plan actuarial information and controlled group financial information. Confidential ERISA 4010 information is excepted from FOIA disclosure and is generally unavailable to the public.

The Administration blames “heavy lobbying by business interests” for legislative efforts to sharpen 4010 focus. The current $50 million threshold can easily hit a large controlled group, even if the controlled group is in excellent financial shape and no one pension plan sponsored by the controlled group is heavily underfunded. In contrast, smaller employers near bankruptcy with severely underfunded plans that pose greater risk to the PBGC are currently exempt from 4010 filing as long as aggregate pension underfunding remains under the $50 million threshold.

H.R. 2830 §503 would require 4010 reporting if either – (a) the aggregate funding ratio of single-employer defined benefit plans maintained by controlled group members is less than 60%; or (b) the aggregate funding ratio of single-employer defined benefit plans maintained by controlled group members is less than 75%, and the plan sponsor is in an industry with respect to which the PBGC determines that there is substantial unemployment or underemployment and sales or profits are depressed or declining. Instead of the current vested benefit basis, funded ratios for this rule would be determined on the basis of accrued benefits; and new interest and mortality assumptions proposed in the pension reform legislation would be used to measure liabilities.

Still, if it were that simple, the “heavy lobbying by business interests” might claim success: large controlled groups with more than $50 million of unfunded liabilities would not be subject to 4010 reporting if the controlled group’s aggregate funded ratio were high enough; whereas the PBGC would get 4010 information from plan sponsors currently exempt, if the plan or sponsor were judged by the new rule to pose high risk to the agency. Unfortunately, the 4010 reporting rules get caught up in another pension reform war: the credit balance. New §4010(b)(1) finds its definition of funded ratio – the “aggregate funding target attainment percentage” – from new §4010(d)(2), which relies on new ERISA §303(d)(1), which takes plan assets into account as reduced under new ERISA §303(f)(4)(B), which refers to the new rules’ amounts for the credit balance. Meaning that an employer could keep its pension promises by accelerating contributions to the point of even being more than 100% funded, yet be subject to 4010 reporting because the credit balance is ignored for the new threshold, although that pension plan would pose absolutely no risk to the PBGC if it were actually terminated. (And there are only 40 employers with low funded ratios after ignoring credit balances? That hardly seems credible.)

The Senate version (§505) mirrors the House bill, but would retain the current $50 million threshold if either – (a) the controlled group’s single-employer pension plans have an aggregate funded ratio below 90%, or (b) the employer or its bonds have less than investment-grade rating.

Neither version goes all the way for another key 4010 item on the Administration’s wish list: public access to 4010 filings. The House version would require employers to notify plan participants and congressional committees of 4010 reporting, providing certain funding information that had been given on the filing. The Senate version would require only a summary report of the funding information to be provided to congressional committees. Otherwise, existing prohibition on public disclosure and FOIA exemptions would continue in force.

February 1, 2006

PBGC Premium Increase Back on the Table

Filed under: Legislation, PBGC, Pensions — Fuguerre @ 4:13 pm

Congress is back up and running! Which among other things means that we have before us H.Res. 653 bringing back to the House the budget bill S. 1932, leftover from last December after lastminute tweaks made by the Senate required another look by the lower chamber. For BeneBlog, the areas of focus being –

  • PBGC flat-rate premiums for 2006 would increase to $30 per participant for single-employer plans, and to $8 per participant for multiemployer plans.
  • For single-employer plans that undergo a distress termination or involuntary termination, a special $1,250 annual premium would be required for up to 3 years, with a special rule applicable to plans terminated under bankruptcy reorganization.
  • FDIC pass-through insurance coverage for employee benefit plans and retirement accounts would increase.

And a few other bits and pieces.

It may not be until April, if not later, before we see a compromise bill emerge on the major pension bill, S.1783 and H.R. 2830. But before the week is out, we could have higher PBGC premiums.

Update – The House has approved S.1932 by a vote of 216-214, and the budget bill goes to the President, who is expected to sign it into law.

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