[Federal Register: March 21, 2008 (Volume 73, Number 56)]
[Rules and Regulations]
[Page 15065-15078]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21mr08-10]
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PENSION BENEFIT GUARANTY CORPORATION
29 CFR Parts 4006 and 4007
RIN 1212-AB11
Premium Rates; Payment of Premiums; Variable-Rate Premium;
Pension Protection Act of 2006
AGENCY: Pension Benefit Guaranty Corporation.
ACTION: Final rule.
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SUMMARY: This is a final rule to amend PBGC's regulations on Premium
Rates and Payment of Premiums. The amendments implement provisions of
the Pension Protection Act of 2006 (Pub. L. 109-280) that change the
variable-rate premium for plan years beginning on or after January 1,
2008, and make other changes to the regulations. (Other provisions of
the Pension Protection Act of 2006 that deal with PBGC premiums are the
subject of separate rulemaking proceedings.)
DATES: Effective April 21, 2008. (For information about applicability
of the amendments made by this rule, see Applicability in the
SUPPLEMENTARY INFORMATION.)
FOR FURTHER INFORMATION CONTACT: John H. Hanley, Director, Legislative
and Regulatory Department; or Catherine B. Klion, Manager, or Deborah
C. Murphy, Attorney, Regulatory and Policy Division, Legislative and
Regulatory Department, Pension Benefit Guaranty Corporation, 1200 K
Street, NW., Washington, DC 20005-4026; 202-326-4024. (TTY/TDD users
may call the Federal relay service toll-free at 1-800-877-8339 and ask
to be connected to 202-326-4024.)
SUPPLEMENTARY INFORMATION:
Background
Pension Benefit Guaranty Corporation (PBGC) administers the pension
plan termination insurance program under Title IV of the Employee
Retirement Income Security Act of 1974 (ERISA).
[[Page 15066]]
Pension plans covered by Title IV must pay premiums to PBGC. The flat-
rate premium applies to all covered plans; the variable-rate premium
applies only to single-employer plans. Section 4006 of ERISA deals with
premium rates, including the computation of premiums. Section 4007 of
ERISA deals with the payment of premiums, including premium due dates
and interest and penalties on premiums not timely paid, and with
recordkeeping and audits.
On August 17, 2006, the President signed into law the Pension
Protection Act of 2006, Pub. L. 109-280 (PPA 2006). PPA 2006 makes
changes to the funding rules in Title I of ERISA and in the Internal
Revenue Code of 1986 (Code) on which the variable-rate premium is
based. Section 401(a) of PPA 2006 amends the variable-rate premium
provisions of section 4006 of ERISA to conform to those changes in the
funding rules and to eliminate the full-funding limit exemption from
the variable-rate premium.
On May 31, 2007 (at 72 FR 30308), PBGC published in the Federal
Register a proposed rule to amend PBGC's regulations on Premium Rates
(29 CFR part 4006) and Payment of Premiums (29 CFR part 4007) to
implement the amendment to ERISA section 4006 made by PPA 2006. (PPA
2006 also includes other provisions affecting PBGC premiums that were
not addressed in the proposed rule, including provisions that cap the
variable-rate premium for certain plans of small employers, make
permanent the new ``termination premium'' (created by the Deficit
Reduction Act of 2005) that is payable in connection with certain
distress and involuntary plan terminations, and authorize PBGC's
payment of interest on refunds of overpaid premiums. Those provisions
are or will be the subject of other rulemaking actions. See, for
example, PBGC's final rule published December 17, 2007 (at 72 FR
71222).) PBGC received comments on the proposed rule from two
commenters--an actuary and an organization representing plan sponsors
and service providers. The comments are discussed below with the topics
they relate to.
The final rule is nearly the same as the proposed rule. In addition
to changes prompted by public comments, PBGC has added two definitional
cross-references, clarified the definition of ``new plan,'' eliminated
unnecessary verbiage from one of the due date rules, clarified the
relationship between the funding interest rate transition rule and the
premium funding target, extended the small-plan deadline for making
certain elections, clarified how participants are counted for purposes
of determining plan size, provided illustrations of the provision on
vesting, and clarified the provision dealing with plans to which
special funding rules apply. These changes are discussed below. There
are also a few merely editorial refinements in the proposed rule's
regulatory language.
Overview of Regulatory Amendments
For purposes of determining a plan's variable-rate premium (VRP)
for a premium payment year beginning after 2007, the rule requires
unfunded vested benefits (UVBs) to be measured as of the funding
valuation date for the premium payment year. The asset measure
underlying the UVB calculation is to be determined for premium purposes
the same way it is determined for funding purposes, except that any
averaging method adopted for funding purposes is disregarded. The
liability measure underlying the UVB calculation is to be determined
for premium purposes the same way it is determined for funding
purposes, except that only vested benefits are included and a special
premium discount rate structure is used. Filers may make an election
(irrevocable for five years) to use funding discount rates for premium
purposes instead of the special premium discount rates.
The rule revises the premium due date and penalty structure of the
existing regulation to give some plans more time to file and others the
ability to make VRP filings based on estimated liabilities and then
follow up with amended filings to adjust the VRP without penalty. Three
special relief rules for VRP filers are eliminated as no longer
appropriate or necessary, and two new relief rules are added.
The rule also explains when certain benefits are considered
``vested'' and makes some other changes unrelated to PPA 2006. For
example, the rule provides explicitly that (in the absence of an
exemption) a premium filing made on paper or in any other manner other
than the prescribed electronic filing method (applicable to all plans
for plan years beginning after 2006) does not satisfy the requirement
to file. It also clarifies and strengthens recordkeeping and audit
provisions.
A more detailed discussion follows.
Variable-Rate Premium Determination Dates
Under ERISA section 4006(a)(3)(E)(i) and (ii), a plan's per-
participant VRP for a plan year is generally--
$9.00 for each $1,000 (or fraction thereof) of unfunded vested
benefits [''UVBs''] under the plan as of the close of the preceding
plan year.
divided by the plan's participant count as of the close of the
preceding plan year. (Under ERISA section 4006(a)(3)(H), added by
section 405 of PPA 2006, the per-participant VRP is capped at $5 times
the participant count as of the close of the prior plan year for
certain plans of small employers. The cap provision is the subject of
another rulemaking.) Under ERISA section 4006(a)(3)(A)(i), the per-
participant VRP is multiplied by the number of participants ``in [the]
plan during the plan year'' to yield the total VRP. The existing
premium rates regulation treats all of these provisions as referring to
a single determination date. In most cases, this is the last day of the
prior plan year; it is the first day of the premium payment year (the
plan year for which the premium is being paid) for two categories of
plans: new and newly covered plans (which are not in existence as
covered plans on the last day of the prior plan year) and certain plans
involved in plan spinoffs and mergers as of the beginning of the
premium payment year (which otherwise would double-count or not count
certain participants and UVBs for premium purposes).
The term ``unfunded vested benefits'' (``UVBs'') is defined in
ERISA section 4006(a)(3)(E)(iii). In section 4006(a)(3)(E)(iii) before
amendment by PPA 2006, ``UVBs'' is defined as unfunded current
liability (a term found in the funding provisions of the Code and Title
I of ERISA) determined by counting only vested benefits and using a
special interest rate and (under certain circumstances) a special
measure of plan assets. PPA 2006 changes the funding rules for single-
employer plans, eliminating the concept of current liability for plan
years beginning after 2007. (As discussed below, certain plans will not
use the new funding rules until a later date.) To conform to this
change, PPA 2006 changes the definition of UVBs in ERISA section
4006(a)(3)(E)(iii). As amended by PPA 2006, for plan years beginning
after 2007, section 4006(a)(3)(E)(iii) provides that ``UVBs''--
means, for a plan year, the excess (if any) of * * * the funding
target of the plan as determined under [ERISA] section 303(d)
[corresponding to Code section 430(d)] for the plan year by only
taking into account vested benefits and by using the interest rate
described in [ERISA section 4006(a)(3)(E)(iv)], over * * * the fair
market value of plan assets for the plan year which are held by the
plan on the valuation date.
New ERISA section 303(g) says that with certain exceptions not
relevant here, ``all determinations under this section [which includes
the definition
[[Page 15067]]
of ``funding target'' in section 303(d)(1)] for a plan year shall be
made as of the valuation date of the plan for such plan year.'' Thus
PBGC concludes that the ``valuation date'' for plan assets referred to
in new section 4006(a)(3)(E)(iii) is the valuation date determined
under section 303(g)(2). In general (under section 303(g)(2)(A)), the
valuation date for a plan year is the first day of the plan year, but
certain small plans may designate a different valuation date (under
section 303(g)(2)(B)), which may be any day in the plan year.
The change in the definition of UVBs thus creates ambiguity about
the date as of which UVBs are to be measured. Section
4006(a)(3)(E)(ii), which was not changed by PPA 2006, refers to two
plan years--the ``plan year'' for which the VRP is being paid (the
premium payment year) and the ``preceding plan year,'' at the close of
which UVBs are to be measured. New section 4006(a)(3)(E)(iii) refers
only to the ``plan year'' in defining UVBs. And a plan's funding target
and assets--the elements of UVBs--are to be measured as of the
valuation date, which need not be the close of the plan year and which
for many plans (those not small enough to elect otherwise) must be the
beginning of the plan year.
To resolve the statutory ambiguity, PBGC is adopting a rule
regarding the date as of which UVBs are to be measured. In view of the
following considerations, PBGC is requiring that UVBs be measured as of
the valuation date in the premium payment year rather than a date in
the prior plan year.
Historical data indicate that most premium filers use beginning-of-
the-plan-year valuation dates for funding purposes; under PPA 2006 many
of them will be required to do so. Although funding valuations don't
themselves produce UVB numbers that can be used for VRP purposes, they
involve the gathering of the same basic data for analysis, and the
valuations are done in the same way, simply using different
assumptions. It would be burdensome and impractical to require plans
that must do funding valuations as of the first day of a plan year to
do separate valuations as of the last day for VRP purposes.
Requiring a funding valuation done as of the first day of the prior
plan year to be ``rolled forward'' to the last day of the prior plan
year is likewise burdensome and impractical. Instructions for ``roll-
forwards'' would necessarily be complex, especially in light of the new
``segment rate'' interest assumption under ERISA sections 303(h)(2)(C)
and 4006(a)(3)(E)(iv) as amended by PPA 2006. And ``rolled-forward''
valuations would tend to be inaccurate because correcting for the many
changes in circumstances that can occur during the course of a year
involves a significant element of estimation.
Furthermore, basing the VRP on a valuation done in the premium
payment year reflects a plan's current funding status much better than
basing it on a valuation done in the prior year, especially a valuation
done as of the first day of the prior year. And with some changes
(discussed below) in PBGC's premium due date and penalty rules, there
will be adequate time for plans to compute premiums based on a premium
payment year valuation.
Accordingly, this rule requires that UVBs be measured as of the
valuation date for the premium payment year (referred to as the ``UVB
valuation date'') and adjusts premium due dates and penalty rules to
accommodate the fact that this UVB valuation date is later (by at least
a day and in some cases perhaps as much as a year) than ``the close of
the preceding plan year,'' the date used under section 4006(a)(3)(E)
before amendment by PPA 2006. (No change is made in the date as of
which participants are counted, which the regulations as amended by
this final rule refer to as the ``participant count date.'')
Variable-Rate Premium Computation
As noted above, UVBs under PPA 2006 are based on a plan's funding
target and the market value of its assets. Under new ERISA section
303(d)(1), as set forth in section 102 of PPA 2006, ``the funding
target of a plan for a plan year is the present value of all benefits
accrued or earned under the plan as of the beginning of the plan
year.'' But new ERISA section 303(g) makes clear that the funding
target is to be determined as of the valuation date, which for small
plans may not be the beginning of the plan year. PBGC thus believes
that what ERISA section 303(d)(1) requires is that the benefits to be
valued as of the valuation date are those accrued as of the beginning
of the plan year. If the valuation date is later than the first day of
the plan year, accruals after the beginning of the plan year are to be
ignored.
The situation regarding assets is similar. New ERISA section
4006(a)(3)(E)(iii)(II) refers to ``the fair market value of plan assets
for the plan year which are held by the plan on the valuation date.''
Under new ERISA section 303(g)(4)(B), however, plan assets as of a
valuation date later than the first day of the plan year do not include
contributions for the plan year made during the plan year but before
the valuation date or interest thereon. PBGC interprets section
4006(a)(3)(E)(iii)(II) as incorporating this rule, as well as the
corresponding rule for prior-year contributions in section
303(g)(4)(A). Thus for a valuation date later than the first day of the
plan year, UVBs are to reflect neither accruals nor contributions for
the plan year.
In general, a plan's funding target and the value of its assets are
to be determined for premium purposes the same way they are for funding
purposes except as new ERISA section 4006(a)(3)(E)(iii) and (iv)
provides otherwise. In order to distinguish the funding target used for
premium purposes from that used for funding purposes, the rule
introduces the term ``premium funding target.'' In general, this means
the funding target determined by taking only vested benefits into
account and by using the special segment rates described in new ERISA
section 4006(a)(3)(E)(iv) (the ``standard premium funding target'').
Those special segment rates are ``spot rates'' (based on bond yields
for a single recent month), as opposed to the 24-month average segment
rates used for funding purposes.
But in certain circumstances (described below), PBGC is permitting
filers to use an ``alternative premium funding target'' that may be
less burdensome to use than the standard premium funding target. A
plan's alternative premium funding target is the vested portion of the
plan's funding target under ERISA section 303(d)(1) that is used to
determine the plan's minimum contribution under ERISA section 303 for
the premium payment year--that is, an amount calculated using the same
assumptions as are used to calculate the plan's funding target under
ERISA section 303(d)(1), but based only on vested benefits, rather than
all benefits.
Although instructions for annual reports on Form 5500 series for
plan years beginning after 2007 are not final, PBGC expects plans to be
required to compute the vested portion of the funding target (broken
down by participant category) for Form 5500 filings. PBGC also expects
that the final instructions will permit or require benefits to be
categorized as vested or non-vested in a manner consistent with the
provisions of this rule (discussed below) that explain when certain
benefits are considered vested for premium purposes. The advantage to a
filer of using the alternative premium funding target will be that, if
the plan determines the vested portion of its funding target for
purposes of the annual report (Form 5500 series) in a
[[Page 15068]]
manner consistent with PBGC's rules, it can use the same number for
premium purposes and thus avoid having to do a second calculation for
premium purposes alone.
Under the rule, the alternative premium funding target may be used
where the plan makes an election to do so that is irrevocable for a
period of five years. As financial markets fluctuate, the averaged
rates used for the alternative premium funding target will fluctuate
above and below the spot rates used for the standard premium funding
target. Locking in the election for five years will keep plans from
calculating the premium funding target both ways each year and using
the smaller number; the reason for permitting use of the alternative
premium funding target is to reduce not premiums but the burden of
computing premiums. PBGC expects that normal interest rate fluctuations
will make premiums computed with the alternative premium funding
target--on average, over time--approximately equal to premiums
calculated with the standard premium funding target. Requiring a five-
year commitment to the use of the alternative premium funding target
will give this averaging process time to work. If a plan administrator
concludes that the averaging process has not had enough time to work by
the end of the minimum five-year election period, the election may be
left in place to give the averaging process more time to work.
The proposed rule required that an election (or revocation of an
election) to use the alternative premium funding target be made by the
end of the first plan year to which it would apply. The final rule
changes the election/revocation deadline to the VRP due date for the
first plan year to which the election or revocation would apply. This
will allow an election or revocation to be made at the same time as a
plan's VRP filing for the first plan year to which it applies, even if
the plan year ends before the due date (such as for a small plan (as
discussed below) or a short plan year). And since the VRP depends on
whether an available election or revocation is made, there is no need
for the election/revocation deadline to be later than the VRP due date
if the VRP due date occurs before the end of the plan year. PBGC plans
to provide for such elections and revocations in its electronic premium
filing application.
The proposed rule did not explicitly address the applicability of
the transition rule in ERISA section 303(h)(2)(G) to the calculation of
the premium funding target. Section 303(h)(2)(G) calls for a two-year
transition from the current liability interest rate to the new segment
rates for purposes of determining the funding target. However, in
describing the interest rate to be used in determining the standard
premium funding target, ERISA section 4006(a)(3)(E)(iv) (as added by
PPA 2006) refers only to subparagraphs (C) and (D) of ERISA section
303(h)(2), not to the funding interest assumption as a whole. Thus, the
fact that there is a transition rule for funding purposes does not mean
that there is a transition rule for premium purposes.
Furthermore, since the current liability interest rate is not the
interest assumption that has heretofore been used to determine UVBs, a
literal application of the section 303(h)(2)(G) transition rule would
lead to illogical results. The only reasonable way the transition rule
could be applied to the calculation of the standard premium funding
target would be by reading into section 303(h)(2)(G) (for premium
purposes) a reference to the required interest rate heretofore used to
determine UVBs, rather than the current liability interest rate that
section 303(h)(2)(G) actually refers to. Accordingly, the proposed rule
did not provide for the applicability of the transition rule to the
determination of the standard premium funding target, and the premium
filing instructions that PBGC submitted for approval by the Office of
Management and Budget when the proposed rule was published reflected
this. Section 4006.4(b)(2)(ii) of the premium rates regulation, as
amended by the final rule, makes this point explicit.
The alternative premium funding target, on the other hand, is based
directly on the funding target under ERISA section 303(d)(1), which
will be calculated using the transition rule (unless elected out of
under ERISA section 303(h)(2)(G)(iv)). Thus the alternative premium
funding target will clearly reflect the provisions of section
303(h)(2)(G), just as it will reflect the provisions of section
303(h)(2)(D)(ii) (election to use the full yield curve instead of
segment rates) or section 303(h)(2)(E) (election of ``applicable
month'' for determining the yield curve). PBGC believes that this point
is clearly implicit in the language of the proposed rule, and has not
changed that language for the final rule.
Since new ERISA section 4006(a)(3)(E)(iii)(II) speaks explicitly of
the ``fair market value'' of assets, PBGC concludes that it would be
inconsistent with the statute to permit or require the use of the
averaging process described in new ERISA section 303(g)(3)(B) or the
reduction of assets by the prefunding and funding standard carryover
balances described in new ERISA section 303(f)(4). (The existing
premium rates regulation also provides that credit balances do not
reduce assets for premium purposes.)
As noted above, however, PBGC believes that adjustments must be
made for contributions as described in new ERISA section 303(g)(4).
Similar adjustments are required under the current premium rates
regulation. For simplicity, PBGC is providing that the adjustments are
to be made using the effective interest rates determined for funding
purposes, rather than effective interest rates computed on the basis of
the premium segment rates. This will mean that the adjustments do not
have to be calculated twice (once for funding purposes and again for
premium purposes), and plans can use for premium purposes a figure for
the value of assets that they are expected to be entering in the annual
report (Form 5500 series). PBGC anticipates that the differences
between funding and premium rates and the periods of time over which
these rates are applied for this purpose will be small enough to
justify this simplification. And as funding rates fluctuate above and
below premium rates, the differences in each direction should cancel
out over time.
This rule does not include an ``alternative calculation method''
for rolling forward prior year values to the current year. The
alternative calculation method (ACM) in Sec. 4006.4(c) of the current
premium rates regulation was instituted when much actuarial valuation
work was done using hand calculators and tables of factors. High-speed,
high-memory computers are now the norm for handling both data and
mathematical computations. Actuarial valuations are thus much faster
now. Furthermore, the segment rate methodology for valuing benefits
does not lend itself to the kind of formulaic transformation process
exemplified by the existing ACM. PBGC accordingly believes that an
alternative calculation method is both unnecessary and impracticable
under PPA 2006.
Noting that the proposed rule ignored premium payment year accruals
in determining the premium funding target for plans with UVB valuation
dates after the beginning of the year, one commenter urged that benefit
increase amendments adopted after the UVB valuation date but
implemented retroactively to the beginning of the premium payment year
be ignored for premium purposes. PBGC is not adopting any express
provision on this subject. The premium funding target is
[[Page 15069]]
based on the funding target under ERISA section 303(d); whether a
benefit increase (even if retroactive) is taken into account for
premium purposes depends on whether it is taken into account for
funding purposes, an issue not addressed in this rule.
Due Dates and Penalty Rules
PBGC expects that most plans that are required (or choose) to do
funding valuations as of the beginning of the plan year (and whose UVB
valuation date is thus the first day of the premium payment year) will
be able to determine their UVBs by the VRP due date currently provided
for in PBGC's premium payment regulation (generally, the middle of the
tenth full calendar month after the beginning of the plan year). But
there are some circumstances that can make timely determination of the
VRP difficult or impossible: for example, use of a valuation date after
the beginning of the plan year (applicable to small plans only) or
difficulty in collecting data (e.g., because of the occurrence of
unusual events during the preceding year). To deal with such
circumstances, PBGC is revising its premium due date and penalty
structure to give smaller plans more time to file and larger plans the
ability to make VRP filings based on estimated liabilities and then
correct them without penalty. The following detailed discussion of the
due date and penalty structure is followed by a summary table.
PBGC's current due date structure for flat- and variable-rate
premiums is based on two categories of plans: those that owed premiums
for 500 or more participants for the plan year preceding the premium
payment year (``large'' plans) and those that did not. The new
structure is based on three categories. The large-plan category remains
the same. A new ``mid-size'' category consists of plans that owed
premiums for 100 or more, but fewer than 500, participants for the plan
year preceding the premium payment year. A category of ``small'' plans
includes all other plans. The participant count for this purpose will
continue to be the prior year's count; the rule provides uniform
language for determining both single- and multiemployer plans'
participant counts for determining due dates, eliminating a slight
language difference in the existing regulation.
The final rule makes clear that the number of participants used for
determining plan size is the participant count used for purposes of the
flat-rate premium (not the number of participants whose benefits are
taken into account in computing the VRP). Since both flat-rate and
variable-rate premium due dates are based on plan size, plan size must
be determinable for plans (such as multiemployer plans) that do not
compute the VRP. Furthermore, the VRP does not reflect the number of
participants directly except for certain plans of small employers that
are subject to a VRP cap based on the number of participants (in which
case it is the flat-rate participant count that is used). Tying plan
size to the flat-rate premium participant count is consistent with the
existing regulation.
The 100-participant break-point between the small and mid-size
categories approximates the break-point in the PPA 2006 funding rules
between plans that are required to use beginning-of-the-year valuation
dates under ERISA section 303(g)(2)(A) and those permitted to use
another date under ERISA section 303(g)(2)(B). The correspondence with
the valuation date provision is only approximate. Under the valuation
date provision, PPA 2006 counts participants on each day of a plan year
and aggregates plans within controlled groups; under the premium due
date rules, participants are counted in one plan on one day.
Furthermore, PPA 2006 funding rules look back to the plan year
preceding the valuation year; the PBGC participant count for the plan
year preceding the premium payment year is typically as of the last day
of the plan year before that. Accordingly, there may be plans that are
eligible to elect valuation dates other than the first day of the plan
year but that do not fall into PBGC's new small-plan category. But most
plans that use valuation dates other than the first day of the plan
year are expected to be ``small'' under the new due date structure, and
there is enough flexibility in the due date rules for large and mid-
size plans to make premium filing manageable in most cases even for
plans with valuation dates after the beginning of the plan year. In
unusual cases, where a plan with a valuation date late in the year
finds itself in the large or mid-size category, PBGC has authority to
waive late premium penalties.
Small Plans
For plans in the ``small'' category, all premiums will be due on
the last day of the sixteenth full calendar month that begins on or
after the first day of the premium payment year (for calendar-year
plans, April 30 of the year following the premium payment year). This
will give any small plan at least four months to determine UVBs.
The same due date will apply to both variable- and flat-rate
premiums. While there is no reason these small plans cannot determine
the flat-rate premium by the current due date (the 15th day of the
tenth full calendar month that begins on or after the first day of the
premium payment year), PBGC wants to avoid requiring them to make two
filings per year. And for simplicity, PBGC is making no distinction for
due date purposes between single-employer plans that pay the VRP and
single-employer (and multiemployer) plans that do not. Small single-
employer plans that qualify for an exemption from the VRP and small
multiemployer plans (which are not subject to the VRP) will have the
same deferred due date as small single-employer plans that owe a VRP.
Mid-Size Plans
For mid-size plans, the rule retains the current premium due date--
the 15th day of the tenth full calendar month that begins on or after
the first day of the premium payment year (October 15th for calendar-
year plans)--for both flat- and variable-rate premiums. With rare
exceptions, these plans will perform valuations as of the first day of
the premium payment year, and in most cases should be able to calculate
UVBs by the current due date. However, in recognition of the
possibility that circumstances might make a final UVB determination by
the due date difficult or impossible, the rule permits VRP filings to
be made based on estimated liabilities and provides a penalty-free
``true-up'' period to correct a VRP based on an erroneous estimate.
Under this provision, the VRP penalty is waived for a period of
time after the VRP due date if, by the VRP due date, the plan
administrator submits an estimate of the VRP that meets certain
requirements and pays the estimated amount. The waiver of the penalty
covers the period from the VRP due date until the small-plan due date
or, if earlier, the filing of the final VRP. Interest is not suspended;
if the VRP estimate falls short of the correct amount, interest will
accrue on the amount of the underpayment from the date when the payment
was due to the date the shortfall was paid, just as with the existing
``safe harbor'' rule for large plans' flat-rate premium payments.
The requirements for the VRP estimate are that it be based on (1) a
final determination of the market value of the plan's assets and (2) a
reasonable estimate of the plan's premium funding target for the
premium payment year that takes into account the most current data
available to the plan's enrolled actuary and is determined in
accordance with generally accepted actuarial
[[Page 15070]]
principles and practices. The estimate of the premium funding target
must be certified by the enrolled actuary and, like other premium
information filed with PBGC, is subject to audit. PBGC needs a good
estimate of its VRP income for inclusion in its annual report, which is
prepared during October (because its fiscal year ends September 30),
when most plans (those with calendar plan years) submit VRP filings.
Thus, it is important to have assurance that the estimate of the
premium funding target has been prepared in good faith.
Since this penalty relief is based on the plan's reporting a final
figure for the value of assets by the VRP due date, the relief is lost
if there is a mistake in the assets figure so reported, whether the
mistaken figure is lower or higher than the true figure. PBGC will
consider a request for an appropriate penalty waiver in such a
situation and in acting on the request will consider such facts and
circumstances as the reason for the mistake, whether assets were over-
or understated, and, if assets were overstated, the extent of the
overstatement.
Since the provision of a period for ``truing up'' the VRP without
penalty, after a filing based on an estimate, is not an extension of
the VRP due date, it does not provide additional time to make an
alternative premium funding target election.
Large Plans
The due date and penalty structure for ``large'' plans is the same
as for ``mid-size'' plans except that the early due date for the flat-
rate premium under the existing regulation is retained, along with the
related ``safe harbor'' penalty rules. However, there is a change in
the ``safe harbor'' rules to accommodate the unlikely event that a plan
might be in the small-plan category for one year but in the large-plan
category for the next year. Under Sec. Sec. 4007.8(f) and (g)(2)(ii)
of the existing premium payment regulation, a plan may be entitled to
safe harbor relief if its flat-rate filing is consistent with its
reported participant count for the prior plan year, even if the
reported count is later determined to be wrong. But under the new
rules, a plan that is small for one year and large for the next year
will not have to report its participant count for the first year until
after the flat-rate due date for the second year. Thus, to get the
benefit of these special safe-harbor rules, a plan in such
circumstances would have to make its final filing for the first year
two months before it was due. To alleviate this problem, the rule
provides safe-harbor relief for any plan whose flat-rate due date for
the plan year preceding the premium payment year is later than the
large-plan flat-rate due date for the premium payment year.
Due Date Table
The following table shows the relevant premium due dates for small,
mid-size, and large calendar year plans (as described above) for the
2008 premium payment year:
----------------------------------------------------------------------------------------------------------------
Small plans (under 100 Mid-size plans (100-499 Large plans (500 or more
participants) participants) participants)
----------------------------------------------------------------------------------------------------------------
Flat-rate premium due............ April 30, 2009........... October 15, 2008........ February 29, 2008. See
flat-rate premium safe
harbor rules.
Flat-rate premium reconciliation N/A...................... N/A..................... October 15, 2008.
due.
Variable-rate premium due........ April 30, 2009........... October 15, 2008. October 15, 2008.
Estimate may be filed Estimate may be filed
and paid. See rules on and paid. See rules on
correcting VRP without correcting VRP without
penalty. penalty.
Latest VRP penalty starting date. N/A...................... April 30, 2009.......... April 30, 2009.
If certain conditions are met,
penalty is waived until this
date or, if earlier, the date
the final VRP is filed.
----------------------------------------------------------------------------------------------------------------
Special Variable-Rate Premium Rules
The existing premium rates regulation includes a number of special
``exemption'' or ``relief'' rules for VRP filers. One of these--the
full-funding limit exemption, which was created by statute--has been
eliminated by PPA 2006. Three others--created by PBGC regulation in
1988--have lost their justification, as explained below, and PBGC is
eliminating them as well. PBGC is also introducing two new ``relief''
rules.
The three regulatory special rules that are eliminated are (1) the
rule that a plan with fewer than 500 participants for the premium
payment year is exempt from reporting its VRP information if the plan
has no UVBs (the ``small well-funded plan rule''), (2) the rule that a
plan with 500 or more participants may report (and compute its VRP on
the basis of) accrued rather than vested benefits (the ``large plan
accrued benefit rule''), and (3) the rule that a plan may value
benefits using the funding interest rate rather than the variable-rate
premium interest rate if the funding rate is less than the premium rate
(the ``funding interest rate rule''). All three represent compromises
between the need for accuracy in the determination of the VRP and the
reporting of VRP data on the one hand and the need to reduce the burden
of compliance on the other.
PBGC needs accurate data about UVBs and assets--now as in 1988--to
verify the correctness of the reported VRP and for financial
projections. But whereas the cost of determining this information 20
years ago could be very significant, because much actuarial valuation
work was done using hand calculators and tables of factors, valuations
are now computerized and thus cost less. PBGC's need for accurate data
now outweighs the burden of determining and reporting the data. The
elimination of these three special rules reflects that change in the
balance between need and burden. Furthermore, both the ``large plan
accrued benefit rule'' and the ``funding interest rate rule'' overstate
UVBs and are used by very few plans--fewer than three dozen plans used
each of these two special rules for the 2004 filing year (the last year
for which data are available).
In addition, one of the two new ``relief'' rules that PBGC is
introducing--the new alternative premium funding target provision
discussed above--provides relief for filers that might otherwise have
used any of these three special rules. The alternative premium funding
target provision permits the use of funding rates for premium purposes
(like the ``funding interest rate rule'') without the need for a
comparison of rates (albeit with a requirement for a five-year
commitment). And by using the alternative premium funding target
provision, plans that might have used the ``large plan accrued benefit
rule'' or the ``small well-funded plan rule'' may be able to base
premium reporting on
[[Page 15071]]
figures that are computed for and included in the annual report (Form
5500 series).
PBGC's second new ``relief'' rule--in addition to the alternative
premium funding target provision--is a reporting relief provision for
certain small-employer plans. Section 405 of PPA 2006 caps the VRP for
certain plans of small employers, a provision that is the subject of
another PBGC rulemaking proceeding. This rule exempts plans that
qualify for the VRP cap and pay the full amount of the cap from
determining or reporting UVBs.
Meaning of ``Vested''
As discussed above, the determination of UVBs--both before and
after the PPA 2006 amendments--requires that only vested benefits be
taken into account. PBGC believes that there is some uncertainty among
pension practitioners as to the meaning of the term ``vested'' as used
in ERISA section 4006(a)(3)(E). With a view to reducing uncertainty and
promoting consistency in the VRP determination process, Sec. 4006.4(d)
of the premium rates regulation, as amended by this final rule,
explains--for premium purposes only--when certain benefits are
considered vested.
The proposed rule specified two circumstances that would not
prevent a participant's benefit from being vested for premium purposes.
One circumstance is that the benefit is not protected under Code
section 411(d)(6) and thus may be eliminated or reduced by the adoption
of a plan amendment or by the occurrence of a condition or event (such
as a change in marital status). PBGC considers such a benefit to be
vested (if the other conditions of entitlement have been met) so long
as the benefit has not actually been eliminated or reduced. The other
circumstance--applicable to certain benefits payable upon a
participant's death--is that the participant is living. The benefits to
which this would apply are (1) a qualified pre-retirement survivor
annuity, (2) a post-retirement survivor annuity such as the annuity
paid after a participant's death under a joint and survivor or certain
and continuous option, and (3) a benefit that returns a participant's
accumulated mandatory employee contributions. PBGC considers such
benefits to be vested (if the other conditions of entitlement have been
met) notwithstanding that the participant is alive. The final rule
includes two illustrative examples.
There was a public comment that the vesting provision in the
proposed rule did not address two types of benefits as to which
guidance was needed: Pre-retirement lump sum death benefits and
disability benefits. PBGC does not intend new Sec. 4006.4(d) (the
vesting provision) to be an exhaustive treatment of the subject; the
provision is meant merely to provide clarification for the specific
cases it mentions. In response to this comment, however, PBGC is
expanding Sec. 4006.4(d) to provide that a pre-retirement lump sum
death benefit (other than one that returns mandatory employee
contributions) is not considered vested for premium purposes where the
participant is living and that a disability benefit is not considered
vested for premium purposes where the participant is not disabled.
Another commenter stated that many practitioners have not been
treating as vested the benefits that PBGC would consider vested under
the proposed rule and that PBGC's vesting provision is at odds with the
standards (currently under revision) of the American Academy of
Actuaries. The commenter expressed a preference that PBGC not adopt the
proposed vesting provision and urged that the provision be applied
prospectively only. PBGC acknowledges that some actuaries may not be
using the interpretation of vesting prescribed by this rule but
believes that many are doing so; it is precisely to promote consistency
in this regard that the vesting provision--applicable for premium
purposes only--is included in the rule.
For plans that have been computing UVBs without counting benefits
that are considered vested under PBGC's rule, adoption of the rule may
increase UVBs. As stated in Applicability below, the rule is effective
for plan years beginning after 2007. Although PBGC has made no
determination as to the position it may take regarding the interpretive
issue for prior periods, PBGC currently has no plans to focus on this
issue in audits of premium filings for plan years beginning before
2008.
Recordkeeping and Audits
The rule clarifies and strengthens the provisions of the premium
payment regulation dealing with recordkeeping and audits. Most of the
changes simply reflect existing recordkeeping and audit practices.
In describing the premium records to be kept, the current premium
payment regulation mentions explicitly only those prepared by enrolled
actuaries and insurance carriers. The rule broadens this to include
plan sponsors and employers required to contribute to a plan for their
employees and clarifies, with a list of examples of relevant records,
that PBGC interprets the term ``records'' broadly. Similarly, the rule
refers explicitly to records supporting the amount of premiums that
were required to be paid and the premium-related information that was
required to be reported (rather than just what was actually paid or
reported). Where a premium or premium-related information is determined
through the use of a manual or automated system or process, the rule
allows PBGC to require that the operation of the system or process be
demonstrated so that its effectiveness, and the reliability of the
results produced, can be assessed. In addition, in situations where
plan records are deficient, the rule broadens the categories of data on
which PBGC may rely to establish the amount of premiums due to include
not just participant count data but UVB data.
The rule also makes clear that the 45 days permitted for producing
records under Sec. 4007.10(c) applies to records sent to PBGC, not to
records audited on-site (which PBGC expects to be produced much more
promptly). And the rule broadens the circumstances in which PBGC can
require faster submission of records. The existing regulation limits
such circumstances to those where collection of money may be
jeopardized. This is changed to authorize shorter response times where
the interests of PBGC may be prejudiced by delay--such as where PBGC
has reason to suspect that records might be destroyed or manipulated.
Miscellaneous Provisions
Plans Subject to Special Funding Rules
Sections 104, 105, and 106 of PPA 2006 defer the effective date of
the funding amendments for certain plans described in those sections,
which in general deal with plans of cooperatives, plans affected by
settlement agreements with PBGC, and plans of government contractors.
Section 402 of PPA 2006 (amended by section 6615 of the U.S. Troop
Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability
Appropriations Act, 2007, Pub. L. 110-28) applies special funding rules
to certain plans of commercial passenger airlines and airline caterers.
None of these provisions affects the applicability of the amendments to
ERISA section 4006 regarding the determination of the VRP. The rule
provides explicitly that plans in this small group must determine UVBs
in the same manner as all other plans. The language of this provision
has been revised in the final rule to make this point clearer (in
light, particularly, of the amendment to
[[Page 15072]]
section 402 of PPA 2006, which was made after the proposed rule was
cleared for publication in the Federal Register).
New and Newly Covered Plans
The rule eliminates confusing language in the existing regulations
that raised questions about the determination of due dates, participant
count dates, and premium proration for new and newly covered plans in
certain circumstances. The new language makes clear that the first day
of a new plan's first plan year for premium purposes is the effective
date of the plan. The final rule goes beyond the proposed rule in this
regard by revising the definition of ``new plan'' to eliminate wording
that might suggest that a new plan could become effective after the
beginning of its first premium payment year. These changes will obviate
the need for plan administrators to choose between the effective date
and the adoption date as the first day of the plan year for premium
filing.
In addition, the final rule eliminates one of the alternative due
date computation rules for new and newly covered plans (in new Sec.
4007.11(c)). The proposed rule included an alternative under which the
due date would be not earlier than 90 days after the plan's coverage
date. This alternative is not necessary. The coverage date must fall
within the premium payment year in order for premiums to be due at all,
and the due date cannot be earlier than sixteen months after the
beginning of that year. Thus, the due date will be at least four months
(i.e. more than 90 days) after the date on which the plan became
covered. Accordingly, an alternative due date that is 90 days after the
coverage date would never come into play and can be eliminated from the
regulation.
Electronic Filing Requirement
Effective July 1, 2006, PBGC amended its regulations to require
that annual premium filings be made electronically (71 FR 31077, June
1, 2006). (Exemptions from the e-filing requirement may be granted for
good cause in appropriate circumstances.) For PBGC's premium processing
systems to work effectively and efficiently, information must be
received in an electronic format compatible with those systems; the
burden of reformatting information received on paper or in other
incompatible formats is significant, and the reformatting process gives
rise to data errors. The premium payment regulation as amended by this
rule therefore provides explicitly that, in the absence of an
exemption, premium filing on paper or in any other manner other than
the prescribed electronic filing method does not satisfy the
requirement to file. Thus, a penalty under ERISA section 4071 may be
assessed for the period from the due date of the premium filing until
it is made electronically, even if a timely paper filing is made.
Billing ``Grace Period'' for Interest
The rule consolidates paragraphs (b) and (c) of Sec. 4007.7, both
of which deal with the ``grace period'' for interest on premium
underpayments where a bill is paid within 30 days. No substantive
change is intended.
VRP Rate
ERISA section 4006(a)(3)(E)(ii) sets the variable-rate premium at
$9 for each $1,000 (or fraction thereof) of UVBs. Section 4006.3(b) of
the existing premium rates regulation omits the phrase ``(or fraction
thereof).'' The requirement is made clear in PBGC's premium
instructions; the rule adds this phrase to the regulatory text.
Pre-1996 Penalty Accrual Rules
The rule eliminates the pre-1996 penalty accrual rules as
anachronistic.
Definitional Cross-Reference
The definition of ``participant'' in Sec. 4006.6 uses the term
``benefit liabilities,'' which is defined in Sec. 4001.2 of PBGC's
regulation on Terminology. Existing Sec. 4006.2 (dealing with defined
terms used in the premium rates regulation) does not include a cross-
reference to the definition of ``benefit liabilities'' in Sec. 4001.2.
This final rule corrects that omission (which was not corrected in the
proposed rule).
Other Changes
The rule includes a number of clarifying and editorial changes.
Applicability
The regulatory changes made by this rule, like the statutory
changes to the VRP, apply to plan years beginning after 2007.
Compliance With Rulemaking Guidelines
E.O. 12866
PBGC has determined, in consultation with the Office of Management
and Budget, that this rule is a ``significant regulatory action'' under
Executive Order 12866. The Office of Management and Budget has
therefore reviewed the rule under E.O. 12866. Pursuant to section
1(b)(1) of E.O. 12866 (as amended by E.O. 13422), PBGC identifies the
following specific problems that warrant this agency action:
There is ambiguity in ERISA section 4006(a)(3)(E)
regarding the date as of which UVBs are to be measured. This problem is
significant because, unless the statutory ambiguity is resolved, it
will be unclear what date UVBs are to be measured as of.
The statute lacks clarity and specificity in describing
how UVBs are calculated. This problem is significant because, unless
clarity and specificity are provided, it will be unclear how to compute
UVBs.
The statute does not expressly provide for an alternative
premium funding target as described above. This problem is significant
because the standard premium funding target provided for in the statute
is more burdensome to use than the alternative premium funding target
described above without generating significantly different premium
revenue than the less burdensome alternative premium funding target.
PBGC's existing premium due date and penalty rules do not
accord well with the new rules for the date as of which and manner in
which UVBs are to be determined. This problem is significant because,
without changes in the due date and penalty rules, some plans may
experience difficulties in paying premiums timely and without late
payment penalties.
Some existing PBGC VRP relief rules are anachronistic and
some new relief provisions are warranted by statutory changes. This
problem is significant because the outmoded relief rules detract from
accuracy in determining the VRP and deprive PBGC of VRP data without
significantly reducing burden, while statutory changes have made it
possible to grant new relief without significant adverse consequences
for the PBGC insurance program.
There is uncertainty as to the meaning of the term
``vested'' that is used in the statute to describe benefits taken into
account in determining the VRP. This problem is significant because,
without improved clarity in the meaning of ``vested'' as applied to VRP
determinations, those determinations may be inconsistent.
PBGC's current recordkeeping and audit rules do not match
current recordkeeping and audit practices in scope and specificity, and
provide relatively narrow circumstances in which PBGC may require
expedited submission of records. This problem is significant because
inadequate recordkeeping and audit rules could compromise PBGC's
ability to enforce
[[Page 15073]]
the premium rules in the statute and PBGC's regulations thereunder.
PBGC's existing premium payment regulation does not
provide explicitly that, in the absence of an exemption, premium filing
on paper or in any other manner other than the prescribed electronic
filing method does not satisfy the requirement to file. This problem is
significant because, in the absence of an explicit statement, filers
might believe they had a basis for taking the position that penalties
for late filing would not apply if they timely filed on paper or in
some other non-approved manner.
Regulatory Flexibility Act
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 (5 U.S.C. 601 et seq.), sections 603 and 604 do not
apply.
Most of the amendments implement statutory changes made by
Congress. They provide procedures for calculating, substantiating, and
paying the premiums prescribed by statute and impose no significant
burden beyond the burden imposed by statute. To the extent that this
rule makes changes that are outside the explicit scope of the statute,
they affect primarily the requirement to perform and manner of
performing VRP calculations. When the VRP provisions were added to
PBGC's regulations nearly 20 years ago, these calculations were mostly
done using actuarial tables and hand calculators. Today they are almost
universally done using high-memory, high-speed computers. The VRP
calculations parallel funding calculations that must be done
independently of PBGC premium requirements. Thus, the VRP calculations
can be done for the most part by plugging in different parameters (such
as interest rates) to computer programs that are used for funding
purposes. The incremental cost of such calculations for entities of any
size is insignificant. Not including a computation option like the
existing alternative computation method (ACM) in the new rules does not
significantly affect compliance costs because such an option would
itself be complex and thus burdensome to use and because a simplified
computation method is no longer needed in the current environment of
computerized actuarial computations.
Changes that would tend to increase compliance costs (e.g.,
elimination of the VRP exemption for well-funded small plans) are
offset by changes tending to reduce compliance costs (e.g., the
introduction of the reporting exemption for plans of small employers
paying the maximum capped VRP).
The shift from prior-year to current-year data and the deferral of
the due date for small plans (those with fewer than 100 participants)
should not affect the cost of compliance. Under existing rules, UVBs
are determined as of the end of the prior year (or in some cases the
beginning of the current year) and the VRP is due 9\1/2\ months later.
Under the new rules, UVBs will be determined as of the UVB valuation
date, which for most small plans may be any day in the current year.
For plans that choose a valuation date at the beginning of the year,
the VRP is now due 16 months later. For those that choose a valuation
date at the end of the year, the VRP is now due 4 months later. For a
plan that chooses a mid-year valuation date, the VRP is due 10 months
later, providing about the same time for data-gathering and
computations as under the existing rules. But even a 4-month period
between the valuation date and the due date should be adequate for the
data-gathering and UVB computations of small plans, and the change in
timing should not affect the cost of compliance.
PBGC believes that the changes to the recordkeeping requirements in
general simply codify existing practices. The changes to the audit
rules will not affect a significant number of plans of any size.
Paperwork Reduction Act
The information collection requirements under this rule have been
approved by the Office of Management and Budget under the Paperwork
Reduction Act (OMB control number 1212-0009; expires 02/28/2011). 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 needs premium-related information to identify the plan for
which premiums are paid to PBGC, to verify the determination of the
premium, and to help the PBGC determine the magnitude of its exposure
in the event of plan termination.
The information collection requirements under the premium rates and
premium payment regulations that OMB approved included the following
changes from those previously approved:
Filers will be required to include in the addresses of the
plan sponsor and plan administrator the countries where the addresses
are located (if other than the United States).
Filers will no longer be required to report coverage
status.
Filers will be required to provide the plan contact's e-
mail address (if any).
Filers will no longer be required to provide information
on participant notices under ERISA section 4011 (that requirement
having been eliminated by PPA 2006).
Filers will be required to report if they qualify for
premium proration (for a short plan year) and if so, to report the
number of months in the proration period. Proration will be reported
separately from credits. (This change will not apply to 2008 estimated
flat-rate premium filings.)
Filers will be required to report plan size (small, mid-
size, or large) based on the prior year's participant count (or report
that the plan is filing for the first time).
Filers will have an opportunity to make alternative
premium funding target elections as part of the premium filing.
Filers will be required to report the participant count
date.
Most existing VRP information items will be eliminated in
connection with the implementation of the new VRP rules. Items retained
will be the identification of any applicable VRP exemption and the
amount of UVBs.
New VRP data required will be qualification for the VRP
cap for certain plans of small employers, the UVB valuation date, the
premium funding target as of the UVB valuation date, the premium
funding target method (standard or alternative), whether the reported
premium funding target is an estimate, the segment rates used to
compute the premium funding target (or indication that the full yield
curve was used), the market value of assets as of the UVB valuation
date, the (unprorated) VRP cap (for plans eligible for the cap), and
the (unprorated) uncapped VRP (for plans not eligible for the cap).
For a final filing, filers will be required to report the
date and type of event that results in the cessation of the filing
obligation.
The existing item on transfers from disappearing plans
will be replaced by two new items: information about transfers from
other plans (whether disappearing or not) and information about
transfers to other plans. (This change will not apply to 2008 estimated
flat-rate premium filings.)
For frozen plans, filers will be required to identify the
type of freeze and its effective date.
[[Page 15074]]
For amended filings, filers will be required to report any
change in the beginning and ending dates of the plan year being
reported and any change in the plan identifying numbers being reported
from those in the original filing.
List of Subjects
29 CFR Part 4006
Pension insurance, Pensions.
29 CFR Part 4007
Penalties, Pension insurance, Pensions, Reporting and recordkeeping
requirements.
0
For the reasons given above, 29 CFR parts 4006 and 4007 are amended as
follows.
PART 4006--PREMIUM RATES
0
1. The authority citation for part 4006 continues to read as follows:
Authority: 29 U.S.C. 1302(b)(3), 1306, 1307.
0
2. In Sec. 4006.2:
0
a. The introductory text is amended by removing the words ``chapter:
Code'' and adding in their place the words ``chapter: benefit
liabilities, Code''; and by removing the words ``irrevocable
commitment, multiemployer plan'' and adding in their place the words
``irrevocable commitment, mandatory employee contributions,
multiemployer plan''.
0
b. The definition of ``new plan'' is amended by removing the words
``became effective within'' and adding in their place the words ``did
not exist before''.
0
c. The definition of ``short plan year'' is revised, and four new
definitions are added, to read as follows:
Sec. 4006.2 Definitions.
* * * * *
Participant count of a plan for a plan year means the number of
participants in the plan on the participant count date of the plan for
the plan year.
Participant count date of a plan for a plan year means the date
provided for in Sec. 4006.5(c), (d), or (e) as applicable.
Premium funding target has the meaning described in Sec.
4006.4(b)(1).
* * * * *
Short plan year means a plan year of coverage that is shorter than
a normal plan year.
UVB valuation date of a plan for a plan year means the plan's
funding valuation date for the plan year determined in accordance with
ERISA section 303(g)(2).
0
3. In Sec. 4006.3:
0
a. Paragraph (a) is amended by removing the words ``last day of the
plan year preceding the premium payment year,'' and adding in their
place the words ``participant count date''.
0
b. Paragraph (b)(1) is amended by removing the words ``$1,000 of a
single-employer plan's unfunded vested benefits'' and adding in their
place the words ``$1,000 (or fraction thereof) of a single-employer
plan's unfunded vested benefits for the premium payment year''.
0
4. Section 4006.4 is revised to read as follows:
Sec. 4006.4 Determination of unfunded vested benefits.
(a) In general. Except as provided in the exemptions and special
rules under Sec. 4006.5, the amount of a plan's unfunded vested
benefits for the premium payment year is the excess (if any) of the
plan's premium funding target for the premium payment year (determined
under paragraph (b) of this section) over the fair market value of the
plan's assets for the premium payment year (determined under paragraph
(c) of this section). Unfunded vested benefits for the premium payment
year must be determined as of the plan's UVB valuation date for the
premium payment year, based on the plan provisions and the plan's
population as of that date. The determination must be made in a manner
consistent with generally accepted actuarial principles and practices.
(b) Premium funding target-- (1) In general. A plan's premium
funding target is its standard premium funding target under paragraph
(b)(2) of this section or, if an election to use the alternative
premium funding target under Sec. 4006.5(g) is in effect, its
alternative premium funding target under Sec. 4006.5(g).
(2) Standard premium funding target. A plan's standard premium
funding target under this section is the plan's funding target as
determined under ERISA section 303(d) (or 303(i), if applicable) for
the premium payment year using the same assumptions that are used for
funding purposes, except that--
(i) Only vested benefits are taken into account, and
(ii) The interest rates to be used are the segment rates for the
month preceding the month in which the premium payment year begins that
are determined in accordance with ERISA section 4006(a)(3)(E)(iv).
These are the rates that would be determined under ERISA section
303(h)(2)(C) if ERISA section 303(h)(2)(D) were applied by using the
monthly yields for the month preceding the month in which the premium
payment year begins on investment grade corporate bonds with varying
maturities and in the top 3 quality levels rather than the average of
such yields for a 24-month period. For this purpose, the transition
rule in ERISA section 303(h)(2)(G) is inapplicable.
(c) Value of assets. The fair market value of a plan's assets under
this section is determined in the same manner as for funding purposes
under ERISA section 303(g)(3) and (4), except that averaging as
described in ERISA section 303(g)(3)(B) must not be used and prior year
contributions are included only to the extent received by the plan by
the date the premium is filed. Contribution receipts must be accounted
for as described in ERISA section 303(g)(4), using effective interest
rates determined under ERISA section 303(h)(2)(A) (not rates that could
be determined based on the segment rates described in paragraph (b)(2)
of this section).
(d) ``Vested.'' For purposes of ERISA section 4006(a)(3)(E), this
part, and part 4007 of this chapter:
(1) A participant's benefit that is otherwise vested does not fail
to be vested merely because of the circumstance that the participant is
living, in the case of the following death benefits:
(i) A qualified pre-retirement survivor annuity (as described in
ERISA section 205(e)), (ii) A post-retirement survivor annuity that
pays some or all of the participant's benefit amount for a fixed or
contingent period (such as a joint and survivor annuity or a certain
and continuous annuity), and
(iii) A benefit that returns the participant's accumulated
mandatory employee contributions (as described in ERISA section
204(c)(2)(C)).
(2) A benefit otherwise vested does not fail to be vested merely
because of the circumstance that the benefit may be eliminated or
reduced by the adoption of a plan amendment or by the occurrence of a
condition or event (such as a change in marital status).
(3) A participant's pre-retirement lump-sum death benefit (other
than a benefit described in paragraph (d)(1)(iii) of this section) is
not vested if the participant is living.
(4) A participant's disability benefit is not vested if the
participant is not disabled.
(e) Illustration of vesting principles. The vesting principles set
forth in paragraph (d) of this section are illustrated by the following
examples:
(1) Example 1. Under Plan A, if a participant retires at or
after age 55 but before
[[Page 15075]]
age 62, the participant receives a temporary supplement from
retirement until age 62. The supplement is not a QSUPP (qualified
social security supplement), as defined in Treasury Reg. Sec.
1.401(a)(4)-12, and is not protected under Code section 411(d)(6).
The temporary supplement is considered vested, and its value is
included in the premium funding target, for each participant who, on
the UVB valuation date, is at least 55 but less than 62, and thus
eligible for the supplement. The calculation is unaffected by the
fact that the plan could be amended to remove the supplement after
the UVB valuation date.
(2) Example 2. Plan B provides a qualified pre-retirement
survivor annuity (QPSA) upon the death of a participant who has five
years of service, at no charge to the participant. The QPSA is
considered vested, and its value is included in the premium funding
target, for each participant who, on the UVB valuation date, has
five years of service and is thus eligible for the QPSA. The
calculation is unaffected by the fact that the participant is alive
on that date.
(f) Plans to which special funding rules apply. Unfunded vested
benefits must be determined (whether the standard premium funding
target or the alternative premium funding target is used) without
regard to the following provisions of the Pension Protection Act of
2006 (Pub. L. 109-280):
(1) Section 104, dealing generally with plans of cooperatives.
(2) Section 105, dealing generally with plans affected by
settlement agreements with PBGC.
(3) Section 106, dealing generally with plans of government
contractors.
(4) Section 402, dealing generally with plans of commercial
passenger airlines and airline caterers.
0
5. In Sec. 4006.5:
0
a. Paragraph (a) introductory text is amended by removing the words
``paragraphs (a)(1)-(a)(5)'' and adding in their place the words
``paragraphs (a)(1)-(a)(3)''; and by removing the words ``determine its
unfunded vested benefits'' and adding in their place the words
``determine or report its unfunded vested benefits''.
0
b. Paragraphs (a)(1) and (a)(5) are removed.
0
c. Paragraphs (a)(2), (a)(3), and (a)(4) are redesignated as paragraphs
(a)(1), (a)(2), and (a)(3) respectively.
0
d. Redesignated paragraph (a)(1) is amended by removing the words
``benefit liabilities'' from the heading and adding in their place the
word ``participants''; by removing the word ``did'' and adding in its
place the word ``does''; and by removing the words ``last day of the
plan year preceding the premium payment year'' and adding in their
place the words ``UVB valuation date''.
0
e. Redesignated paragraph (a)(2) is amended by removing the figures
``412(i)'' where they appear once in the heading and once in the body
of the paragraph and adding in their place the figures ``412(e)(3)'';
by removing the word ``was'' and adding in its place the word ``is'';
and by removing the words ``last day of the plan year preceding the
premium payment year'' and adding in their place the words ``UVB
valuation date''.
0
f. Redesignated paragraph (a)(3)(ii) is amended by removing the words
``last day of the plan year preceding the premium payment year'' and
adding in their place the words ``UVB valuation date''.
0
g. The heading of paragraph (e) is amended by removing the words
``Special determination date rule for'' and adding in their place the
words ``Participant count date;''.
0
h. Paragraph (e)(2) introductory text is amended by removing the words
``paragraph (e)(2) if'' and adding in their place the words ``paragraph
(e)(2) for a plan year if''.
0
i. Paragraph (e)(2)(ii) is amended by removing the words ``on the first
day of the plan's premium payment year'' and adding in their place the
words ``at the beginning of the plan year''.
0
j. Paragraph (f) introductory text is amended by removing the words
``year as described'' and adding in their place the words ``year
described''.
0
k. Paragraphs (b), (c), (d), (e)(1), and (f)(1) are revised, and
paragraph (g) is added, to read as follows:
Sec. 4006.5 Exemptions and special rules.
* * * * *
(b) Reporting exemption for plans paying capped variable-rate
premium. A plan that qualifies for the variable-rate premium cap
described in ERISA section 4006(a)(3)(H) is not required to determine
or report its unfunded vested benefits under Sec. 4006.4 if it reports
that it qualifies for the cap and pays a variable-rate premium equal to
the amount of the cap.
(c) Participant count date; in general. Except as provided in
paragraphs (d) and (e) of this section, the participant count date of a
plan for a plan year is the last day of the prior plan year.
(d) Participant count date; new and newly-covered plans. The
participant count date of a new plan or a newly-covered plan for a plan
year is the first day of the plan year. For this purpose, a new plan's
first plan 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 for a plan year is the first day of the plan
year.
* * * * *
(f) Proration for certain short plan years. * * *
(1) New or newly covered plan. A new plan becomes effective less
than one full year before the beginning of its second plan year, or a
newly-covered plan becomes covered on a date other than the first day
of its plan year. (Cessation of coverage before the end of a plan year
does not give rise to proration under this section.)
* * * * *
(g) Alternative premium funding target. A plan's alternative
premium funding target is the vested portion of the plan's funding
target under ERISA section 303(d)(1) that is used to determine the
plan's minimum contribution under ERISA section 303 for the premium
payment year, that is, the amount that would be determined under ERISA
section 303(d)(1) if only vested benefits were taken into account. 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 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 first plan year to
which it applies and must be filed by the plan's variable-rate premium
due date for that plan year. The first plan year to which the election
applies must begin at least five years after the first plan year to
which a revocation of a prior election applied. The election will be
effective--
(i) For the plan 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 first plan year to
which a revocation of the election applies.
(2) A revocation of an election under this paragraph (g) to use the
alternative premium funding target for a plan must specify the first
plan year to which it applies and must be filed by the plan's variable-
rate premium due date for that plan year. The first plan year to which
the revocation applies must begin at least five years after the first
plan year to which the election applied.
[[Page 15076]]
0
6. In paragraph (c) of Sec. 4006.6:
0
a. Example 1 is amended by removing the words ``July 1, 2000'' and
adding in their place the words ``July 1, 2008''; by removing the words
``December 31, 2000'' where they appear twice and adding in their place
the words ``December 31, 2008''; by removing the words ``snapshot
date'' and adding in their place the words ``participant count date'';
and by removing the words ``2001 premium'' where they appear twice and
adding in their place the words ``2009 premium''.
0
b. Example 2 is amended by removing the words ``February 1, 2002''
where they appear twice and adding in their place the words ``February
1, 2010''; by removing the words ``July 1, 2000'' and adding in their
place the words ``July 1, 2008''; by removing the words ``July 1,
2001'' and adding in their place the words ``July 1, 2009''; by
removing the words ``December 31, 2002'' and adding in their place the
words ``December 31, 2010''; by removing the words ``snapshot date''
and adding in their place the words ``participant count date''; and by
removing the words ``2003 premium'' where they appear twice and adding
in their place the words ``2011 premium''.
0
c. Example 3 is amended by removing the words ``January 1, 2004'' and
adding in their place the words ``January 1, 2012''; by removing the
words ``December 30, 2005'' where they appear twice and adding in their
place the words ``December 30, 2013''; by removing the words ``January
9, 2006'' and adding in their place the words ``January 9, 2014''; by
removing the words ``December 31, 2005'' and adding in their place the
words ``December 31, 2013''; by removing the words ``snapshot date''
and adding in their place the words ``participant count date''; and by
removing the words ``2006 premium'' where they appear twice and adding
in their place the words ``2014 premium''.
0
d. Example 4 is amended by removing the words ``January 1, 2006'' and
adding in their place the words ``January 1, 2014''; by removing the
words ``December 31, 2005'' and adding in their place the words
``December 31, 2013''; and by removing the words ``2006 premium'' and
adding in their place the words ``2014 premium''.
PART 4007--PAYMENT OF PREMIUMS
0
7. The authority citation for part 4007 continues to read as follows:
Authority: 29 U.S.C. 1302(b)(3), 1303(a), 1306, 1307.
0
8. In Sec. 4007.2:
0
a. Paragraph (a) is amended by removing the word ``insurer,''; and by
removing the words ``multiemployer plan,''.
0
b. Paragraph (b) is amended by removing the words ``participant,
premium payment year'' and adding in their place the words
``participant, participant count, premium funding target, premium
payment year''.
0
9. In Sec. 4007.3:
0
a. The first three sentences (ending with the words ``prescribed in the
instructions.'') of the text of Sec. 4007.3 are designated as
paragraph (a), and the remainder of the text (beginning with the words
``Information must be filed electronically'') is designated as
paragraph (b).
0
b. Newly designated paragraph (a) is amended by adding the heading ``In
general.''; and by removing the words ``estimation, declaration,
reconciliation, and payment'' and adding in their place the words
``estimation, determination, declaration, and payment''.
0
c. Newly designated paragraph (b) is amended by adding the heading
``Electronic filing.''; by removing the words ``requirement to file
electronically does not apply'' and adding in their place the words
``requirement to file electronically applies to all estimated and final
flat-rate and variable-rate premium filings (including amended filings)
but does not apply''; and by adding two new sentences to the end of the
paragraph to read as follows:
Sec. 4007.3 Filing requirement; method of filing.
* * * * *
(b) Electronic filing. * * * Unless an exemption applies, filing on
paper or in any other manner other than by a prescribed electronic
filing method does not satisfy the requirement to file. Failure to file
electronically as required is subject to penalty under ERISA section
4071.
0
10. In Sec. 4007.7, paragraph (c) is removed, and paragraph (b) is
revised to read as follows:
Sec. 4007.7 Late payment interest charges.
* * * * *
(b) With respect to any PBGC bill for a premium underpayment and/or
interest thereon, interest will accrue only until the date of the bill
if the premium underpayment and interest billed are paid within 30 days
after the date of the bill.
0
11. In Sec. 4007.8:
0
a. Paragraph (a) introductory text is amended by adding at the end of
the paragraph the words ``The penalty rate is--''.
0
b. Paragraph (a)(1) introductory text and paragraph (a)(2) are removed,
and paragraphs (a)(1)(i) and (a)(1)(ii) are redesignated as paragraphs
(a)(1) and (a)(2) respectively.
0
c. Paragraph (f) is amended by removing the figures ``Sec.
4007.11(a)(2)(iii)'' and adding in their place the figures ``Sec.
4007.11(a)(3)(iii)''; by removing the words ``filing is due if fewer''
and adding in their place the words ``filing is due if either--Fewer'';
by removing the period at the end of paragraph (f) and adding in its
place ``, or''; and by designating as paragraph (f)(1) the portion of
the text of paragraph (f) that begins with the words ``Fewer than
500''.
0
d. Paragraph (i) is amended by removing the figures ``Sec.
4007.11(a)(2)(iii)'' and adding in their place the figures ``Sec.
4007.11(a)(3)(iii)''.
0
e. New paragraphs (f)(2) and (j) are added to read as follows:
Sec. 4007.8 Late payment penalty charges.
* * * * *
(f) Safe-harbor relief for certain large plans. * * *
* * * * *
(2) The due date for paying the flat-rate premium for the plan year
preceding the premium payment year is later than the due date for
paying the flat-rate premium for the premium payment year.
* * * * *
(j) Variable-rate premium penalty relief. This waiver applies in
the case of a plan for which a reconciliation filing is required under
Sec. 4007.11(a)(2)(ii) or (a)(3)(iv). 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)(2)(i) or (a)(3)(ii)--
(1) The plan administrator reports--
(i) The fair market value of the plan's assets for the premium
payment year, and
(ii) An estimate of the plan's premium funding target for the
premium payment year that is certified by an enrolled actuary to be a
reasonable estimate that takes into account the most current data
available to the enrolled actuary and that has been determined in
accordance with generally accepted actuarial principles and practices;
and
(2) The plan administrator pays at least the amount of variable-
rate premium determined from the value of assets and estimated premium
funding target so reported.
[[Page 15077]]
0
12. In Sec. 4007.10:
0
a. Paragraph (c)(3) is amended by removing the words ``that collection
of unpaid premiums (or any associated interest or penalties) would
otherwise be jeopardized'' and adding in their place the words ``that
the interests of PBGC may be prejudiced by a delay in the receipt of
the information (e.g., where collection of unpaid premiums (or any
associated interest or penalties) would otherwise be jeopardized)''.
0
b. Paragraphs (a)(1), (b), and (c)(1) are revised, and paragraph (a)(4)
is added, to read as follows:
Sec. 4007.10 Recordkeeping; audits; disclosure of information.
(a) Retention of records to support premium payments--(1) In
general. The designated recordkeeper under paragraph (a)(3) of this
section must retain, for a period of six years after the premium due
date, all plan records that are necessary to establish, support, and
validate the amount of any premium required to be paid and any
information required to be reported (``premium-related information'')
under this part and part 4006 of this chapter and under PBGC's premium
filing instructions. Records that must be retained pursuant to this
paragraph include, but are not limited to, records that establish the
number of plan participants and that support and demonstrate the
calculation of unfunded vested benefits.
* * * * *
(4) Records. (i) Records that must be retained pursuant to
paragraph (a)(1) of this section include, but are not limited to,
records prepared by the plan administrator, a plan sponsor, an employer
required to contribute to the plan with respect to its employees, an
enrolled actuary performing services for the plan, or an insurance
carrier issuing any contract to pay benefits under the plan.
(ii) For purposes of this section, ``records'' include, but are not
limited to, plan documents; participant data records; personnel and
payroll records; actuarial tables, worksheets, and reports; records of
computations, projections, and estimates; benefit statements,
disclosures, and applications; financial and tax records; insurance
contracts; records of plan procedures and practices; and any other
records, whether in written, electronic, or other format, that are
relevant to the determination of the amount of any premium required to
be paid or any premium-related information required to be reported.
(iii) When a record to be produced for PBGC inspection and copying
exists in more than one format, it must be produced in the format
specified by PBGC.
(b) PBGC audit--(1) In general. In order to determine the
correctness of any premium paid or premium-related information reported
or to determine the amount of any premium required to be paid or any
premium-related information required to be reported, PBGC may--
(i) Audit any premium filing,
(ii) Inspect and copy any records that are relevant to the
determination of the amount of any premium required to be paid and any
premium-related information required to be reported, including (without
limitation) the records described in paragraph (a) of this section, and
(iii) Require disclosure of any manual or automated system or
process used to determine any premium paid or premium-related
information reported, and demonstration of its operation in order to
permit PBGC to determine the effectiveness of the system or process and
the reliability of information produced by the system or process.
(2) Deficiencies found on audit. If, upon audit, PBGC determines
that a premium due under this part was underpaid, late payment interest
and penalty charges will apply as provided for in this part. If, upon
audit, PBGC determines that required information was not timely and
accurately reported, a penalty may be assessed under ERISA section
4071.
(3) Insufficient records. In determining the premium due, if, in
the judgment of PBGC, a plan's records fail to establish the
participant count or (for a single-employer plan) the plan's unfunded
vested benefits for any premium payment year, PBGC may rely on data it
obtains from other sources (including the IRS and the Department of
Labor) for presumptively establishing the participant count and/or
unfunded vested benefits for premium computation purposes.
(c) Providing record information--(1) In general. A designated
recordkeeper must make the records retained pursuant to paragraph (a)
of this section available to PBGC promptly upon request for inspection
and photocopying (or, for electronic records, inspection, electronic
copying, and printout) at the location where they are kept (or another,
mutually agreeable, location). If PBGC requests in writing that records
retained pursuant to paragraph (a) of this section, or information in
such records, be submitted to PBGC, the designated recordkeeper must
submit the requested materials to PBGC either electronically or by
hand, mail, or commercial delivery service within 45 days of the date
of PBGC's request therefor, or by a different time specified in the
request.
* * * * *
0
13. In Sec. 4007.11, paragraphs (a), (b), and (c) are revised to read
as follows:
Sec. 4007.11 Due dates.
(a) In general. For flat-rate and variable-rate premiums, the
premium filing due date for small plans is prescribed in paragraph
(a)(1) of this section, the premium filing due date for mid-size plans
is prescribed in paragraph (a)(2) of this section, and the premium
filing due dates for large plans are prescribed in paragraph (a)(3) of
this section.
(1) Small plans. If the plan had fewer than 100 participants for
whom flat-rate premiums were payable for the plan year preceding the
premium payment year, the due date is the last day of the sixteenth
full calendar month following the end of the plan year preceding the
premium payment year.
(2) Mid-size plans. If the plan had 100 or more but fewer than 500
participants for whom flat-rate premiums were payable for the plan year
preceding the premium payment year:
(i) The due date is the fifteenth day of the tenth full calendar
month following the end of the plan year preceding the premium payment
year.
(ii) If the premium funding target is not known by the date
specified in paragraph (a)(2)(i) of this section, a reconciliation
filing and any required variable-rate premium payment must be made by
the last day of the sixteenth full calendar month following the end of
the plan year preceding the premium payment year.
(3) Large plans. If the plan had 500 or more participants for whom
flat-rate premiums were payable for the plan year preceding the premium
payment year:
(i) The due date for the flat-rate premium required by Sec.
4006.3(a) of this chapter is the last day of the second full calendar
month following the close of the plan year preceding the premium
payment year.
(ii) The due date for the variable-rate premium required by Sec.
4006.3(b) of this chapter for single-employer plans is the fifteenth
day of the tenth full calendar month following the end of the plan year
preceding the premium payment year.
(iii) If the participant count is not known by the date specified
in paragraph (a)(3)(i) of this section, a reconciliation filing and any
required flat-rate premium payment must be made by the date specified
in paragraph (a)(3)(ii) of this section.
[[Page 15078]]
(iv) If the premium funding target is not known by the date
specified in paragraph (a)(3)(ii) of this section, a reconciliation
filing and any required variable-rate premium payment must be made by
the last day of the sixteenth full calendar month following the end of
the plan year preceding the premium payment year.
(b) Due dates for plans that change plan years. For any plan that
changes its plan year, the due date or due dates for the flat-rate
premium and any variable-rate premium for the short plan year are as
specified in paragraph (a)(1), (a)(2), (a)(3), or (c) of this section
(whichever applies). For the plan year that follows a short plan year,
each due date is the later of--
(i) The applicable due date specified in paragraph (a)(1), (a)(2),
or (a)(3) of this section, or
(ii) 30 days after the date on which the amendment changing the
plan year was adopted.
(c) Due dates for new and newly covered plans. Notwithstanding
paragraph (a) of this section, the due date for the flat-rate premium
and any variable-rate premium for the first plan year of coverage of
any new plan or newly covered plan is the latest of--
(1) The last day of the sixteenth full calendar month that began on
or after the first day of the premium payment year (the effective date,
in the case of a new plan), or
(2) 90 days after the date of the plan's adoption.
* * * * *
Issued in Washington, DC, this 17th day of March 2008.
Elaine L. Chao,
Chairman, Board of Directors, Pension Benefit Guaranty Corporation.
Issued on the date set forth above pursuant to a resolution of
the Board of Directors authorizing its Chairman to issue this final
rule.
Judith R. Starr,
Secretary, Board of Directors, Pension Benefit Guaranty Corporation.
[FR Doc. E8-5712 Filed 3-20-08; 8:45 am]
BILLING CODE 7709-01-P