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News & Policy

PBGC Proposes Expanded Enforcement for Failure to Inform Workers of Pension Underfunding

May 06, 2004

The Pension Benefit Guaranty Corporation (PBGC) today proposed an expanded enforcement program, including a new penalty structure, for administrators of underfunded pension plans who fail to inform participants of the plan's funding status and PBGC's guarantee limits. As a transition to this expanded enforcement program, the agency also announced a Voluntary Correction Program to encourage administrators to correct recent failures to issue underfunding notices to plan participants.

"Workers and retirees have a right to know the financial condition of their pension plan, and that they might lose some benefits if the plan terminates," said PBGC Executive Director Bradley D. Belt. "This new penalty policy will give companies a stronger incentive to fulfill their obligation to keep plan participants informed."

Under PBGC's proposed policy, which is available on PBGC's website, penalties for failure to issue an underfunding notice are tied primarily to the number of plan participants rather than the number of days of delinquency. The guideline penalty ranges from $5 to $100 per participant, depending on whether the failure is a first-time violation and whether the plan corrects the failure prior to audit. The penalty rate would be prorated for failures corrected within one year, and could be adjusted up or down by the PBGC based on the facts and circumstances of the case. A stepped-up audit program, with tougher enforcement and significantly higher penalties for repeated non-compliance, will accompany the new policy.

Comments on the proposed penalty policy, which will appear in the Federal Register on May 7, 2004, must be received by July 6, 2004, and may be submitted electronically through the PBGC's website.

The PBGC also is announcing a Voluntary Correction Program (VCP) for administrators of underfunded pension plans who failed to issue notices on the plan's funding status. The VCP aims to encourage administrators of PBGC-insured pension plans to correct recent compliance failures and to facilitate future compliance.

The VCP generally covers any 2002 or 2003 participant notice due before May 7, 2004, that is not as of that date the subject of a PBGC audit. Under the VCP, plan administrators may avoid the penalty that would apply for a participant notice failure for the 2002 or 2003 plan year by: 1) issuing a corrective notice in accordance with the VCP by the 2004 participant notice due date; and 2) notifying PBGC, within 30 days after the 2004 participant notice due date, that they are participating in the VCP.

The PBGC anticipates that many plan administrators will want to participate in the VCP as a precaution, even in the absence of a known participant notice failure. Participation in the VCP will not affect the likelihood that a plan will be audited for compliance with the participant notice requirement in the future, with the PBGC premium requirement for any plan year, or with any other PBGC requirement. All information related to the VCP and to participant notice requirements is available on the PBGC's website.

PBGC is a federal corporation created under the Employee Retirement Income Security Act of 1974. It currently guarantees payment of basic pension benefits earned by over 44 million American workers and retirees participating in more than 31,000 private-sector defined benefit pension plans. The agency receives no funds from general tax revenues. Operations are financed largely by insurance premiums paid by companies that sponsor pension plans and by investment returns.

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PBGC No. 04-44