[Federal Register Volume 79, Number 2 (Friday, January 3, 2014)]
[Rules and Regulations]
[Pages 347-350]
From the Federal Register Online via the Government Printing Office [http://www.gpo.gov/]
[FR Doc No: 2013-31109]
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PENSION BENEFIT GUARANTY CORPORATION
29 CFR Part 4007
RIN 1212-AB26
Payment of Premiums; Large-Plan Flat-Rate Premium
AGENCY: Pension Benefit Guaranty Corporation.
ACTION: Final rule.
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SUMMARY: Based on its regulatory review under Executive Order 13563
(Improving Regulation and Regulatory Review), the Pension Benefit
Guaranty Corporation (PBGC) is moving the flat-rate premium due date
for large plans to later in the premium payment year--to the same date
as the variable-rate premium due date for such plans--starting with the
2014 plan year. Thus, large calendar-year plans' 2014 flat-rate
premiums will be due October 15, 2014. This action implements part of a
PBGC project to make its premium rules more effective and less
burdensome by simplifying due dates, coordinating the due date for
terminating plans with the termination process, making conforming and
clarifying changes to the variable-rate premium rules, providing for
relief from penalties, and making other changes. The rest of the
project will be implemented by a separate final rule.
DATES: Effective January 3, 2014. Applicable to plan years that begin
on or after January 1, 2014.
FOR FURTHER INFORMATION CONTACT: Catherine B. Klion, Assistant General
Counsel for Regulatory Affairs (klion.catherine@pbgc.gov), or Deborah
C. Murphy, Deputy Assistant General Counsel for Regulatory Affairs
(murphy.deborah@pbgc.gov), Office of the General Counsel, Pension
Benefit Guaranty Corporation, 1200 K Street NW., Washington DC 20005-
4026; 202-326-4024. (TTY and TDD users may call the Federal relay
service toll-free at 800-877-8339 and ask to be connected to 202-326-
4024.)
SUPPLEMENTARY INFORMATION:
Executive Summary--Purpose of the Regulatory Action
This rulemaking is needed as part of a larger project to make
PBGC's premium rules more effective and less burdensome. The rule
contributes to the simplification and streamlining of due dates by
making the flat-rate premium due date for large plans the same as the
variable-rate premium due date for such plans.
PBGC's legal authority for this action comes from section
4002(b)(3) of the Employee Retirement Income Security Act of 1974
(ERISA), which authorizes PBGC to issue regulations to carry out the
purposes of title IV of ERISA, and section 4007 of ERISA, which gives
PBGC authority to set premium due dates and to assess late payment
penalties.
Executive Summary--Major Provisions of the Regulatory Action
In recent years, premium due dates have depended on size of plan
and type of premium. Large plans have paid the flat-rate premium early
in the premium payment year and the variable-rate premium later in the
year. Mid-size plans have paid both the flat- and variable-rate
premiums by that same later due date. Small plans have paid the flat-
and variable-rate premiums in the following year. On July 23, 2013,
PBGC proposed to simplify the due-date rules by providing that all
annual premiums for plans of all sizes will be due on the same day in
the premium payment year--the historical variable-rate premium due
date. As part of that simplification process, this rule eliminates the
separate due date for the flat-rate premiums of large plans beginning
with the 2014 plan year.
Background
PBGC administers the pension plan termination insurance program
under title IV of the Employee Retirement Income Security Act of 1974
(ERISA). Under ERISA sections 4006 and 4007, plans covered by the
program must pay premiums to PBGC. PBGC's premium regulations--on
Premium Rates (29 CFR part 4006) and on Payment of Premiums (29 CFR
part 4007)--implement ERISA sections 4006 and 4007.
There are two kinds of annual premiums.\1\ The flat-rate premium is
based on the number of plan participants, determined as of the
participant count date. The participant count date is generally the
last day of the plan year preceding the premium payment year; in some
cases, however (such as for plans that are new or are involved in
certain mergers or spinoffs), the participant count date is the first
day of the premium payment year. The variable-rate premium (which
applies only to single-employer plans) is based on a plan's unfunded
vested benefits (UVBs)--the excess of its premium funding target over
its assets.
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\1\ There is also a termination premium, which is unaffected by
this final rule.
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Section 4007 of ERISA authorizes PBGC to set premium due dates and
assess penalties for failure to pay
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premiums timely. Beginning in 1999,\2\ PBGC set the variable-rate
premium due date for plans of all sizes as 9\1/2\ calendar months after
the beginning of the premium payment year (October 15 for calendar-year
plans). This was done so that the due date would correspond with the
extended due date for the annual report for the prior year that is
filed on Form 5500. Coordination of the premium and Form 5500 due dates
promotes consistency and simplicity and avoids confusion and
administrative burden. In 2008, however, to conform to changes made by
the Pension Protection Act of 2006 (PPA 2006), small-plan due dates
were extended to 16 months after the beginning of the premium payment
year (April 30 of the following year for calendar-year plans).
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\2\ See PBGC final rule at 63 FR 68684 (Dec. 14, 1998).
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Most plans' flat-rate premiums have been due at the same time as
variable-rate premiums. However, flat-rate premiums for large plans
(those with 500 or more participants) are due two calendar months after
the beginning of the premium payment year (the end of February for
calendar-year plans).\3\ Because of the impracticality of counting
participants so soon after the participant count date, the premium
payment regulation provides an elaborate system of safe harbors from
late-payment penalties for estimated large-plan flat-rate premiums, and
the practice of most large plans has been to pay an estimate of the
flat-rate premium at the early due date and ``true up'' when they pay
the variable-rate premium later in the year.
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\3\ This requirement was adopted in response to a recommendation
in the 1984 report of the Grace Commission (the President's Private
Sector Survey on Cost Control). See PBGC final rule at 50 FR 12533
(Mar. 29, 1985). The requirement was effective for 1985 for very
large plans (those with 10,000 or more participants) and for 1986
for all other large plans.
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Proposed Rule
On January 18, 2011, the President issued Executive Order 13563,
``Improving Regulation and Regulatory Review,'' to ensure that Federal
regulations seek more affordable, less intrusive means to achieve
policy goals, and that agencies give careful consideration to the
benefits and costs of those regulations. In response to and in support
of the Executive Order, PBGC on August 23, 2011, promulgated its Plan
for Regulatory Review,\4\ noting several regulatory areas--including
premiums--for immediate review.
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\4\ See http://www.pbgc.gov/documents/plan-for-regulatory-review.pdf.
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PBGC reviewed its premium regulations and identified a number of
ways to simplify and clarify the regulations, reduce burden, provide
penalty relief, and generally make the regulations work better. On July
23, 2013 (at 78 FR 44056), PBGC published a proposed rule to replace
the system of three premium due dates (based on plan size and premium
type) with a single due date corresponding to the Form 5500 extended
due date, to coordinate the due date for terminating plans with the
termination process, to make conforming and clarifying changes to the
variable-rate premium rules, to provide for relief from penalties, and
to make other changes. Under the proposal, large plans would no longer
have to pay flat-rate premiums early and small plans would have the
same due dates as other plans but get more time to value benefits.
PBGC received comments from six commenters--two employer
associations, two associations of pension practitioners, an actuarial
firm, and an individual actuary. All of the commenters approved of the
proposal, and one specifically urged that it be made effective for
2014. The commenters also had suggestions for additional changes PBGC
might make in its premium regulations or procedures. None of those
suggestions dealt with the large-plan flat-rate premium due date.
The first large-plan flat-rate filing deadline for 2014 is February
28, 2014. Thus the provision of the proposed rule setting the flat-rate
premium due date for large plans later in the year--on the same date as
the variable-rate premium due date for such plans--is by far the most
time-sensitive aspect of the proposal. For that reason, and in light of
the fact that this provision generated only positive comments, PBGC is
finalizing this one change separately and ahead of the other changes in
the proposal.
PBGC expects to deal with all other aspects of the July 23 proposal
in a separate final rule to be issued in time to provide all plans with
adequate advance guidance for timely compliance with the new procedures
in 2014. If the situation changes, PBGC will advise the public as
appropriate.
Regulatory Changes Made by This Final Rule
This final rule makes the flat-rate premium due date for large
plans the same as their variable-rate due date. For calendar-year
plans, that due date will be October 15.\5\
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\5\ To conform to this change in the large-plan flat-rate
premium due date, which makes unnecessary the penalty safe harbors
for under-estimates of large plans' flat-rate premiums, this final
rule eliminates those safe harbor provisions from the premium
payment regulation.
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For many large plans, making the flat-rate premium due when the
variable-rate premium is due will cut the number of premium
transactions with PBGC by two, rather than just one. That is because
underestimating the flat-rate premium has typically given rise not only
to penalties (which are often waived) but also to interest charges
(which cannot be waived). Thus, after paying an estimate of the flat-
rate premium, and then paying the balance due, a large plan has usually
had to make yet another payment, of the interest on the amount by which
its initial estimated payment fell short of the correct amount.
Eliminating the need for flat-rate premium estimates will eliminate
interest payments on shortfalls in those estimates.
The due date change will mean that plan consultants can do all of a
plan's premium filing work at one time, once a year. PBGC will receive
one premium filing for each plan each year and will be able to process
a plan's entire annual premium in a single operation. Reducing the
number of due dates will be simpler for all concerned. Less complexity
means less chance for mistakes and the time and expense of correcting
them. Moving to a single due date will also simplify PBGC's premium
processing systems and save PBGC money on future periodic changes to
those systems (because it is less expensive to modify simpler systems).
In short, PBGC believes that this change in the large-plan flat-
rate premium due date will produce a significant reduction in
administrative burden for both plans and PBGC.
Executive Orders 12866 and 13563
PBGC has determined, in consultation with the Office of Management
and Budget, that this rulemaking is a ``significant regulatory action''
under Executive Order 12866. The Office of Management and Budget has
therefore reviewed this rule under Executive Order 12866.
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of
[[Page 349]]
reducing costs, of harmonizing rules, and of promoting flexibility.
This final rule is associated with retrospective review and analysis in
PBGC's Plan for Regulatory Review issued in accordance with Executive
Order 13563.
Executive Orders 12866 and 13563 require that a comprehensive
regulatory impact analysis be performed for any economically
significant regulatory action, which, under Section 3(f)(1) of
Executive Order 12866, is one that ``is likely to result in a rule that
may . . . [h]ave an annual effect on the economy of $100 million or
more or adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or tribal governments or
communities.''
PBGC premium payments are included as receipts in the Federal
budget, and the large-plan flat-rate premium deferral will cause a one-
time shift of about $1.5 billion (attributable primarily to calendar
year plans) from one fiscal year to the next. Although no premium
revenue will be lost, there will be the appearance of a one-time loss
for the year when the due dates change, and PBGC has therefore
determined that this final rule is economically significant under the
criteria in Executive Order 12866.
The estimate of the amount of flat-rate premium shifted from one
fiscal year to the next, and the estimate (below) of the amount of
interest shifted from PBGC to plans, are revised from the estimates in
the proposed rule to reflect projected 2014 per-participant flat
premium rates ($49 (instead of $35) for single-employer plans and $12
(instead of $9) for multiemployer plans) and the following participant-
count data for large plans for plan years beginning in 2012 (instead of
2010):
------------------------------------------------------------------------
Approximate number of
participants in large plans
(millions)
-------------------------------
Large plans
whose flat-
All large rate premium
plans shifts to the
next fiscal
year
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Single-employer......................... 30 28
Multiemployer........................... 10 9
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In accordance with OMB Circular A-4, PBGC has examined the economic
and policy implications of this final rule and has concluded that the
action's benefits justify its costs. That conclusion is based on the
following analysis of the impact of the due date change.
The due date change will shift, from PBGC to plans, the earnings on
premium payments by large plans for the 7[frac12] months between the
old and new due dates. PBGC estimates that the average gain per large
plan will be about $11,300 per year. To put this figure in perspective,
large plans pay over $1 billion in flat-rate premiums--about 95 percent
of PBGC's flat-rate premium income.
Because earning rates differ between PBGC and plans, PBGC's loss
will be about one-third as much as plans' gain. PBGC estimates its rate
of return, from investment in U.S. Government securities, at about 2
percent. PBGC estimates plans' rate of return at 6 percent. The
following table shows the estimated average interest earnings
calculated with four rates: two percent (PBGC's best estimate for
PBGC's rate of return), six percent (PBGC's best estimate for plans'
rate of return), and three and seven percent (the discount rates
recommended by OMB Circular A-4).
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Approximate average interest earnings per large plan at--
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2 percent 3 percent 6 percent 7 percent
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$3,800 $5,600 $11,300 $13,200
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In addition, PBGC estimates that the reduction in large plans'
administrative burden attributable to the change in their flat-rate
premium due date will translate into average annual savings of 3 hours
per plan. (PBGC arrived at this estimate on the basis of inquiries made
to pension practitioners.) The dollar equivalent of this saving is
about $1,050.\6\
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\6\ PBGC assumes for this purpose that enrolled actuaries charge
about $350 per hour.
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Accordingly, PBGC foresees an average net benefit (in dollar terms)
from adoption of the new uniform due date of about $12,350 for each
large plan (about $11,300 in saved interest plus about $1,050 in saved
administrative expenses).
Immediate Effective Date
Pursuant to section 553(d)(3) of the Administrative Procedure Act
(5 U.S.C. 551 et seq.) and section 808(2) of the Congressional Review
Act (5 U.S.C. 801 et seq.), PBGC for good cause finds that notice and
public procedure on this final rule are unnecessary and contrary to the
public interest and that this final rule should be effective upon
publication. The project as a whole, including the relief provided by
this final rule, has received only positive comment from the public.
This rule requires no affirmative action by the regulated community. On
the contrary, it provides relief from the restrictive large-plan flat-
rate early-filing requirement for PBGC premiums (see section 553(d)(1)
of the Administrative Procedure Act). The first large-plan flat-rate
filing deadline for 2014 is February 28, 2014. To ensure that all large
plans will be able to rely on this final rule for the 2014 plan year,
PBGC is making this rule effective upon publication.
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) imposes
certain requirements with respect to rules that are subject to the
notice and comment requirements of section 553(b) of the Administrative
Procedure Act. Unless an agency determines that a final rule is not
likely to have a significant economic impact on a substantial number of
small entities, section 604 of the Regulatory Flexibility Act requires
that the agency present a final regulatory flexibility
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analysis at the time of the publication of the final rule describing
the impact of the rule on small entities and steps taken to minimize
the impact. Small entities include small businesses, organizations and
governmental jurisdictions.
Small Entities
For purposes of the Regulatory Flexibility Act requirements with
respect to this final rule, PBGC considers a small entity to be a plan
with fewer than 100 participants. This is consistent with certain
requirements in title I of ERISA \7\ and the Internal Revenue Code,\8\
as well as the definition of a small entity that the Department of
Labor (DOL) has used for purposes of the Regulatory Flexibility Act.\9\
Using this proposed definition, about 64 percent (16,500 of 25,600) of
plans covered by title IV of ERISA in 2011 were small plans.\10\
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\7\ See, e.g., ERISA section 104(a)(2), which permits the
Secretary of Labor to prescribe simplified annual reports for
pension plans that cover fewer than 100 participants.
\8\ See, e.g., Code section 430(g)(2)(B), which permits plans
with 100 or fewer participants to use valuation dates other than the
first day of the plan year.
\9\ See, e.g., DOL's final rule on Prohibited Transaction
Exemption Procedures, 76 FR 66637, 66644 (Oct. 27, 2011).
\10\ See PBGC 2011 pension insurance data table S-31, http://www.pbgc.gov/documents/pension-insurance-data-tables-2011.pdf.
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Further, while some large employers may have small plans, in
general most small plans are maintained by small employers. Thus, PBGC
believes that assessing the impact of the rule on small plans is an
appropriate substitute for evaluating the effect on small entities. The
definition of small entity considered appropriate for this purpose
differs, however, from a definition of small business based on size
standards promulgated by the Small Business Administration (13 CFR
121.201) pursuant to the Small Business Act. In its proposed rule,
therefore, PBGC requested comments on the appropriateness of the size
standard used in evaluating the impact of the proposed rule on small
entities. No comments were received on this issue.
Certification
On the basis of its definition of small entity, PBGC certifies
under section 605(b) of the Regulatory Flexibility Act 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, sections 603
and 604 do not apply. This certification is based on the fact that the
change in the large-plan flat-rate premium due date will have no impact
on any small plans.
Paperwork Reduction Act
The information requirements under this final rule have been
approved by the Office of Management and Budget under the Paperwork
Reduction Act (44 U.S.C. 3501 et seq.) (OMB control number 1212-0009;
expires October 31, 2015). 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.
The only changes PBGC is making in its premium information
collection in connection with this final rule are that PBGC will give
notice that estimated flat-rate filings are discontinued for plan years
starting in 2014. (PBGC will also notify private-sector premium filing
software developers of the change so that it can be reflected in their
products.) \11\
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\11\ The more comprehensive changes to PBGC's premium
information collection arising from the separate final rule that
PBGC anticipates issuing--dealing with aspects of the July 23
proposal other than the large-plan flat-rate premium due date--will
be addressed in that separate final rule.
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PBGC needs the information in a premium filing to identify the plan
for which the premium is paid to PBGC, to verify the amount of the
premium, to help PBGC determine the magnitude of its exposure in the
event of plan termination, to help PBGC track the creation of new plans
and the transfer of plan assets and liabilities among plans, and to
keep PBGC's inventory of insured plans up to date. PBGC receives
premium filings from about 25,700 respondents each year and estimates
that the total annual burden of the collection of information will be
about 8,900 hours and $59,250,000.\12\
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\12\ This burden estimate reflects both a decrease in burden
attributable to the change in the large-plan flat-rate premium due
date under this final rule and an increase in burden attributable to
a re-estimate of the existing premium filing burden. The increase in
burden due to re-estimation is about 31,300 hours, and the decrease
due to the due date change is about 17,000 hours, a net increase of
about 14,300 hours from the currently approved burden (about
163,600). PBGC assumes that about 95 percent of the work is
contracted out at $350 per hour, so the 17,000-hour decrease
attributable to the final rule is equivalent to about 850 hours of
in-house labor and about $5,650,000 of contractor costs.
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List of Subjects in 29 CFR Part 4007
Employee benefit plans, Penalties, Pension insurance, Reporting and
recordkeeping requirements.
In consideration of the foregoing, PBGC amends 29 CFR part 4007 as
follows:
PART 4007--PAYMENT OF PREMIUMS
0
1. The authority citation for part 4007 continues to read as follows:
Authority: 29 U.S.C. 1302(b)(3), 1303(A), 1306, 1307.
Sec. 4007.8 [Amended]
0
2. In Sec. 4007.8, paragraphs (f), (g), (h), and (i) are removed and
reserved.
Sec. 4007.11 [Amended]
0
3. In Sec. 4007.11:
0
a. Paragraph (a) introductory text is amended by removing the words
``due dates for large plans are prescribed'' and adding in their place
the words ``due date for large plans is prescribed''.
0
b. Paragraphs (a)(3)(i) and (iii) are removed and reserved.
0
c. Paragraph (a)(3)(ii) is amended by removing the words ``for the
variable-rate premium required by Sec. 4006.3(b) of this chapter for
single-employer plans''.
Issued in Washington, DC, this 20 day of December 2013.
Joshua Gotbaum,
Director, Pension Benefit Guaranty Corporation.
[FR Doc. 2013-31109 Filed 1-2-14; 8:45 am]
BILLING CODE 7709-02-P