The Pension Benefit Guaranty Corporation (PBGC) protects the retirement security of over 33 million American workers, retirees, and beneficiaries in both single-employer and multiemployer private sector pension plans. The agency’s two insurance programs are legally separate and operationally and financially independent. PBGC is directly responsible for the benefits of more than 1.5 million participants and beneficiaries in failed pension plans. The Single-Employer Insurance Program is financed by insurance premiums, investment income, and assets and recoveries from failed single-employer plans. The Multiemployer Insurance Program is financed by insurance premiums. Special financial assistance for financially troubled multiemployer plans is financed by general taxpayer money.
Every PBGC-insured plan must pay premiums annually to PBGC. There are two kinds of premiums: (1) the flat-rate premium that applies to both single-employer and multiemployer plans, and (2) the variable-rate premium that applies only to underfunded single-employer plans. A separate termination premium applies to certain distress and involuntary plan terminations. For current rates, see Premium Rates.
Each plan is responsible for calculating and paying its own premiums based on a reported participant count and, when required, plan funding information. All plans must submit their premium filings electronically using PBGC's secure Web-based application, My PAA, which is available on our Employers & Practitioners page, as are instructions for calculating and paying premiums.
Premium Compliance Evaluation
The PBGC premium program relies on data reported by plan administrators. PBGC established its Premium Compliance Evaluation (PCE) program to help ensure that plans comply with PBGC premium regulations and pay the appropriate premiums. PBGC also offers compliance assistance to promote greater awareness of PBGC premium rules and to help plan professionals who contact PBGC with questions. By helping to ensure that all covered plans pay their required share of the insurance program costs, the PCE program protects the pension insurance program for the benefit of all premium payers. Plans that pay what they rightly owe should not have to subsidize those that do not.
Selecting Plans for Evaluation
PBGC selects plan filings for review based on a screening process. The screening process helps to identify premium filings that may include errors in calculating the premium due or that may reflect data anomalies requiring further review. PBGC uses electronic data analysis and pension data matching tools as part of this screening process.
Objectives and Types of Reviews
The primary objectives of a premium compliance evaluation are to assess the accuracy of the number of participants reported and, for single-employer plans only, the determination of the variable-rate premium.
There are three types of reviews PBGC may conduct: letters of inquiry, limited reviews, and on-site evaluations. PBGC usually sends a letter of inquiry when a clarification is needed regarding an aspect of a premium filing. If more complicated issues are involved, PBGC will conduct a limited review. A limited review typically requires the submission of the plan document and certain records for more detailed analysis and discussion with plan representatives. PBGC may also conduct on-site examinations, which are broader in scope and include direct verification of evidence supporting the calculation of the premium paid.
Generally, evaluations are limited to a single plan year unless PBGC notes problems. Before making an initial determination that additional premiums are due, PBGC will discuss the draft findings with the plan administrator, provide an opportunity for the administrator to comment in writing, and review any additional supporting documentation provided by the administrator. PBGC may also conclude that the premium due was overstated and a refund may be due. After considering the plan's response, PBGC will issue an initial determination letter to the plan if PBGC determines that additional premiums are due. Initial determinations include specific instructions for filing a request for reconsideration.
Requests for Reconsideration
If the plan administrator disagrees with PBGC's initial determination, the administrator may file a request for reconsideration within 30 days of the date of the initial determination. A senior PBGC official will review the request and make PBGC's final determination.
Practices to Consider
Some administrators of defined benefit pension plans have found a number of practices helpful in connection with their administrative responsibilities. Plan administrators may wish to consider one or more of the following to help ensure premium compliance and more easily document the premium reported:
- Maintain detailed records supporting the number of participants reported (for example, maintain required participant records, keep a list of specific participants for whom premiums were paid, update baseline participant count information regularly);
- Maintain records regarding the plan's exemption from or calculation of the variable-rate premium (for example, plan asset valuations, actuarial worksheets);
- Perform periodic reviews of payroll and plan data to verify which employees are plan participants;
- Compare the number of participants reported to PBGC with the number of participants included in the actuarial valuation and analyze differences;
- Document reasons for significant changes to participant counts or vested benefit liabilities; and
- Review comparable information reported on PBGC premium filings and the Form 5500 to identify obvious errors.
Incentive for Self-Correcting Underpaid Premiums
PBGC provides an incentive for plans to self-report errors or omissions relating to the amount of premium paid to PBGC. If a plan corrects an underpayment by the date PBGC issues a written notice of either a Premium Compliance Evaluation or an actual or potential premium delinquency, then the plan is eligible for a reduced monthly penalty rate. For plan years beginning in 2016 or later, late payments are generally subject to a penalty of 2½% of the late amount per month (or partial month) late, but no more than 50% of the late amount. However, if a plan discovers and corrects an underpayment before PBGC sends written notice that there is or may be a premium delinquency, the 2½% rate is reduced to ½% and the cap is reduced from 50% to 25%.
A penalty charge may be waived for reasonable cause. All unpaid premium amounts are also subject to a late payment interest charge. See Late Payment Charges for additional information on interest and penalty charges and penalty waivers.
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