[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]



29 CFR Part 4007

RIN 1212-AB26

Payment of Premiums; Large-Plan Flat-Rate Premium

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Final rule.


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-


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 

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.


    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.

    \1\ There is also a termination premium, which is unaffected by 
this final rule.

    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).

    \2\ See PBGC final rule at 63 FR 68684 (Dec. 14, 1998).

    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.

    \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.

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.

    \4\ See http://www.pbgc.gov/documents/plan-for-regulatory-review.pdf.

    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 

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\

    \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.

    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 
    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 

                                               Approximate number of
                                            participants in large plans
                                                            Large plans
                                                            whose flat-
                                             All large     rate premium
                                               plans       shifts to the
                                                           next  fiscal
Single-employer.........................              30              28
Multiemployer...........................              10               9

    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).

        Approximate average interest earnings per large plan at--
    2 percent          3 percent          6 percent         7 percent
         $3,800             $5,600            $11,300           $13,200

    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\

    \6\ PBGC assumes for this purpose that enrolled actuaries charge 
about $350 per hour.

    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\

    \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.

    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.


    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\

    \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.

    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\

    \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.

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 


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]

2. In Sec.  4007.8, paragraphs (f), (g), (h), and (i) are removed and 

Sec.  4007.11  [Amended]

3. In Sec.  4007.11:
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''.
b. Paragraphs (a)(3)(i) and (iii) are removed and reserved.
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]