Federal Register, Volume 79 Issue 47 (Tuesday, March 11, 2014)

[Federal Register Volume 79, Number 47 (Tuesday, March 11, 2014)]
[Rules and Regulations]
[Pages 13547-13562]
From the Federal Register Online via the Government Printing Office [http://www.gpo.gov/]
[FR Doc No: 2014-05212]

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PENSION BENEFIT GUARANTY CORPORATION

29 CFR Parts 4000, 4006, 4007, and 4047

RIN 1212-AB26

Premium Rates; Payment of Premiums; Reducing Regulatory Burden

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Final rule.

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SUMMARY: The Pension Benefit Corporation (PBGC) is making its premium
rules more effective and less burdensome. Based on its regulatory
review under Executive Order 13563 (Improving Regulation and Regulatory
Review), PBGC proposed to simplify due dates, coordinate the due date
for terminating plans with the termination process, make conforming and
clarifying changes to the variable-rate premium rules, give small plans
more time to value benefits, provide for relief from penalties, and
make other changes. PBGC recently finalized the part of the proposal
that eliminated the early payment requirement for large plans' flat-
rate premiums. This action finalizes the rest of the proposal.

DATES: Effective April 10, 2014. The changes are generally applicable
for plan years starting on or after January 1, 2014. See Applicability
later in the preamble for details.

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 to make PBGC's premium rules more
effective and less burdensome. The rule simplifies and streamlines due
dates, coordinates the due date for terminating plans with the
termination process, makes conforming changes to the variable-rate
premium rules, clarifies the computation of the premium funding target,
reduces the maximum penalty for delinquent filers that self-correct,
and expands premium penalty relief.
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

Due Date Changes

In recent years, premium due dates have generally depended on plan
size. 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. PBGC recently eliminated the early due
date for large plans' flat-rate premiums. PBGC is now completing the
process of simplifying the due-date rules by making small plans'
premiums due at the same time as large and mid-size plans' premiums.
However, because of a transition rule that gives small

[[Page 13548]]

plans more time to adjust to the new provisions, the due dates will not
be completely uniform until 2015. The following table shows how due
dates differ under the previous and the new due date rules for
calendar-year plans for 2014 (the transition year) and 2015 (the year
full uniformity is achieved).

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2014 2015
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Old rules New rules Old rules New rules
Plan size -----------------------------------------------------------------------------------------------
Flat-rate Variable-rate Flat-rate Variable-rate
premium premium Entire premium premium premium Entire premium
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Large................................................... 2/28/2014 10/15/2014 10/15/2014 2/28/2015 10/15/2015 10/15/2015
Mid-size................................................ 10/15/2014 10/15/2014 10/15/2014 10/15/2015 10/15/2015 10/15/2015
Small................................................... 4/30/2015 4/30/2015 2/15/2015 4/30/2016 4/30/2016 10/15/2015
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For the special case of a plan terminating in a standard
termination, the final premium might come due months after the plan
closed its books and thus be forgotten. Correcting such defaults has
been inconvenient for both plans and PBGC. To forestall such problems,
PBGC is setting the final premium due date no later than the date when
the post-distribution certification is filed. PBGC is also making
conforming changes to other special case due date rules.

Variable-Rate Premium Changes

Some small plans determine funding levels too late in the year to
be able to use current-year figures for the variable-rate premium by
the new uniform due date. To address this problem, PBGC is providing
that small plans generally use prior-year figures for the variable-rate
premium (with a provision for opting to use current-year figures).
To facilitate the due date changes, a plan will generally be exempt
from the variable-rate premium for the year in which it completes a
standard termination or (if it is small) for the first year of
coverage.
In response to inquiries from pension practitioners, PBGC is
clarifying the computation of the premium funding target for plans in
``at-risk'' status for funding purposes.

Penalty Changes

PBGC assesses late premium payment penalties at 1 percent per month
for filers that self-correct and 5 percent per month for those that do
not. The differential is to encourage and reward self-correction. But
both penalty schedules have had the same cap--100 percent of the
underpayment--and once the cap was reached, the differential
disappeared. To preserve the self-correction incentive and reward for
long-overdue premiums, PBGC is reducing the 1-percent penalty cap from
100 percent to 50 percent.
PBGC is also codifying in its regulations the penalty relief policy
for payments made not more than seven days late that it established in
a Federal Register notice in September 2011 and is giving itself more
flexibility in exercising its authority to waive premium penalties.

Other Changes

PBGC is also amending its regulations to accord with the Moving
Ahead for Progress in the 21st Century Act and the Bipartisan Budget
Act of 2013 and to avoid retroactivity of PBGC's rule on plan liability
for premiums in distress and involuntary terminations.

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.
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,\1\ noting several regulatory areas--including
premiums--for immediate review.
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\1\ 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.
PBGC received comments on its proposed rule 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. Those
suggestions are discussed below with the topics they relate to. In
response to the comments, PBGC has made changes both to the regulatory
text and to its premium forms and instructions. Changes have also been
made to reflect adoption of the Bipartisan Budget Act of 2013 and a
minor due-date simplification that PBGC introduced on its own
initiative (also discussed below).
Because the proposed change in the large-plan flat-rate due date
was time-sensitive (and received only positive comments from the
public), PBGC expedited a final rule limited to that change (and
related changes in penalty provisions). That final rule was published
January 3, 2014 (at 79 FR 347).

Current and Historical Context

There are two kinds of annual premiums.\2\ 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

[[Page 13549]]

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. The premium funding target and asset values are
determined as of the plan's UVB valuation date, which is the same as
the valuation date used for funding purposes. In general, the UVB
valuation date is the beginning of the plan year, but some small plans
(with fewer than 100 participants) may have UVB valuation dates as late
as the end of the year.
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\2\ 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 premiums timely. Beginning in
1999,\3\ 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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\3\ See PBGC final rule at 63 FR 68684 (Dec. 14, 1998).
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Flat-rate premiums for large plans (those with 500 or more
participants) were previously due two calendar months after the
beginning of the premium payment year (the end of February for
calendar-year plans). PBGC recently eliminated that early due date, and
large plans' flat-rate premiums are now due at the same time as
variable-rate premiums.
Under ERISA section 4007, premiums accrue until plan assets are
distributed in a standard termination or a failing plan is taken over
by a trustee. A plan undergoing a standard termination is exempt from
the variable-rate premium for any plan year after the year in which the
plan's termination date falls.\4\
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\4\ See Exemption for Standard Terminations, below.
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Late payment penalties accrue at the rate of 1 percent or 5 percent
per month of the unpaid amount, depending on whether the underpayment
is ``self-corrected'' or not. Self-correction refers to payment of the
delinquent amount before PBGC gives written notice of a possible
delinquency. Penalties are capped by statute at 100 percent of the
unpaid amount.
The changes to the premium regulations affecting due dates,
variable-rate premiums, and penalties are discussed below in that
order.

New Due Date Rules

Uniform Due Dates for Plans of All Sizes

PBGC is setting the premium due date for small plans as 9\1/2\
months after the beginning of the premium payment year (subject to a
one-year transition rule, discussed below). This date corresponds with
the extended due date for the annual report for the prior year that is
filed on Form 5500. (For calendar-year plans, the due date will be
October 15.) Having recently made the same change for large plans'
flat-rate premium due date, PBGC has now eliminated the system of three
premium due dates tied to plan size and premium type and replaced it
with a uniform due date system for both flat- and variable-rate
premiums of plans of all sizes.
For small plans, the new unified due date raises a timing issue.
Unlike large plans, which by statute must value benefits at the
beginning of the year, small plans are permitted by statute to value
benefits as late as the end of the year and thus might be unable to
calculate variable-rate premiums by a due date within the year using
current-year data. (For example, a small calendar-year plan that valued
benefits as of December 31 could not determine the premium by the
preceding October 15.) PBGC's solution to this timing problem is for
small plans to determine the variable-rate premium using data,
assumptions, and methodology for the year before the premium payment
year. (This solution also accommodates situations where (although
timely action might be possible) sponsors prefer to put off giving plan
actuaries information for plan valuations until after other close-of-
the-year matters are dealt with.) A more detailed discussion of this
provision is set forth below under the heading ``Look-Back'' Rule for
Small Plans, below.
These changes mean that plan consultants can do all premium and
Form 5500 filing chores at one time, once a year. PBGC will receive all
premium filings for each plan year at one time, specific to that year,
and will be able to process a plan's entire annual premium in a single
operation. Going from three due dates to one will be simpler for all
concerned--even for mid-size plans, whose due date is not changing.
Simpler rules mean shorter and simpler filing instructions--
instructions that PBGC must update annually and that plan
administrators of plans of all sizes must read, understand, and follow.
Less complexity means less chance for mistakes and the time and expense
of correcting them. Moving to one uniform 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 will produce a significant
reduction in administrative burden for both plans and PBGC. It will
also shift the earnings on premium payments between plans and PBGC for
the time between the old and new due dates, but overall, plans will
gain.\5\
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\5\ See Uniform Due Dates under Executive Orders 12866 and
13563, below, for detailed discussion of costs and benefits.
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However, shifting immediately from the old to the new due date
schedule would result in two premium due dates for small plans in the
transition year: using a calendar-year plan as an example, the 2013
premium would be due at the end of April 2014, and the 2014 premium
would be due in mid-October 2014.\6\ This ``doubling up'' of premiums
for one year prompted one commenter to express concern about potential
cash flow problems for some small plan sponsors and to recommend that
PBGC permit payment of the transition-year premium in three annual
installments. Another commenter requested transition rules generally.
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\6\ In the transition year for the old due date system, small
plans made no premium payments.
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Although PBGC is not persuaded that the due date change poses a
significant cash flow problem for most small plan sponsors (in part
because premiums can be paid from plan assets), the fact that a comment
raised this issue indicates that it may exist in some cases. But PBGC
believes that a regime of installment payments is more complex than is
necessary to deal with the problem. Instead, PBGC is addressing this
concern by extending the transition year due date by four months (from
October 15, 2014, to February 15, 2015, for calendar-year plans) for
small plans that would otherwise have two premium due dates in the
transition year. With this one-time extension, a small plan's
transition-year premium and its premiums for the preceding and
following plan years can be spaced about equally over a 17\1/2\-month
period (from April 30, 2014, to October 15,

[[Page 13550]]

2015, for calendar-year plans), with about eight or nine months between
each two payments.\7\
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\7\ A calendar-year filer that wanted to pay the second premium
halfway between the due dates for the first and third premiums would
pay it in late January 2015. The extension to mid-February provides
some leeway.
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In addition, a 60-day penalty waiver is available in cases of
financial hardship,\8\ which could extend the 17\1/2\-month period to
19\1/2\ months. And case-by-case relief from late-payment penalties is
also available. In combination with the transition-year due date
extension, PBGC believes these provisions adequate to relieve any cash-
flow problems caused by transition-year due-date bunching.
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\8\ The waiver is available if timely payment of a premium would
cause substantial hardship but payment can be made within 60 days.
See section 4007(b) of ERISA and Sec. 4007.8(b) of the premium
payment regulation.
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Terminating Plans' Due Date

The foregoing discussion focuses on the normal due dates for annual
premiums. There are also special due date rules for new and newly
covered plans and for plans that change plan year. But there has been
no special due date provision for terminating plans--and yet such plans
have posed a special problem, because their final premium due date
might come months after all benefits were distributed and their books
were closed. Although the standard termination rules require that
provision be made for PBGC premiums,\9\ PBGC's experience has been that
once the sometimes-difficult process of distributing benefits was
over--and with the premium due date often months in the future--plan
administrators might simply forget about premiums and consider their
work done. Months later, when PBGC contacted them after they failed to
make the final premium filing, it was typically an inconvenience, and
sometimes an annoyance, to go back to (or reconstruct) the records to
calculate and pay premium--and interest and penalties, because the due
date had been missed.
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\9\ See 29 CFR 4041.28(b).
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With a view to ensuring that final-year premiums are routinely paid
for plans winding up standard terminations, PBGC is changing the due
date for such plans to bring it within the standard termination
timeline.\10\ The final event in the standard termination timeline is
the filing of the post-distribution certification under Sec. 4041.29
of PBGC's regulation on Termination of Single-Employer Plans (29 CFR
part 4041). The plan administrator of a terminating plan must file the
certification (on PBGC Form 501) within 30 days after the last benefit
distribution date, but no late filing penalty is assessed if the filing
is no later than 90 days after the distribution deadline under Sec.
4041.28(a) of the termination regulation (the ``penalty-free zone'').
The proposed rule provided that the premium due date for a terminating
plan's final year would be the earliest of (1) the normal premium due
date, (2) the end of the penalty-free zone, or (3) the date when the
post-distribution certification is actually filed. In the interest of
simplicity, the final rule eliminates the second of these three dates
and sets the due date for such final filings as the earlier of (1) the
normal premium due date and (2) the date when the post-distribution
certification is actually filed.
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\10\ See p. 3 of the Standard Termination Filing Instructions,
http://www.pbgc.gov/documents/500-instructions.pdf.
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Thus plans will in effect have at least 90 days after distributions
are complete to make the final year premium filing. And since in
addition the normal unified premium due date is nine-and-a-half months
after the plan year begins, only plans closing out in the first six-
and-a-half months of the final year will face an accelerated premium
deadline. For plans closing out in the last five-and-a-half months of
the final year, the normal premium due date will come before the end of
the penalty-free zone.
The 90 days (or more) between the completion of final distributions
and the accelerated premium deadline will also give a plan at least
that much time to determine the flat-rate premium (which is based on
the participant count at the end of the prior year). For a terminating
plan, counting participants should be relatively easy. Because it is in
the process of providing benefits for (or for the survivors of) each
participant, a terminating plan must necessarily have a roster of all
participants. By simply subtracting from the roster the participants
who received distributions before the participant count date, the plan
can determine the participant count.
Computing a variable-rate premium in three months might be more
challenging, but under this final rule it will not be necessary. If the
termination date for a standard termination is before the beginning of
the final plan year, the regulation already provides an exemption from
the variable-rate premium for the final year. PBGC is expanding this
exemption to apply to a plan's final year, even if the termination date
comes during that year.\11\ Thus, the final-year premium will be flat-
rate only. This change will provide relief for the significant number
of plans that close out in the same year in which their termination
dates fall (as indicated by PBGC data on the number of plans that pay
variable-rate premiums for the final year).
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\11\ See Final-Year Variable-Rate Premium Exemption, below.
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Advancing the premium due date for some terminating plans will
shift earnings on the premiums from those plans to PBGC. But some of
those plans should enjoy reduced administrative expenses (and possibly
save on late charges) because the advanced deadline will prompt them to
prepare premium filings while files are open for paying benefits. And
some plans will avoid paying a final-year variable-rate premium under
PBGC's expansion of the exemption for plans doing standard
terminations.\12\ On balance, PBGC expects there to be no significant
net cost to plans and significant administrative benefits for PBGC.
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\12\ See Final-Year Due Date under Executive Orders 12866 and
13563, below, for detailed discussion of costs and benefits.
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One commenter recommended that the new terminating plan due date be
extended by 30 days so that the final-year premium filing would not
have to be made at the same time as the post-distribution certification
(Form 501), citing the time necessary to prepare Form 501. PBGC
believes that the simplicity of making the final flat-rate-only premium
filing, as discussed above, suggests that plan administrators will
typically be able to avoid simultaneous filing of the premium and post-
distribution certification forms by simply filing the premium form
before the deadline. If circumstances make that difficult, the seven-
day penalty waiver (see Codification of Seven-Day Penalty Waiver Rule,
below) will provide relief from late payment penalties. If, in an
unusual situation, preparation of the premium filing takes more than a
week, case-by-case relief from late-payment penalties is also
available. (See Expansion of Penalty Waiver Authority, below).

New Plan Due Date Modifications

As noted above, the premium payment regulation already includes a
special due date provision for new and newly covered plans. PBGC is
making two technical modifications to this provision in support of the
primary changes in this rulemaking.
The first modification is to restore--for newly covered plans--the
alternative due date of 90 days after title IV coverage begins. This
alternative was available before the PPA 2006

[[Page 13551]]

amendments to the premium regulations, but those amendments set newly
covered plans' normal due date four months after the end of the premium
payment year--and thus more than 90 days after the latest possible
coverage date. This made the alternative due date superfluous, and it
was removed. Now that PBGC is returning the normal due date to 2\1/2\
months before the end of the plan year, it will again be possible for a
plan's coverage date to be too late in the premium payment year to make
filing by the normal due date feasible. Hence the restoration of this
alternative due date.
The second modification is to provide a due date extension for a
subset of plans that are excluded from the normal rule that small plans
base the variable-rate premium on prior-year data.\13\ This subset
consists of new small plans resulting from non-de minimis
consolidations and spinoffs. These plans will have to pay a variable-
rate premium based on current-year data.\14\ But being small, a plan in
this subset might have a UVB valuation date too late in the premium
payment year to enable the plan to meet the normal filing deadline.
This second modification to the new-plan due date provision extends the
due date for such plans until 90 days after the UVB valuation date, to
give them time to calculate the variable-rate premium.\15\
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\13\ See ``Look-Back'' Rule for Small Plans, below.
\14\ See First-Year Variable-Rate Premium Exemption, below.
\15\ To give any plan with a deferred due date adequate time to
reconcile an estimated variable-rate premium, the reconciliation
date keys off the due date rather than the premium payment year
commencement date. For a normal due date, the reconciliation date
remains the same.
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One commenter recommended that PBGC adopt a very different due date
rule for new plans and some newly covered plans. The suggestion was
basically to provide for filing by the following year's normal due date
in situations where one of the 90-day extension rules would otherwise
apply. The commenter indicated that the suggested change would not
apply to newly covered plans that had previously gone in and out of
coverage, but even without this complication, PBGC is not persuaded
that the change would be an improvement. The commenter argued that the
existing rule is likely to result in missed filings, but the 90-day
extension has been in the regulation for years, and no significant
problems with it have come to PBGC's attention. Thus PBGC's concern
would be that changing this long-standing pattern of due date
extensions would be more likely to cause than cure problems.
Furthermore, the commenter's recommendation for the new and newly
covered plan due date would put plans in the position of owing two
years' premiums on the same day, a result that the same commenter was
concerned with in connection with the transition to the new unified due
date for small plans (see Uniform Due Dates for Plans of All Sizes,
above). Accordingly, PBGC is not adopting this suggestion.

Variable-Rate Premium Changes

``Look-Back'' Rule for Small Plans

As noted in the discussion of the unified due date above, some
small plans value benefits too late in the premium payment year to be
able to compute variable-rate premiums by the new uniform due date,
which is 2\1/2\ months before the end of the premium payment year. (As
also noted, some small-plan sponsors prefer to defer plan valuation
matters until after year-end.) To solve this problem, small plans will
determine UVBs, on which variable-rate premiums are based, by looking
back to data for the prior year.\16\ Because a new plan does not have a
prior year to look back to, new small plans will generally be exempt
from the variable-rate premium. This new variable-rate premium
exemption is discussed in more detail under First-Year Variable-Rate
Premium Exemption below.
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\16\ This revives a concept that was in the premium regulations
before PPA 2006: the alternative calculation method, which permitted
plans to determine UVBs by ``rolling forward'' prior-year data using
a set of complex formulae. No ``rolling forward'' or other
modification of prior-year data is involved in the approach that
PBGC is now taking.
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The term ``UVB valuation year'' is used in the text of the
regulation to mean the year that the plan administrator looks to for
the UVBs used to calculate the variable-rate premium for the premium
payment year. As a general rule, the UVB valuation year is the plan
year preceding the premium payment year for small plans, and is the
premium payment year for other plans. (Using the term ``UVB valuation
year'' avoids the need to have the regulation describe two versions of
all the UVB determination rules--one version for small plans and a
second version for the others.)
This ``look-back'' rule applies only to the variable-rate premium,
not to the flat-rate premium. The participant count on which the flat-
rate premium is based is determined not as of the UVB valuation date
but as of the participant count date. This date is still the same as it
was before PPA 2006, when small plans' premium due date was the
historical date that this final rule reinstates for them (October 15
for calendar-year plans). From the perspective of the flat-rate
premium, the final rule returns small plans to their situation before
PPA 2006, and no special accommodation is needed.

Plans Subject to Look-Back Rule

In general, the look-back rule applies to any plan with a
participant count for the premium payment year of up to 100, or a
funding valuation date that is not at the beginning of the premium
payment year. Thus the ``small plans'' to which the look-back rule
applies are a slightly different group, compared to the ``small plans''
whose premium due date under the PPA 2006 amendment is four months
after the end of the plan year. The difference in approach reflects the
difference in the implications of plan size under the old and new
premium payment regulations. Heretofore, all plans had the same UVB
valuation year, and plan size determined due date; under the amended
regulation, all plans have the same due date, and plan size generally
determines UVB valuation year (i.e., whether the look-back rule
applies).
Until now, the regulation based plan size on the participant count
for the year before the premium payment year, so that plans could
determine well in advance whether they were large and thus required to
pay the flat-rate premium early in the year. New plans (which have no
prior year) were treated as small, which meant that they paid their
first-year premiums according to the small-plan payment schedule,
regardless of size. Newly covered plans were grouped with new plans. If
a new or newly covered plan in fact covered more than 100 participants,
it enjoyed the luxury of the delayed small-plan due date for its first
year, but the most PBGC could be said to have ``lost'' was 6\1/2\
months' interest on the premium.
Under the new rules, in contrast, if a new plan covering more than
100 participants were treated as small, PBGC would lose not just
interest but (because of the new variable-rate premium exemption for
new small plans) the whole variable-rate premium. For some new plans--
particularly those created by consolidation or spinoff--this could be a
very substantial sum. To avoid this unintended consequence of the look-
back rule, which is meant for plans that are genuinely small, the
small-plan category is based on the participant count for the premium
payment year rather than the preceding year. This change is possible
because PBGC's elimination of the early flat-rate premium due date for
large plans has eliminated the pressure to determine plan size early in
the premium payment

[[Page 13552]]

year. By the time a plan needs to know whether it is small (and thus
subject to the look-back rule), it will have had plenty of time to
determine its current-year participant count.
Changing from the prior year's to the current year's participant
count brings PBGC's definition of ``small plan'' into closer alignment
with the category of plans eligible by statute to use non-first-day-of-
the-year valuation dates.\17\ The somewhat complex statutory provision
is based on participant-count data from the prior year,\18\ and PBGC's
participant count date for the current year is generally the last day
of the prior year. To improve the correspondence with the statutory
provision, PBGC is changing the small-plan numerical size range from
fewer than 100 participants to 100 or fewer participants (the numerical
size range of plans permitted by statute to use non-first-day-of-the-
plan-year valuation dates).
---------------------------------------------------------------------------

\17\ The old small-plan category corresponds only approximately
with the category of plans permitted by statute to use non-first-
day-of-the-plan-year valuation dates. See preamble to PBGC's final
PPA 2006 premium rule, 73 FR 15065 at 15069 (Mar. 21, 2008).
\18\ ERISA section 303(g)(2)(B) provides that ``if, on each day
during the preceding plan year, a plan had 100 or fewer
participants, the plan may designate any day during the plan year as
its valuation date for such plan year and succeeding plan years. For
purposes of this subparagraph, all defined benefit plans which are
single-employer plans and are maintained by the same employer (or
any member of such employer's controlled group) shall be treated as
1 plan, but only participants with respect to such employer or
member shall be taken into account.'' ERISA section 303(g)(2)(C)
provides additional rules dealing with predecessor employers and
providing that a plan may qualify as ``small'' for its first year
based on reasonable expectations about its participant count during
that year.
---------------------------------------------------------------------------

As a general matter, PBGC wants every plan that in fact has a non-
first-day-of-the-plan-year valuation date to be included in the
definition of ``small plan'' that the look-back rule applies to. But
because of the complexity of the statutory category of plans eligible
to use non-first-of-the-year valuation dates, PBGC has not matched its
``small plan'' definition closely to every aspect of that statutory
category. Instead, PBGC is combining a simple ``small plan'' concept
with a ``catch-all'' clause.\19\ The look-back rule thus applies to any
plan that has a participant count of 100 or fewer for the premium
payment year or that in fact has a funding valuation date for the
premium payment year that is not the first day of the year.\20\
---------------------------------------------------------------------------

\19\ PBGC also considered having the look-back rule apply only
to plans that actually have non-first-day-of-the-plan-year valuation
dates, or only to plans eligible to elect such dates under the
statute. PBGC rejected the former course because it believes that
small plans generally will prefer the look-back rule. PBGC rejected
the latter course because of the complexity of the statutory
description of plans eligible to make the valuation date election.
\20\ As discussed above, new plans resulting from non-de minimis
consolidations and spinoffs are excluded from the look-back
provision.
---------------------------------------------------------------------------

One commenter argued that small plans with first-day-of-the-plan-
year valuation dates should be allowed to opt out of the look-back
rule. The commenter noted that such plans would have plenty of time to
compute the variable-rate premium based on a UVB valuation date in the
premium payment year. Because the same can be said of a plan whose
valuation date is the second day of the plan year, or indeed any day up
to shortly before the due date (depending on the plan actuary's
diligence), equity would seem to suggest that the proposed scope of the
option would be too narrow and that the proposal should be evaluated on
the assumption that it would apply to a much larger category of plans.
The commenter supported the proposal to permit opt-outs by
observing that year-old data would not include prior-year contributions
made to improve plans' funded status. PBGC is aware that some small-
plan sponsors make additional contributions to reduce the variable-rate
premium and that under the look-back rule, reductions would come a year
later than if the look-back rule did not apply. Other correspondence
and comments made at meetings have noted the importance of this
opportunity for some small-plan sponsors (especially in view of the
recent increase in the variable-rate premium \21\). While PBGC doesn't
know how many such plan sponsors there are, evidence suggests that
there may be enough to warrant the introduction of some flexibility in
the application of the look-back rule.
---------------------------------------------------------------------------

\21\ See ERISA section 4006(a)(8) as added by the Moving Ahead
for Progress in the 21st Century Act (Pub. L. No. 112-141) and
amended by the Bipartisan Budget Act of 2013 (Pub. L. No. 113-67).
---------------------------------------------------------------------------

Accordingly, to accommodate these concerns, the final rule contains
a special exception allowing for a procedure to be provided in PBGC's
premium instructions whereby a small plan may opt out of the look-back
rule and instead base the variable-rate premium on current-year UVBs.
Details will be incorporated in the premium instructions and may be
modified over time in response to experience or suggestions from the
public.\22\
---------------------------------------------------------------------------

\22\ See p. 5 of PBGC's Plan for Regulatory Review.
---------------------------------------------------------------------------

Effects of Due Date and Look-Back Rules

PBGC's look-back rule has the advantage that it permits use of a
more convenient premium due date, and it avoids the use of complicated
mathematical manipulations aimed at making the prior-year figures more
reflective of current conditions. For small plans, the combination of
the new due date and the look-back rule means not only that the premium
due date aligns with the Form 5500 due date (as typically extended),
but that the due dates that align correspond to the same valuation. The
following table illustrates, for filings due October 15, 2016,\23\ how
the alignment of valuations and due dates for small plans differ from
the alignment for other plans.
---------------------------------------------------------------------------

\23\ Future years are used in this and the following table to
avoid confusion relating to the small-plan due-date phase-in
provision.

----------------------------------------------------------------------------------------------------------------
Premium payment UVB valuation 5500 valuation
year year year
----------------------------------------------------------------------------------------------------------------
Small Plans............................................ 2016 2015 2015
Other Plans............................................ 2016 2016 2015
----------------------------------------------------------------------------------------------------------------

Thus, not only do small plans enjoy the convenience of a convergence
between the premium and Form 5500 due dates, but the due dates that
converge are tied to the same valuation. This accommodates the desire
of many small plan sponsors to defer the plan valuation until after the
beginning of the year following the valuation date, when profits and
taxes can be computed.
For small plans, the combination of the new due date and the look-
back rule has basically the same result as if the old small-plan due
date (four months after the end of the premium payment year) were
extended for 5\1/2\ months without a look-back. For example, consider
the following table comparing the final rule with a 5\1/2\-month due
date extension (without a look-back) for a calendar-year plan:

[[Page 13553]]

----------------------------------------------------------------------------------------------------------------
Premium payment UVB valuation
year year Due date
----------------------------------------------------------------------------------------------------------------
Final rule............................. 2016 2015 October 15, 2016.
Due date extension without look-back... 2015 2015 October 15, 2016.
----------------------------------------------------------------------------------------------------------------

In both cases, the premium due October 15, 2016, is based on UVBs
determined for 2015. The difference is that under the amended
regulation, the premium is being paid for 2016, whereas if the due date
had been extended 5\1/2\ months, the premium would be for 2015.
PBGC in fact considered the alternative of extending the due date
5\1/2\ months for small plans. But premium filings contain, in addition
to premium data, other data that PBGC uses to help determine the
magnitude of its exposure in the event of plan termination, to help
track the creation of new plans and transfer of participants and plan
assets and liabilities among plans, and to keep PBGC's insured-plan
inventory up to date. It is important that these data be as current as
possible. Furthermore, PBGC decided it was administratively simpler to
have all premium filings for a year be due in that year--avoiding (for
example) the need to determine whether a filing made October 15, 2016,
was for 2016 or 2015.
The comparison of the advanced and deferred due date approaches
shows why it is not clear how to analyze the financial impact of the
final rule. On the one hand, the change can be viewed as a simple
acceleration of the premium due date, with small plans losing 6\1/2\
months' interest on their annual premium payments. On the other hand,
it can be viewed as a deferral of the due date (with small plans
gaining 5\1/2\ months' interest on their premiums each year) preceded
by a one-time ``extra'' premium in the transition year. For purposes of
the analyses in this preamble of the effects of the changes for small
plans, PBGC views the due date as being accelerated rather than
deferred.
Under the look-back rule, small plans pay variable-rate premiums
based on year-old data. Plans may view this either positively or
negatively, depending on whether UVBs are trending up or down; using
year-old data to compute variable-rate premiums shifts by one year the
effect of changes in those data, which are typically modest but may at
times be dramatic. And for the first year to which the look-back rule
applies, small plans' variable-rate premiums are based on the same UVBs
as for the year before, which each small plan may consider either
beneficial or detrimental depending on its circumstances.

First-Year Variable-Rate Premium Exemption

The look-back rule faces the difficulty, noted above, that a new
plan does not have a prior year to look back to. The typical new plan
has no vested benefits, and so would owe no variable-rate premium with
or without the look-back rule. But some new plans do have UVBs--for
example, newly created plans that grant past-service credits. This
circumstance creates a dilemma: a new small plan cannot look back to
prior-year UVBs (because it has no prior year), but it may be unable to
base its first year's premium on its first year's UVBs (because its
valuation date may be too late in the year). To resolve this problem,
PBGC is providing an exemption from the variable-rate premium for most
small plans that are new or newly covered.\24\ PBGC considers it
reasonable to forgo variable-rate premiums from a few new small plans
in the interest of greatly simplifying its premium due date
structure.\25\
---------------------------------------------------------------------------

\24\ Newly covered plans are often not subject to the funding
rules, on which the premium rules are based, for the year that would
be their look-back year. It is possible for a newly covered plan to
have been in existence as a covered plan for a portion of the
preceding year. Such a plan would have a look-back year and would
not need an exemption from the variable-rate premium. In the
interest of simplicity, PBGC's first-year variable-rate premium
exemption ignores this rare possible situation.
\25\ Between 2008 and 2011, about 65 new small plans per year
paid total average variable-rate premiums of a little over $82,000--
less than 2 percent of total average annual new-plan variable-rate
premiums.
---------------------------------------------------------------------------

However, PBGC considers plans created by consolidation or spinoff
to be new plans. To avoid creating an incentive to sponsors of
underfunded small plans to turn them (in effect) into new plans by
spinoff or consolidation, simply to avoid paying variable-rate
premiums, PBGC is excluding from this variable-rate premium exemption
any new small plan that results from a non-de minimis consolidation or
spinoff. These consolidated or spunoff plans are not subject to the
look-back rule, but instead base their variable-rate premiums on
current-year data, with an extended due date available (as discussed
above) to provide time to calculate the premium where the UVB valuation
date is late in the premium payment year.

Final-Year Variable-Rate Premium Exemption

Although the premium rates regulation exempts a plan in a standard
termination from the variable-rate premium for any plan year beginning
after the plan's termination date,\26\ it is possible to carry out a
standard termination so that the termination date and final
distribution come within the same plan year. In that case, the plan is
subject to the variable-rate premium--based on underfunding of vested
benefits--for the very year in which it demonstrates, by closing out,
that its assets are sufficient to satisfy not merely all vested
benefits but all non-vested benefits as well.
---------------------------------------------------------------------------

\26\ See Exemption for Standard Terminations, below.
---------------------------------------------------------------------------

As mentioned above, PBGC is expanding the exemption from the
variable-rate premium to include the year in which a plan closes out,
regardless of when the termination date is. Like the existing
exemption, the new exemption is conditioned on completion of a standard
termination. If the exemption is claimed in a premium filing made
before (but in anticipation of) close-out, and close-out does not in
fact occur by the end of the plan year, the exemption is lost, and the
variable-rate premium is owed for that year (with applicable late
charges).
As previously noted, variable-rate premium amounts not owed because
of this change in the variable-rate premium exemption will
significantly offset costs attributable to the revised final-year due
date rule for plans in standard terminations, to which this change is
related.\27\
---------------------------------------------------------------------------

\27\ See Final-Year Due Date under Executive Orders 12866 and
13563, below, for detailed discussion of costs and benefits.
---------------------------------------------------------------------------

Premium Funding Target for Plans in At-Risk Status for Funding Purposes

ERISA section 4006(a)(3)(E) makes the funding target in ERISA
section 303(d) (with modifications) the basis for the premium funding
target. The definition of ``funding target'' in section 303(d) in turn
incorporates the provisions of ERISA section 303(i)(1), dealing with
``at-risk'' plans. (A plan is in ``at-risk'' status if it fails certain
funding-status tests.) ERISA section 303(i)(5) provides for phasing in
changes between normal and at-risk funding targets over five

[[Page 13554]]

years and thus ameliorates the effects of section 303(i)(1). Although
neither section 303(d) nor section 303(i)(1) refers explicitly to
section 303(i)(5), PBGC believes that section 303(i)(5) clearly applies
to the determination of the premium funding target. PBGC is adding a
provision to the premium rates regulation clarifying this point.
ERISA section 303(i)(1)(A)(i) requires the use of special actuarial
assumptions in calculating an at-risk plan's funding target, and
section 303(i)(1)(A)(ii) requires that a ``loading factor'' be included
in the funding target of an at-risk plan that has been at-risk for two
of the past four plan years. The loading factor, described in section
303(i)(1)(C), is the sum of (i) an additional amount equal to $700
times the number of plan participants and (ii) an additional amount
equal to 4 percent of the funding target determined as if the plan were
not in at-risk status.
In response to inquiries from pension practitioners, PBGC is
amending the premium rates regulation to clarify the application of the
loading factor to the calculation of the premium funding target for
plans in at-risk status.
The statutory variable-rate premium provision refers explicitly to
the defined term ``funding target,'' which for at-risk plans clearly
includes the section 303(i)(1) modifications. PBGC thus considers it
clear that all of the at-risk modifications must be reflected in the
premium funding target. And considering that the funding target and the
premium funding target are so closely analogous, it seems natural that
for premium purposes, the 4 percent increment referred to in section
303(i)(1)(C)(ii) should be taken to mean 4 percent of the premium
funding target determined as if the plan were not in at-risk status.
But for premium purposes, the term ``participant'' in the loading
factor provision is ambiguous. Because the premium funding target
reflects only vested benefits, while the funding target reflects all
accrued benefits, there is a suggestion that the term ``participant''
should in the premium context be understood to refer to vested
participants. But many participants are partially vested (as in plans
with graded vesting) or are vested in one benefit but not another (for
example, vested in a lump-sum death benefit but not in a retirement
annuity) and thus are not clearly either vested or non-vested.
Furthermore (putting vesting aside), the premium regulations (Sec.
4006.6 of the premium rates regulation) and the Internal Revenue
Service's regulation on special rules for plans in at-risk status (26
CFR 1.430(i)-1(c)(2)(ii)(A)) count participants differently.
PBGC is resolving the statutory ambiguity by providing that the
participant count to use in calculating the loading factor to be
reflected in the premium funding target is the same participant count
used to compute the load for funding purposes. This solution has the
advantage that it avoids introducing new participant-counting rules and
does not impose on filers the burden of determining two different
participant counts for two similar purposes.
One commenter argued that the loading factor should not be included
in the premium funding target. The commenter noted that ERISA section
4006 could have referred to both ERISA sections 303(d) and 303(i), but
refers only to section 303(d). However, as the commenter notes, section
303(d) refers to section 303(i). Thus section 4006, by referring to
section 303(d), is referring to section 303(i) as well.
The commenter also supported the argument against incorporation of
the loading factor by appealing to the difference in the purposes of
sections 303 and 4006, the former dealing with plan funding and taking
unvested benefits into account, the latter dealing with PBGC premiums
and not taking unvested benefits into account. PBGC acknowledges these
differences, but points out that the two sections are linked, in that
section 4006 refers to section 303 for the methodology for calculating
premiums. In fact, section 4006(a)(3)(E)(iii)(I) specifies how the
premium methodology differs from the funding methodology. Two
differences are noted: disregarding unvested benefits and using
different interest assumptions. The load is not mentioned. PBGC thus
believes that the statutory language adequately supports the
applicability of the loading factor to the calculation of premiums.
Finally, the commenter claimed that participants in at-risk plans
are better off if funds are devoted to benefits rather than premiums.
But even if each dollar spent on pension insurance premiums is a dollar
not spent on benefits, pension insurance is for the protection of those
very benefits. PBGC insurance would appear to be even more valuable for
participants in at-risk plans than in plans not in at-risk status.
Finding none of the commenter's reasoning persuasive, PBGC
continues to hew to the position that the loading factor applies to the
premium funding target.

Penalties

Lowering the Self-Correction Penalty Cap

The difference between the normal penalty rate of 5 percent per
month and the self-correction rate of 1 percent per month provides an
incentive to self-correct and reflects PBGC's judgment that those that
come forward voluntarily to correct underpayments deserve more lenient
treatment than those that PBGC ferrets out through its premium
enforcement programs. But because of a penalty cap of 100 percent of
the underpayment, regardless of the rate it accrues at, a plan that
self-corrects after 100 months pays the same penalty as if it had been
tracked down by PBGC. PBGC occasionally encounters situations in
which--typically when there is a change in plan sponsor or plan
actuary--a plan with a long history of underpaying or not paying
premiums ``comes in from the cold.'' PBGC believes that in fairness to
such filers (and to persuade others to emulate them), the maximum
penalty for self-correctors should be substantially less than that for
those that do not self-correct.\28\
---------------------------------------------------------------------------

\28\ PBGC took a step in this direction with its policy notice
of February 9, 2012 (see discussion under Background above).
However, the waiver of all penalties announced in that notice
applied only for a limited time and only to plans that had never
paid premiums.
---------------------------------------------------------------------------

To preserve the self-correction penalty differential for long-
overdue premiums, PBGC is capping the self-correction penalty at 50
percent of the unpaid amount. While this will reduce PBGC's penalty
income in these cases, acceptance of the reduction is consistent with
the view of penalties as a means to encourage compliance, rather than
as a source of revenue.

Expansion of Penalty Waiver Authority

The premium payment regulation and its appendix include many
specific penalty waiver provisions that provide guidance to the public
about the circumstances in which PBGC considers waivers appropriate--
circumstances such as reasonable cause and mistake of law. To deal with
unanticipated situations that nevertheless seem to warrant penalty
relief, Sec. 4007.8(d) refers to the policy guidelines in the
appendix, and Sec. 21(b)(5) of the appendix says that PBGC may waive
all or part of a premium penalty if it determines that it is
appropriate to do so, and that PBGC intends to exercise this waiver
authority only in narrow circumstances.
In reviewing the circumstances where it has exercised its waiver
authority, PBGC has concluded that the term

[[Page 13555]]

``narrow'' may not capture well the scope of that exercise and may thus
be misleading. To avoid an implication that PBGC considers its waiver
authority more narrowly circumscribed than in fact it does, the
sentence about narrow circumstances is being removed from the appendix.

Codification of Seven-Day Penalty Waiver Rule

On September 15, 2011 (at 76 FR 57082), PBGC published a policy
notice announcing (among other things) that for plan years beginning
after 2010, it would waive premium payment penalties assessed solely
because premium payments were late by not more than seven calendar
days.
In applying this policy, PBGC assumes that each premium payment is
made seven calendar days before it is actually made. All other rules
are then applied as usual. If the result of this procedure is that no
penalty would arise, then any penalty assessed on the basis of the
actual payment dates is waived.
PBGC is codifying this policy in the premium payment regulation.
One commenter complained that by the time PBGC notifies a late
filer that an expected filing has not been received, the seven-day
grace period has expired, and the filer becomes liable for a five
percent penalty. The commenter requested that tardy filers in such
circumstances be given an additional 15 days to pay and incur a one-
percent penalty or that PBGC notify plans immediately when expected
filings are not received, to give them the full benefit of the seven-
day grace period within which to file.
Plan administrators are expected to know the law and to be capable
of setting up tickler files and computerized reminders for legal
obligations they may otherwise forget to fulfill. Nonetheless, PBGC
does offer a reminder service. Reminders are sent shortly after the
beginning of each month to practitioners who have signed up for
reminders for that month. Plan administrators may sign up for reminders
at http://www.pbgc.gov/prac/pg/other/practitioner-filing-reminders.html.
PBGC believes no modification of its premium regulations is called
for to accommodate this comment.

Small-Plan Penalty Relief for Variable-Rate Premium Estimates

The premium payment regulation provides an option for paying an
estimate of the variable-rate premium at the due date and ``truing up''
within 6\1/2\ months without penalty. The availability of this option
has been restricted to mid-size and large plans. With the elimination
of different due dates based on plan size, the option is being made
available to plans of any size. PBGC expects that very few small plans
will take advantage of the option, since in virtually all cases, the
variable-rate premium will be known by the uniform due date. But the
only comment PBGC received on this issue was in favor of making the
option available to small plans.

Other Changes

Variable-Rate Premium Cap

Before amendment to conform to statutory changes made by PPA 2006,
PBGC's premium regulations used the same date for counting participants
for purposes of the flat-rate premium and for determining UVBs for
purposes of the variable-rate premium. This date was (generally) ``the
last day of the plan year preceding the premium payment year.''
When PBGC amended the premium regulations to conform to PPA 2006,
the amendments provided that in general, UVBs were to be determined as
of a different date from the date used to count participants. Thus
references in the regulations to ``the last day of the plan year
preceding the premium payment year'' in some cases were changed to
refer to ``the participant count date'' and in other cases were changed
to refer to ``the UVB valuation date.''
The regulatory provision dealing with the variable-rate premium cap
for plans of small employers includes two references to ``the last day
of the plan year preceding the premium payment year'' that should have
been amended to refer to ``the participant count date'' but were
overlooked. PBGC is correcting the variable-rate premium cap provision
to remedy this oversight.

Exemption for Standard Terminations

When PBGC added to the premium regulations the exemption from the
variable-rate premium for plans terminating in standard terminations,
it stated that the exemption would apply to ``a standard termination
with a proposed termination date during a plan year preceding the
premium payment year.'' \29\ This reflects the provision in Rev. Rul.
79-237 (1979-2 C.B. 190) that minimum funding standards apply only
until the end of the plan year that includes the termination date. In
the text of the regulation, this requirement was expressed by requiring
that the proposed termination date be on or before ``the last day of
the plan year preceding the premium payment year'' -- the same words
used to identify the date as of which participants were to be counted
for purposes of the flat-rate premium and the date as of which UVBs
were to be determined for purposes of the variable-rate premium.
---------------------------------------------------------------------------

\29\ See preamble to final rule, 54 FR 28950 (July 10, 1989).
---------------------------------------------------------------------------

When PBGC amended the premium regulations to conform to statutory
changes made by PPA 2006, as described above, the phrase ``the last day
of the plan year preceding the premium payment year'' in the standard
termination exemption from the variable-rate premium should have been
left unchanged. Instead, it was inadvertently amended to read ``the UVB
valuation date.'' PBGC is correcting the exemption to require that the
proposed termination date be ``before the beginning of the premium
payment year,'' which also makes the provision clearer and simpler.\30\
---------------------------------------------------------------------------

\30\ As discussed above, PBGC is broadening the scope of this
exemption to include the year in which a standard termination is
completed, regardless of the timing of the termination date.
---------------------------------------------------------------------------

Liability for Premiums in Distress and Involuntary Terminations

The premium payment regulation provides that a single-employer plan
does not have an obligation to pay premiums if the plan is the subject
of distress or involuntary termination proceedings, with a view to
conserving plan assets in such situations. The premium payment
obligation then falls solely on the plan sponsor's controlled group.
Heretofore, the regulation focused on the plan year for which a premium
is due; the plan's obligation was tolled with respect to premiums for
the year in which the termination was initiated and future years.
PBGC has encountered cases in which plan administrators have used
plan assets to pay premiums for which the plans had no obligation
because termination proceedings began later in the plan year, after
payment was made. To address this problem, PBGC is revising the
regulation so that a plan's obligation to pay premiums ceases when
termination proceedings begin--an event of which the plan administrator
will have notice--at which time the premium payment obligation falls
solely on the plan sponsor's controlled group.
This change does not affect the amount of premiums due. It simply
reduces administrative burden by making it easier for a plan
administrator to determine whether the plan has an obligation to make a
premium payment.

[[Page 13556]]

Definition of Newly Covered Plan

The current definition of newly covered plan excludes new plans. In
rare cases, a new plan might not initially be covered by title IV of
ERISA and might then become covered later in its first year of
existence. PBGC is revising the definition to remove the exclusion of
new plans so that in the rare case described, the plan will be a newly
covered plan (as well as a new plan) and thus entitled to prorate its
premium based on its coverage date (as newly covered plans are
permitted to do) rather than its effective date (as new plans are
permitted to do).

Changes Related to MAP-21 and BBA 2013

On July 6, 2012, and December 26, 2013 (respectively), the
President signed into law the Moving Ahead for Progress in the 21st
Century Act (MAP-21) (Pub. L. No. 112-141) and the Bipartisan Budget
Act of 2013 (BBA 2013) (Pub. L. No. 113-67). MAP-21 and BBA 2013
included provisions about PBGC premiums that, without the need for
implementing action by PBGC, have already become effective.\31\ PBGC is
amending the premium rates regulation in accordance with MAP-21 and BBA
2013.
---------------------------------------------------------------------------

\31\ Technical Update http://www.pbgc.gov/res/other-guidance/tu/tu12-1.html provides guidance on the effect of MAP-21 on
PBGC premiums.
---------------------------------------------------------------------------

Under sections 40221 and 40222 of MAP-21, effective for plan years
beginning after 2012, each flat or variable premium rate has a
different annual inflation adjustment formula, and the variable-rate
premium is limited by a cap (the ``MAP-21 cap'') with its own annual
inflation adjustment. BBA 2013 added more adjustment provisions.
Because of the multiplicity and complexity of the adjustment formulas,
PBGC has concluded that it is not useful to repeat the statutory
premium rate rules in the premium rates regulation. Instead, PBGC is
replacing existing premium rate provisions with statutory references
and will simply announce each year the new rates generated by the
statutory rate formulas.
Effective for plan years beginning after 2011, section 40211 of
MAP-21 establishes a ``segment rate stabilization'' corridor for
certain interest assumptions used for funding purposes but provides (in
section 40211(b)(3)(C)) for disregarding rate stabilization in
determining PBGC variable-rate premiums. PBGC is revising the
description of the alternative premium funding target to make clear
that it is determined using discount rates unconstrained by the segment
rate stabilization rules of MAP-21.

Editorial Changes

PBGC is revising the language that describes the ``reconciliation''
date--associated with the penalty waiver for underestimation of the
variable-rate premium--to clarify that the waiver does not require a
particular state of mind (of the plan administrator, sponsor, actuary,
or other person) regarding the correctness or ``finality'' of the
estimate. This clarification is not substantive but merely reflects the
fact that (as noted in the 2008 preamble to the PPA 2006 amendment to
the regulation) the waiver is provided ``in recognition of the
possibility that circumstances might make a final UVB determination by
the due date difficult or impossible''.\32\
---------------------------------------------------------------------------

\32\ See 73 FR 15069 (emphasis supplied).
---------------------------------------------------------------------------

PBGC is also making some other non-substantive editorial changes,
including provision of an additional example, deletion of anachronistic
text, and addition of a definitional cross-reference.

Conforming Changes to Other Regulations

PBGC's regulation on Restoration of Terminating and Terminated
Plans (29 CFR part 4047) has a cross-reference to Sec. 4006.4(c) of
the premium rates regulation, which used to describe the alternative
calculation method for determining the variable-rate premium \33\ but
no longer does so. To avoid confusion, PBGC is removing the obsolete
cross-reference.
---------------------------------------------------------------------------

\33\ The alternative calculation method is also described in the
premium filing instructions for years to which it applies.
---------------------------------------------------------------------------

PBGC is deleting from its regulation on Filing, Issuance,
Computation of Time, and Record Retention (29 CFR part 4000) a
provision that parallels anachronistic text that is being deleted from
the premium rates regulation.

Comments Unrelated to Proposed Regulatory Changes

De Minimis Plan Transactions

One commenter proposed a change to the ``merger-spinoff rule.''
That provision applies where there is a plan merger or spinoff at the
very beginning of the premium payment year (the ``stroke of midnight''
between the prior year and the premium payment year). The provision
shifts the participant count date from the day before the premium
payment year begins to the first day of the premium payment year for
certain plans involved in such mergers or spinoffs. The participant
count date shifts for the transferee plan in a non-de minimis merger
and for the transferor plan in a non-de minimis spinoff. Participants
for whom the transferor plan in a merger will pay no premiums get
picked up in the transferee plan's participant count, and participants
for whom the transferee plan in a spinoff will pay premiums get dropped
from the transferor plan's participant count. In general, a transaction
is de minimis if the liabilities of one of the two plans involved in
the transaction are less than three percent of the other plan's assets.
The commenter suggested that the exception for de minimis
transactions be eliminated. PBGC believes consideration of this
suggestion should be deferred. The suggestion deals with a feature of
the premium rates regulation not directly focused on by the proposed
rule. While the suggestion would tend to lower premiums for transferor
plans in de minimis spinoffs, it would tend to raise premiums for
transferee plans in de minimis mergers. For both types of transaction,
it would mean counting participants on a different date, which might be
inconvenient. And PBGC notes that de minimis transactions are also
disregarded in determining whether a plan is a continuation plan for
purposes of applying the due date and look-back rules. There is a
question whether de minimis transactions should be taken account of for
that purpose too or whether de minimis transactions should be treated
in different ways for the two different purposes. Thus PBGC is taking
no action on this suggestion now.

Post-Filing Events

PBGC's premium filing instructions require that a plan making its
final premium filing report the reason why the filing is the plan's
final filing. But when the event that leads to the cessation of the
filing requirement--such as a plan merger or consolidation--occurs
after the premium filing is made, the instructions say no amended
filing is required. To avoid the need for correspondence to clarify why
a plan has stopped filing, the instructions recommend contacting PBGC
in such cases unless a termination, merger, or consolidation is
involved.
One commenter complained that PBGC requires amended filings in
final-filing circumstances where its premium instructions say amended
filings are not required. (PBGC assumes the comment reflects informal
guidance provided by PBGC's premium information call center.)

[[Page 13557]]

PBGC's position on amended filings in such cases is as stated in
its filing instructions. Amended filings are not required for post-
filing events that lead to cessation of the premium filing requirement,
although voluntary informal reporting is encouraged.
Where informal guidance from a PBGC source seems to conflict with
other PBGC guidance (such as premium filing instructions), PBGC
encourages filers to contact PBGC's Problem Resolution Officer
(Practitioners) as described in item 7 of appendix 2 to PBGC's premium
filing instructions, available on PBGC's Web site (http://www.pbgc.gov/).
This issue appears not to implicate anything in PBGC's premium
regulations.

Penalty Relief for Premium Estimates

Two comments requested that PBGC modify the premium forms and
instructions to permit a plan to take advantage of the penalty waiver
for underestimation of the variable-rate premium without the need to
declare the initial filing an estimate by checking a box. Since the
introduction of this waiver, the instructions have required that a plan
that checks the box make a reconciliation filing even when the
estimated variable-rate premium turns out to be correct, and plans that
fail to make the required second filing have been contacted by PBGC to
enforce the requirement. Eliminating the check box would obviate the
burden of making a second filing when there is no change in the premium
and would conserve PBGC resources by eliminating the need for
correspondence with such plans.
Although PBGC is always interested in simplifying the premium
filing process, it is not taking action on this suggestion at this
time. PBGC is not convinced that it has an adequate basis for
concluding that the burden of the checkbox procedure outweighs the
utility of the checkbox. For example, for 2012, only about 70 plans
checked the estimated-filing checkbox; about 40 filed timely
reconciliations and 30 did not. About another 30 plans made amended
filings by the reconciliation deadline and might have qualified for
penalty relief if they had checked the box to indicate that their
initial filings were estimated. One commenter's assertion that plans
routinely check the estimated-filing checkbox to preserve the option to
amend without penalty seems unsupported by these data. Nor do the data
bear out the hypothesis that many plans fail to qualify for the penalty
waiver simply because they neglect to check the box. In short, so few
plans seem to be affected by the checkbox requirement that PBGC
believes other options, such as providing more guidance or cautions in
PBGC's electronic premium filing interface, could ameliorate the
commenters' concerns. PBGC thinks it prudent to explore such other
options and to gather and analyze further data before deciding whether
to take the checkbox off the electronic premium filing form.
PBGC welcomes further public comment on this suggestion.

Applicability

Except as indicated below, the amendments in this final rule are
applicable for 2014 and later plan years.
The change in the due date and the exemption from the variable-rate
premium for a plan closing out in a standard termination are applicable
to plans that complete distribution of assets in satisfaction of all
plan benefits under the single-employer termination regulation on or
after the effective date of this final rule.
The change in the date when a plan ceases to be liable for premiums
in a distress or involuntary termination is applicable to terminations
with respect to which the plan administrator issues the first notice of
intent to terminate, or the PBGC issues a notice of determination, on
or after the effective date of this final rule.
MAP-21 became effective on July 6, 2012. BBA 2013 is effective for
plan years beginning after 2013. The changes to premium rates in this
final rule apply to plan years beginning after 2012 (to the extent
attributable to MAP-21) or after 2013 (to the extent attributable to
BBA 2013). The clarification to the definition of the alternative
premium funding target after MAP-21 applies to plan years beginning
after 2011.

Executive Orders 12866 and 13563

PBGC has determined, in consultation with the Office of Management
and Budget, that this rulemaking is not a ``significant regulatory
action'' 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 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.
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 changes in this rule.
(The other changes have essentially no cost-benefit impact.)

Uniform Due Dates

PBGC estimates that the reduction in administrative burden
attributable to adoption of the new unified due date translates into
average annual savings of 1.2 hours for each small plan. (PBGC arrived
at this estimate on the basis of inquiries made to pension
practitioners.) The dollar equivalent of this saving for the roughly
15,000 small plans is about $400 per plan.\34\
---------------------------------------------------------------------------

\34\ PBGC assumes for this purpose that enrolled actuaries
charge about $350 per hour.
---------------------------------------------------------------------------

Adoption of the uniform due date also shifts the earnings on
premium payments between plans and PBGC for the time between the old
and new due dates. Because earning rates differ between PBGC and plans,
the losses and gains will not balance out exactly. But the earnings
shift for small plans will be virtually negligible. The analysis is not
straightforward because of the concomitant shift from current-year to
prior-year data. See the discussion under the heading Combined Effects
of Due Date and Look-Back Proposals, above. But based on 2011 data, and
assuming aggregate small-plan premiums of about $36 million, a 6\1/2\-
month advance in the small-plan due date, and a plan earnings rate of 6
percent, small plans in the aggregate will lose about $1.2 million a
year--on average, about $85 per plan. A plan's lost interest earnings
will be proportional to its premium; the premium may vary widely among
plans, and thus the loss may do the same.
Accordingly, PBGC foresees an average net benefit (in dollar terms)
from adoption of the new uniform due date of about $315 for each small
plan--about $400 in administrative cost savings offset by about $85 in
lost interest earnings.
PBGC's gain will be about one-third the amount lost by plans. 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

[[Page 13558]]

(our best estimate for PBGC's rate of return), six percent (our 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 small plan at--
-------------------------------------------------------------------------
2 percent 3 percent 6 percent 7 percent
------------------------------------------------------------------------
$30.............................. $40 $85 $95
------------------------------------------------------------------------

Final-Year Due Date

Advancing the premium due date for some terminating plans will also
shift earnings on the premiums from plans to PBGC. Since plans that do
standard terminations are almost all small,\35\ the amounts involved
are also small.
---------------------------------------------------------------------------

\35\ For 2011, only about 7 percent of standard terminations
involved plans with more than 100 participants.
---------------------------------------------------------------------------

On average (over the period 2001-2010), about 1,300 plans terminate
each year. About half of them will have their final-year due dates
advanced by an average of about 100 days; for the other half, the due
date will not be advanced. Thus on average, this rule requires payment
of the premium about 50 days early. The average single-employer flat-
rate premium is about $950 for small plans and about $176,000 for
larger plans.\36\ At a rate of 6 percent, 50 days' interest on an
average small-plan flat-rate premium of $950 is about $8. For larger
plans, the average figure using the same methodology is about $1,450.
But so few larger plans do standard terminations that the weighted
average earnings loss for plans of all sizes will be only about $110
per plan, or an aggregate estimated earnings loss of $143,000.
---------------------------------------------------------------------------

\36\ This discussion and the discussion of variable-rate premium
savings below are based on (increased) 2014 premium rates applied to
2010 data on plans, participants, and unfunded vested benefits.
---------------------------------------------------------------------------

On the other hand, there should be some savings to plans arising
from calculating and paying the final-year premium while plan books and
records are still open and in use for paying benefits--as opposed to
later, when they would have to be found and reopened. If one-tenth of
final-year filers (130 plans) each save one hour of actuarial time at
an average of $350 per hour, the total savings will be over $45,500
(or, if averaged over all terminating plans, about $35 per plan).
Further, historical data indicate that plans doing standard
terminations could be expected to pay an aggregate of about $117,000 in
variable-rate premiums in their final year. This represents an estimate
of the savings to plans under the expansion of the standard termination
variable-rate premium exemption. The savings will of course be realized
only by the small minority of terminating plans that would owe
variable-rate premium in their final year in the absence of this final
rule. Averaged over all plans closing out in a year, however, the
savings will be about $90 per plan.
Accordingly, PBGC foresees no significant economic impact from the
due date change for terminating plans because the loss of earnings on
flat-rate premiums paid earlier (about $110 per plan) will be offset by
the gain from variable-rate premiums not paid (about $90 per plan) and
cost reductions from improvement in administrative procedures (about
$35 per plan).

Regulatory Flexibility Act

The Regulatory Flexibility Act 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 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 substantially the same
criterion used to determine what plans would be subject to the look-
back rule under the proposal, and is consistent with certain
requirements in title I of ERISA \37\ and the Internal Revenue
Code,\38\ as well as the definition of a small entity that the
Department of Labor (DOL) has used for purposes of the Regulatory
Flexibility Act.\39\ Using this proposed definition, about 64 percent
(16,700 of 26,100) of plans covered by title IV of ERISA in 2010 were
small plans.\40\
---------------------------------------------------------------------------

\37\ 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.
\38\ 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.
\39\ See, e.g., DOL's final rule on Prohibited Transaction
Exemption Procedures, 76 Fed. Reg. 66,637, 66,644 (Oct. 27, 2011).
\40\ See PBGC 2010 pension insurance data table S-31, http://www.pbgc.gov/Documents/pension-insurance-data-tables-2010.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 proposal 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.

Certification

On the basis of its definition of small entity, 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, sections 603 and 604 do not apply. This certification is based on
PBGC's estimate (discussed above) that the change to uniform due dates
will create an average annual net economic benefit for each small plan
of about $315. This is not a significant impact.

Paperwork Reduction Act

PBGC is submitting the information requirements under this final
rule for approval by the Office of Management and Budget under the
Paperwork

[[Page 13559]]

Reduction Act (OMB control number 1212-0009; expires February 29,
2016). 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 is making only small changes in the data filers are required
to submit. A plan's filing will be required to state whether the plan
is a new small plan created by non-de minimis consolidation or spinoff
(to which special rules apply) and to indicate if an exemption from the
variable-rate premium is claimed under one of the new exemption rules.
The participant count will have to be broken down into active,
terminated, and retired categories. Changes to the filing instructions
clarify how to calculate premiums, set forth the new due date rules,
and deal with other routine matters such as updating examples and
premium rates.
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 8,000 hours and $53,255,000.
In comparison with the burden that OMB had approved for this
information collection before PBGC's recent final rule eliminating the
early due date for large plans' flat-rate premiums, this burden
estimate reflects both a decrease in burden attributable to changes in
the premium due dates (under both the large-plan final rule and 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
changes is about 35,000 hours (about 17,000 hours for large plans and
about 18,000 hours for small plans), a net decrease of about 3,700
hours from the burden approved before the large-plan final rule (about
163,600 hours). PBGC assumes that about 95 percent of the work is
contracted out at $350 per hour, so the 35,000-hour decrease
attributable to the two final rules is equivalent to about 1,750 hours
of in-house labor and about $11,600,000 of contractor costs.
The burden for which PBGC sought OMB approval in connection with
the recent final rule eliminating the early due date for large plans'
flat-rate premiums was about 178,000 hours (about 8,900 in-house hours
plus about $59,250,000 in contractor costs for the remaining 169,100
hours). This burden estimate reflected both the increase due to re-
estimation and the decrease due to the large-plan flat-rate due date
change.
In comparison with the 178,000-hour burden estimate, the new burden
estimate reflects a decrease of about 18,000 hours, attributable to the
due date change for small plans. Since PBGC assumes that about 95
percent of the work is contracted out at $350 per hour, this 18,000-
hour decrease is equivalent to about 900 hours of in-house labor and
about $6 million of contractor costs.

List of Subjects

29 CFR Part 4000

Pension insurance, Pensions, Reporting and recordkeeping
requirements.

29 CFR Part 4006

Employee benefit plans, Pension insurance.

29 CFR Part 4007

Employee benefit plans, Penalties, Pension insurance, Reporting and
recordkeeping requirements.

29 CFR Part 4047

Employee benefit plans, Pension insurance.

In consideration of the foregoing, PBGC amends 29 CFR parts 4000,
4006, 4007, and 4047 as follows:

PART 4000--FILING, ISSUANCE, COMPUTATION OF TIME, AND RECORD
RETENTION

0
1. The authority citation for part 4000 continues to read as follows:

Authority: 29 U.S.C. 1082(f), 1302(b)(3).

Sec. 4000.3 [Amended]

0
2. In Sec. 4000.3(b):
0
a. Paragraph (b)(1)(i) is removed.
0
b. Paragraphs (b)(1)(ii), (b) (1)(iii), and (b)(1)(iv) are redesignated
as paragraphs (b)(1)(i), (b)(1)(ii), and (b)(1)(iii) respectively.

PART 4006--PREMIUM RATES

0
3. The authority citation for part 4006 continues to read as follows:

Authority: 29 U.S.C. 1302(b)(3), 1306, 1307.

0
4. In Sec. 4006.2:
0
a. The introductory text is amended by removing the words ``and single-
employer plan'' and adding in their place the words ``single-employer
plan, and termination date''.
0
b. The definition of participant count is amended by removing the words
``for a plan year'' and by removing the words ``for the plan year''.
0
c. The definition of participant count date is amended by removing the
words ``for a plan year''.
0
d. The definition of UVB valuation date is amended by removing the
words ``for a plan year''; and by removing the words ``plan year
determined'' and adding in their place the words ``UVB valuation year,
determined''.
0
e. The definition of newly-covered plan is revised, and new definitions
of continuation plan, small plan, and UVB valuation year are added, in
alphabetical order, to read as follows:

Sec. 4006.2 Definitions.

* * * * *
Continuation plan means a new plan resulting from a consolidation
or spinoff that is not de minimis pursuant to the regulations under
section 414(l) of the Code.
* * * * *
Newly covered plan means a plan that becomes covered by title IV of
ERISA during the premium payment year and that existed as an uncovered
plan immediately before the first date in the premium payment year on
which it was a covered plan.
* * * * *
Small plan means a plan--
(1) Whose participant count is not more than 100, or
(2) Whose funding valuation date for the premium payment year,
determined in accordance with ERISA section 303(g)(2), is not the first
day of the premium payment year.
* * * * *
UVB valuation year of a plan means--
(1) In general,--
(i) The plan year preceding the premium payment year, if the plan
is a small plan other than a continuation plan, or
(ii) The premium payment year, in any other case; or
(2) For a small plan that so opts subject to PBGC premium
instructions, the premium payment year.

0
5. In Sec. 4006.3:
0
a. Paragraphs (c) and (d) are removed.
0
b. A sentence is added to the end of the introductory text, and
paragraphs (a) and (b) are revised, to read as follows:

Sec. 4006.3 Premium rate.

* * * Premium rates (and the MAP-21 cap rate referred to in
paragraph (b)(2) of this section) are subject to

[[Page 13560]]

change each year under inflation indexing provisions in section 4006 of
ERISA.
(a) Flat-rate premium. The flat-rate premium for a plan is equal to
the applicable flat premium rate multiplied by the plan's participant
count. The applicable flat premium rate is the amount prescribed for
the calendar year in which the premium payment year begins by the
applicable provisions of--
(1) ERISA section 4006(a)(3)(A), (F), and (G) for a single-employer
plan, or
(2) ERISA section 4006(a)(3)(A), (H), and (J) for a multiemployer
plan.
(b) Variable-rate premium.
(1) In general. Subject to the cap provisions in paragraphs (b)(2)
and (b)(3) of this section, the variable-rate premium for a single-
employer plan is equal to a specified dollar amount for each $1,000 (or
fraction thereof) of the plan's unfunded vested benefits as determined
under Sec. 4006.4 for the UVB valuation year. The specified dollar
amount is the applicable variable premium rate prescribed by the
applicable provisions of ERISA section 4006(a)(8) for the calendar year
in which the premium payment year begins.
(2) MAP-21 cap. The variable-rate premium for a plan is not more
than the applicable MAP-21 cap rate multiplied by the plan's
participant count. The applicable MAP-21 cap rate is the amount
prescribed by the applicable provisions of ERISA section
4006(a)(3)(E)(i)(II), (E)(i)(III), (K), and (L) for the calendar year
in which the premium payment year begins.
(3) Small-employer cap. (i) In general. If a plan is described in
paragraph (b)(3)(ii) of this section for the premium payment year, the
variable-rate premium is not more than $5 multiplied by the square of
the participant count. For example, if the participant count is 20, the
variable-rate premium is not more than $2,000 ($5 x 20\2\ = $5 x 400 =
$2,000).
(ii) Plans eligible for cap. A plan is described in paragraph
(b)(3)(ii) of this section for the premium payment year if the
aggregate number of employees of all employers in the plan's controlled
group on the first day of the premium payment year is 25 or fewer.
(iii) Meaning of ``employee.'' For purposes of paragraph (b)(3)(ii)
of this section, the aggregate number of employees is determined in the
same manner as under section 410(b)(1) of the Code, taking into account
the provisions of section 414(m) and (n) of the Code, but without
regard to section 410(b)(3), (4), and (5) of the Code.

0
6. In Sec. 4006.4:
0
a. Paragraph (a) is amended by removing the words ``for the premium
payment year'' where they appear five times in the paragraph and adding
in their place the first four times (but not the fifth time) the words
``for the UVB valuation year''.
0
b. Paragraph (b)(2) introductory text is amended by removing the words
``premium payment year'' and adding in their place the words ``UVB
valuation year''.
0
c. Paragraph (b)(2)(ii) is amended by removing the words ``premium
payment year'' where they appear twice in the paragraph and adding in
their place (in both places) the words ``UVB valuation year''.
0
d. New paragraph (b)(3) is added to read as follows:

Sec. 4006.4 Determination of unfunded vested benefits.

* * * * *
(b) * * *
(3) ``At-risk'' plans; transition rules; loading factor. The
transition rules in ERISA section 303(i)(5) apply to the determination
of the premium funding target of a plan in at-risk status for funding
purposes. If a plan in at-risk status is also described in ERISA
section 303(i)(1)(A)(ii) for the UVB valuation year, its premium
funding target reflects a loading factor pursuant to ERISA section
303(i)(1)(C) equal to the sum of--
(i) Per-participant portion of loading factor. The amount
determined for funding purposes under ERISA section 303(i)(1)(C)(i) for
the UVB valuation year, and
(ii) Four percent portion of loading factor. Four percent of the
premium funding target determined as if the plan were not in at-risk
status.
* * * * *

0
7. In Sec. 4006.5:
0
a. Paragraph (a) introductory text is amended by removing the reference
``paragraphs (a)(1)-(a)(3) of this section'' and adding in its place
the reference ``paragraphs (a)(1)-(a)(4) of this section''.
0
b. Paragraph (a)(3) introductory text is amended by removing the words
``described in this paragraph if'' and adding in their place the words
``described in this paragraph if it makes a final distribution of
assets in a standard termination during the premium payment year or
if''.
0
c. Paragraph (a)(3)(ii) is amended by removing the words ``on or before
the UVB valuation date'' and adding in their place the words ``before
the beginning of the premium payment year''.
0
d. Paragraph (e)(2)(ii) is amended by removing the words ``plan year''
and adding in their place the words ``premium payment year''.
0
e. Paragraph (f)(1) is amended by removing the words ``newly-covered''
(with a hyphen) and adding in their place the words ``newly covered''
(without a hyphen).
0
f. Paragraph (a)(4) is added, and paragraphs (c), (d), (e)(1), and (g)
are revised, to read as follows:

Sec. 4006.5 Exemptions and special rules.

* * * * *
(a) * * *
(4) Certain small new and newly covered plans. A plan is described
in this paragraph if--
(i) It is a small plan other than a continuation plan, and
(ii) It is a new plan or a newly covered plan.
* * * * *
(c) Participant count date; in general. Except as provided in
paragraphs (d) and (e) of this section, the participant count date of a
plan is the last day of the plan year preceding the premium payment
year.
(d) Participant count date; new and newly covered plans. The
participant count date of a new plan or a newly covered plan is the
first day of the premium payment year. For this purpose, a new plan's
premium payment 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 is the first day of the premium payment year.
* * * * *
(g) Alternative premium funding target. A plan's alternative
premium funding target is determined in the same way as its standard
premium funding target except that the discount rates described in
ERISA section 4006(a)(3)(E)(iv) are not used. Instead, the alternative
premium funding target is determined using the discount rates that
would have been used to determine the funding target for the plan under
ERISA section 303 for the purpose of determining the plan's minimum
contribution under ERISA section 303 for the UVB valuation year if the
segment rate stabilization provisions of ERISA section 303(h)(2)(iv)
were disregarded. 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

[[Page 13561]]

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 premium payment year
to which it first applies and must be filed by the plan's variable-rate
premium due date for that premium payment year. The premium payment
year to which the election first applies must begin at least five years
after the beginning of the premium payment year to which a revocation
of a prior election first applied. The election will be effective--
(i) For the premium payment 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 premium payment year
to which a revocation of the election first applies.
(2) A revocation of an election under this paragraph (g) to use the
alternative premium funding target for a plan must specify the premium
payment year to which it first applies and must be filed by the plan's
variable-rate premium due date for that premium payment year. The
premium payment year to which the revocation first applies must begin
at least five years after the beginning of the premium payment year to
which the election first applied.

Sec. 4006.7 [Amended]

0
8. In Sec. 4006.7, paragraph (b) is amended by removing the words
``under section 4048 of ERISA''.

PART 4007--PAYMENT OF PREMIUMS

0
9. The authority citation for part 4007 continues to read as follows:

Authority: 29 U.S.C. 1302(b)(3), 1303(A), 1306, 1307.

Sec. 4007.2 [Amended]

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10. In Sec. 4007.2:
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a. Paragraph (a) is amended by removing the words ``and single-employer
plan'' and adding in their place the words ``single-employer plan, and
termination date''.
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b. Paragraph (b) is amended by removing the words ``new plan'' and
adding in their place the words ``continuation plan, new plan''; and by
removing the words ``and short plan year'' and adding in their place
the words ``short plan year, small plan, and UVB valuation date''.

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11. In Sec. 4007.3:
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a. Paragraph (b) is amended by removing the words ``the PBGC'' and
adding in their place the word ``PBGC''; and by removing the second
sentence (which begins ``The requirement . . .'' and ends ``. . . after
2006'').
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b. Paragraph (a) is revised to read as follows:

Sec. 4007.3 Filing requirement; method of filing.

(a) In general. The estimation, determination, declaration, and
payment of premiums must be made in accordance with the premium
instructions on PBGC's Web site (http://www.pbgc.gov/). Subject to the
provisions of Sec. 4007.13, the plan administrator of each covered
plan is responsible for filing prescribed premium information and
payments. Each required premium payment and related information,
certified as provided in the premium instructions, must be filed by the
applicable due date specified in this part in the manner and format
prescribed in the instructions.
* * * * *

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12. In Sec. 4007.8:
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a. Paragraph (a) introductory text is amended by removing the words
``the PBGC'' and adding in their place the word ``PBGC''; and by
removing the second sentence (which begins ``The charge . . .'' and
ends ``. . . unpaid premium'').
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b. Paragraphs (f), (g), (h), and (i) are removed, and paragraph (j) is
redesignated as paragraph (g).
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c. Paragraphs (a)(1) and (a)(2) and the introductory text of
redesignated paragraph (g) are revised, and new paragraph (f) is added,
to read as follows:

Sec. 4007.8 Late payment penalty charges.

(a) * * *
(1) For any amount of unpaid premium that is paid on or before the
date PBGC issues a written notice to any person liable for the premium
that there is or may be a premium delinquency (for example, a premium
bill, a letter initiating a premium compliance review, a notice of
filing error in premium determination, or a letter questioning a
failure to make a premium filing), 1 percent per month, to a maximum
penalty charge of 50 percent of the unpaid premium; or
(2) For any amount of unpaid premium that is paid after that date,
5 percent per month, to a maximum penalty charge of 100 percent of the
unpaid premium.
* * * * *
(f) Filings not more than 7 days late. PBGC will waive premium
payment penalties that arise solely because premium payments are late
by not more than seven calendar days, as described in this paragraph
(f). In applying this waiver, PBGC will assume that each premium
payment with respect to a plan year was made seven calendar days before
it was actually made. All other rules will then be applied as usual. If
the result of this procedure is that no penalty would arise for that
plan year, then any penalty that would apply on the basis of the actual
payment date(s) will be waived.
(g) Variable-rate premium penalty relief. 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)(1),--
* * * * *

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13. Section 4007.11 is revised to read as follows:

Sec. 4007.11 Due dates.

(a) In general. In general:
(1) The flat-rate and variable-rate premium filing due date is the
fifteenth day of the tenth calendar month that begins on or after the
first day of the premium payment year.
(2) If the variable-rate premium paid by the premium filing due
date is estimated as described in Sec. 4007.8(g)(1)(ii), a
reconciliation filing and any required variable-rate premium payment
must be made by the end of the sixth calendar month that begins on or
after the premium filing due date.
(3) Small plan transition rule. Notwithstanding paragraph (a)(1) of
this section, if a plan had fewer than 100 participants for whom flat-
rate premiums were payable for the plan year preceding the last plan
year that began before 2014, then the plan's due date for the first
plan year beginning after 2013 is the fifteenth day of the fourteenth
calendar month that begins on or after the first day of that plan year.
(b) Plans that change plan years. For a plan that changes its plan
year, the flat-rate and variable-rate premium filing due date for the
short plan year is as specified in paragraph (a) of this section. For
the plan year that follows a short plan year, the due date is the later
of --
(1) The due date specified in paragraph (a) of this section, or
(2) 30 days after the date on which the amendment changing the plan
year was adopted.
(c) New and newly covered plans. For a new plan or newly covered
plan, the

[[Page 13562]]

flat-rate and variable-rate premium filing due date for the first plan
year of coverage is the latest of--
(1) The due date specified in paragraph (a) of this section, or
(2) 90 days after the date of the plan's adoption, or
(3) 90 days after the date on which the plan became covered by
title IV of ERISA, or
(4) In the case of a small plan that is a continuation plan, 90
days after the plan's UVB valuation date.
(d) Terminating plans. For a plan that terminates in a standard
termination, the flat-rate and variable-rate premium filing due date
for the plan year in which all plan assets are distributed pursuant to
the plan's termination is the earlier of--
(1) The due date specified in paragraph (a) of this section, or
(2) The date when the post-distribution certification under Sec.
4041.29 of this chapter is filed.
(e) Continuing obligation to file. The obligation to make flat-rate
and variable-rate premium filings and payments under this part
continues through the plan year in which all plan assets are
distributed pursuant to a plan's termination or in which a trustee is
appointed under section 4042 of ERISA, whichever occurs earlier.

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14. Section 4007.12 is amended by revising paragraph (b) to read as
follows:

Sec. 4007.12 Liability for single-employer premiums.

* * * * *
(b) After a plan administrator issues (pursuant to section
4041(a)(2) of ERISA) the first notice of intent to terminate in a
distress termination under section 4041(c) of ERISA or PBGC issues a
notice of determination under section 4042(a) of ERISA, the obligation
to pay the premiums (and any interest or penalties thereon) imposed by
ERISA and this part for a single-employer plan shall be an obligation
solely of the contributing sponsor and the members of its controlled
group, if any.

Sec. 4007.13 [Amended]

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15. Section 4007.13 is amended by removing the words ``under section
4048 of ERISA'' where they appear once in paragraph (a)(1) introductory
text, once in paragraph (a)(2) introductory text, once in paragraph
(d)(1), once in paragraph (e)(3) introductory text, once in paragraph
(e)(4) introductory text, once in paragraph (e)(4)(i), and once in
paragraph (f) introductory text.

Appendix to Part 4007 [Amended]

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16. In the Appendix to part 4007:
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a. Section 21(b)(1) is amended by removing the words ``for waivers if
certain `safe harbor' tests are met, and''; and by removing the words
``30 days after the date of the bill'' and adding in their place the
words ``30 days after the date of the bill, and for waivers in certain
cases where you pay not more than a week late or where you estimate the
variable-rate premium and then timely correct any underpayment''.
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b. Section 21(b)(5) is amended by removing the second sentence (which
begins ``We intend . . .'' and ends ``. . . narrow circumstances'').

PART 4047--RESTORATION OF TERMINATING AND TERMINATED PLANS

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17. The authority citation for part 4047 continues to read as follows:

Authority: 29 U.S.C. 1302(b)(3), 1347.

Sec. 4047.4 [Amended]

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18. In Sec. 4047.4, paragraph (c) is amended by removing the words
``in Sec. 4006.4(c) of this chapter''.

Issued in Washington, DC, this 5th day of March 2014.
Joshua Gotbaum,
Director, Pension Benefit Guaranty Corporation.
[FR Doc. 2014-05212 Filed 3-10-14; 8:45 am]
BILLING CODE 7709-02-P