[Federal Register: February 20, 2007 (Volume 72, Number 33)]

[Proposed Rules]               

[Page 7755-7762]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr20fe07-11]                         



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PENSION BENEFIT GUARANTY CORPORATION



29 CFR Parts 4006 and 4007



RIN 1212-AB10



 

Premium Rates; Payment of Premiums; Flat Premium Rates, Variable-

Rate Premium Cap, and Termination Premium; Deficit Reduction Act of 

2005; Pension Protection Act of 2006



AGENCY: Pension Benefit Guaranty Corporation.



ACTION: Proposed rule.



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SUMMARY: This is a proposed rule to amend PBGC's regulations on Premium 

Rates and Payment of Premiums to implement certain provisions of the 

Deficit Reduction Act of 2005 (Pub. L. 109-171) and the Pension 

Protection Act of 2006 (Pub. L. 109-280) that are effective beginning 

in 2006 or 2007. The provisions that would be implemented by this rule 

change the flat premium rate, cap the variable-rate premium in some 

cases, and create a new ``termination premium'' that is payable in 

connection with certain distress and involuntary plan terminations. 

This rule does not address other provisions of the Pension Protection 

Act of 2006 that deal with PBGC premiums.



DATES: Comments must be submitted on or before April 23, 2007.



ADDRESSES: Comments, identified by RIN number 1212-AB10, may be 

submitted by any of the following methods:

     Federal eRulemaking Portal: http://www.regulations.gov. 



Follow the Web site instructions for submitting comments.

     E-mail: reg.comments@pbgc.gov.

     Fax: 202-326-4224.

     Mail or Hand Delivery: Legislative and Regulatory 

Department, Pension Benefit Guaranty Corporation, 1200 K Street, NW., 

Washington, DC 20005-4026.



All submissions must include the Regulatory Information Number for this 

rulemaking (RIN 1212-AB10). Comments received, including personal 

information provided, will be posted to http://www.pbgc.gov. Copies of 



comments may also be obtained by writing to Disclosure Division, Office 

of the General Counsel, Pension Benefit Guaranty Corporation, 1200 K 

Street, NW., Washington DC 20005-4026, or calling 202-326-4040 during 

normal business hours. (TTY and TDD users may call the Federal relay 

service toll-free at 1-800-877-8339 and ask to be connected to 202-326-

4040.)



FOR FURTHER INFORMATION CONTACT: John H. Hanley, Director, Legislative 

and Regulatory Department; or Catherine B. Klion, Manager, or Deborah 

C. Murphy, Attorney, Regulatory and Policy Division, Legislative and 

Regulatory Department, Pension Benefit Guaranty Corporation, 1200 K 

Street, NW., Washington DC 20005-4026; 202-326-4024. (TTY/TDD users may 

call the Federal relay service toll-free at 1-800-877-8339 and ask to 

be connected to 202-326-4024.)



SUPPLEMENTARY INFORMATION:



Background



    Pension Benefit Guaranty Corporation (PBGC) administers the pension 

plan termination insurance program under Title IV of the Employee 

Retirement Income Security Act of 1974 (ERISA). Pension plans covered 

by Title IV must pay premiums to PBGC. Section 4006 of ERISA deals with 

premium rates, and section 4007 of ERISA deals with the payment of 

premiums, including premium due dates, interest and penalties on 

premiums not timely paid, and persons liable for premiums.

    On February 8, 2006, the President signed into law the Deficit 

Reduction Act of 2005, Pub. L. 109-171 (DRA 2005). Section 8101 of DRA 

2005 amends section 4006 of ERISA. Section 8101(a) changes the per-

participant flat premium rate for plan years beginning in 2006 from $19 

to $30 for single-employer plans and from $2.60 to $8 for multiemployer 

plans and provides for inflation adjustments to the flat rates for 

future years. Section 8101(b) creates a new ``termination premium'' (in 

addition to the flat-rate and variable-rate premiums under section 

4006(a)(3)(A) and (E) of ERISA) that is payable for three years 

following certain distress and involuntary plan terminations that occur 

after 2005.

    On August 17, 2006, the President signed into law the Pension 

Protection Act of 2006, Pub. L. 109-280 (PPA 2006). Sections 401(b) and 

402(g)(2)(B) of PPA 2006 make changes to the termination premium rules 

of DRA 2005. Section 405 of PPA 2006 amends section 4006 of ERISA to 

cap the variable-rate premium for plans of certain small employers 

beginning in 2007. (PPA 2006 also makes other changes affecting PBGC 

premiums that are not addressed in this rule.)

    This rule would amend PBGC's regulations on Premium Rates (29 CFR 

Part 4006) and Payment of Premiums (29 CFR Part 4007) to conform to 

these requirements of DRA 2005 and PPA 2006 and to clarify how the 

requirements apply.



Flat-Rate Premium



    Until the enactment of DRA 2005, the flat-rate premium had remained 

unchanged for single-employer plans since 1991 and for multiemployer 

plans since 1989. Section 8101(a) of DRA 2005 amends section 

4006(a)(3)(A) of ERISA and adds new subparagraphs (F) and (G) to the 

end of section 4006(a)(3) of ERISA to raise the flat premium rates for 

2006 for both single- and multiemployer plans and to provide for 

inflation indexing for future years.



Applicability



    Before amendment by DRA 2005, section 4006(a)(3)(A) of ERISA 

provided (in part) that ``* * * the annual premium rate * * * is * * * 

in the case of a single-employer plan, for plan years beginning after 

December 31, 1990, an amount equal to the sum of $19 plus the [per-

participant variable-rate premium] under subparagraph (E) for each * * 

* participant * * *'' Section 8101(a)(1)(A) of DRA 2005 changes ``$19'' 

to read ``$30.'' Thus, the amended text of ERISA, read literally, makes 

it appear that the $30 single-employer flat-rate premium applies to 

plan years beginning after 1990. However, section 8101(d)(1) of DRA 

2005 (which does not amend ERISA) says that this change applies to plan 

years beginning after December 31, 2005. Accordingly, PBGC considers 

single-employer flat premium rates for plan years beginning before 2006 

to be unaffected by DRA 2005.



Participant Count



    Section 8101(a)(2)(A)(ii) of DRA 2005 adds a new clause (iv) to 

section 4006(a)(3)(A) of ERISA providing that the flat premium rate for 

a multiemployer plan for a post-2005 plan year is ``$8.00 for each 

individual who is a participant in such plan during the applicable plan 

year.'' PBGC interprets this to mean that the participant count is to 

be taken as of the premium snapshot date described in the premium rates 

regulation and PBGC's premium instructions (generally the last day of 

the plan year preceding the premium payment year). This is consistent 

with PBGC's interpretation of the nearly identical language in existing 

section 4006(a)(3)(A)(i) of ERISA.



[[Page 7756]]



Inflation Adjustments



    Section 8101(a)(1)(B) and (2)(B) of DRA 2005 add to section 

4006(a)(3) of ERISA substantially identical new subparagraphs (F) and 

(G) providing for inflation adjustments to the $30 and $8 flat rates 

for plan years beginning after 2006. The adjustments are based on 

changes in the national average wage index as defined in section 

209(k)(1) of the Social Security Act, with a two-year lag--for example, 

for 2007, it will be the 2005 index that will be compared to the 

baseline (the 2004 index). However, new subparagraphs (F) and (G) are 

written in such a way that the premium rate can never go down; if the 

change in the national average wage index is negative, the premium rate 

remains the same as in the preceding year. Also, under new 

subparagraphs (F) and (G), premium rates are rounded to the nearest 

whole dollar. PBGC interprets this to mean that if the adjustment 

formula would produce an unrounded premium rate of some number of 

dollars plus 50 cents, the premium rate will be rounded up.



Regulatory Provisions



    This rule would amend Sec.  4006.3 of the premium rates regulation 

to reflect the changes to the flat-rate premium made by section 8101(a) 

of DRA 2005. Existing paragraphs (a)(1) and (a)(2) of Sec.  4006.3 

(setting forth the $19 and $2.60 flat rates) would be removed, and a 

cross-reference to new Sec.  4006.3(c) would be provided instead. 

Paragraph (1) of new Sec.  4006.3(c) provides pre-2006 rates ($19 and 

$2.60); paragraph (2) provides 2006 rates ($30 and $8); and paragraph 

(3) provides post-2006 rates (the greater of the preceding year's rate 

or the inflation-adjusted rate). The inflation adjustment is described 

in new Sec.  4006.3(d).



Variable-Rate Premium



    Section 405 of PPA 2006 amends section 4006(a)(3)(E)(i) of ERISA 

and adds new subparagraph (H) to the end of section 4006(a)(3) to cap 

the variable-rate premium for certain plans, effective for plan years 

beginning after 2006.



Plans Covered



    Clause (i) of new section 4006(a)(3)(H) of ERISA says that the new 

variable-rate premium cap applies ``[i]n the case of an employer who 

has 25 or fewer employees on the first day of the plan year.'' But 

clause (ii) of new section 4006(a)(3)(H) of ERISA makes clear that the 

applicability of the new cap does not necessarily depend on the size of 

a single employer, but rather depends on the size of a plan's 

controlled group, that is, the aggregate size of ``all contributing 

sponsors and their controlled groups.'' (See the definition of 

``controlled group'' in Sec.  4001.2 of PBGC's regulation on 

Terminology (29 CFR Part 4001), which provides that ``[a]ny reference 

to a plan's controlled group means all contributing sponsors of the 

plan and all members of each contributing sponsor's controlled 

group''). Since a plan maintained by one contributing sponsor may or 

may not also be maintained by one or more other contributing sponsors 

that are not in the first sponsor's controlled group, the applicability 

of the cap must be determined plan by plan, not employer by employer.



Meaning of ``employee''



    New section 4006(a)(3)(H) of ERISA does not give guidance as to the 

meaning of the term ``employee.'' PBGC proposes to define ``employee'' 

for this purpose by reference to section 410(b)(1) of the Internal 

Revenue Code, which deals with minimum coverage requirements for 

qualified plans and requires that employees be counted to evaluate the 

breadth of coverage of a plan. For this purpose, certain individuals 

may be counted as ``employees'' although they might not be considered 

common law employees of the employer--for example, affiliated service 

group employees (under Code section 414(m)) and leased employees (under 

Code section 414(n)). PBGC considers this approach appropriate to 

prevent an employer from qualifying for the cap by artificially 

lowering its employee count through the use of sophisticated business 

structuring devices. In addition, in order to ensure that all employees 

are counted, PBGC proposes that the employee count be determined 

without regard to Code section 410(b)(3), (4), and (5), which might be 

considered to exclude from the count collective bargaining employees, 

employees not meeting a plan's age and service requirements, and 

employees in separate lines of business.



Cap Amount



    Under new section 4006(a)(3)(H)(i) of ERISA, the per-participant 

variable-rate premium is capped at ``$5 multiplied by the number of 

participants in the plan as of the close of the preceding plan year.'' 

PBGC interprets this to mean that the participant count is to be taken 

as of the premium snapshot date described in the premium rates 

regulation and PBGC's premium instructions (generally the last day of 

the plan year preceding the premium payment year). This is consistent 

with PBGC's interpretation of the nearly identical language in existing 

section 4006(a)(3)(E)(i) of ERISA. This participant count is the same 

as the count used as a multiplier under section 4006(a)(3)(A)(i) of 

ERISA for purposes of both the flat- and variable-rate premiums. Thus, 

an eligible plan's total variable-rate premium is capped at an amount 

equal to $5 multiplied by the square of the participant count.



Regulatory Provisions



    This rule would revise Sec.  4006.3(b) of the premium rates 

regulation to reflect the new cap on the variable-rate premium added by 

section 405 of PPA 2006. The existing variable-rate premium is 

described in new paragraph (b)(1) of Sec.  4006.3. The cap is described 

in new paragraph (b)(2); plans eligible for the cap in new paragraph 

(b)(3); and the meaning of the term ``employee'' in new paragraph 

(b)(4). Paragraph (b)(2) includes an example of the computation of the 

cap taken from page 95 of the Technical Explanation of H.R. 4, the 

``Pension Protection Act of 2006,'' as Passed by the House on July 28, 

2006, and as Considered by the Senate on August 3, 2006, Prepared by 

the Staff of the Joint Committee on Taxation (August 3, 2006) (http://www.house.gov/jct/x-38-06.pdf

).





Termination Premium



    Section 8101(b) of DRA 2005 adds a new paragraph (7) to the end of 

section 4006(a) of ERISA, creating a new ``termination premium'' that 

applies only where certain distress and involuntary terminations occur 

and then only for three years. However, although only section 4006 of 

ERISA is amended, subparagraph (D) of new paragraph (7) in effect 

modifies section 4007 of ERISA as well. Sections 401(b) and 

402(g)(2)(B) of PPA 2006 make changes to the termination premium rules 

of DRA 2005.



Termination Dates Covered



    Section 8101(d)(2)(A) of DRA 2005 (which does not amend ERISA) 

restricts the new termination premium to ``plans terminated after 

December 31, 2005.'' (Section 401(b)(1) of PPA 2006 repeals new section 

4006(a)(7)(E) of ERISA, added by DRA 2005, which provided that the 

termination premium would not apply ``with respect to any plan 

terminated after December 31, 2010.'')

    Section 8101(d)(2)(B) of DRA 2005 further restricts the application 

of the new termination premium in certain bankruptcy situations. If a 

plan ``is terminated during the pendency of any bankruptcy 

reorganization proceeding under chapter 11 of title 11, United States 

Code (or under any similar law of a State or political subdivision of a 

State),'' the new premium does not



[[Page 7757]]



apply ``if the proceeding is pursuant to a bankruptcy filing occurring 

before October 18, 2005.'' Under section 402(g)(2)(B)(ii) of PPA 2006, 

this limitation does not apply to an ``eligible plan'' under section 

402(c)(1) of PPA 2006 (generally a plan of a commercial passenger 

airline or airline catering service) while a funding election under 

section 402(a)(1) of PPA 2006 is in effect for the plan.

    These time restrictions on the applicability of the new premium 

turn on when a plan is ``terminated.'' PBGC believes that the most 

natural reading of these provisions is that the date to look to is the 

termination date under section 4048 of ERISA. Focusing on the section 

4048 termination date is also consistent with other provisions of DRA 

2005 and implementing regulations discussed below.



Types of Terminations Covered



    Under new section 4006(a)(7)(A) of ERISA, the termination premium 

applies where ``there is a termination of a single-employer plan under 

clause (ii) or (iii) of section 4041(c)(2)(B) [of ERISA] or section 

4042 [of ERISA].'' Section 4041(c) of ERISA provides for distress 

terminations; ERISA section 4042 provides for involuntary terminations.

    Under ERISA section 4041(c)(1), a distress termination of a plan 

may occur only if each contributing sponsor and each member of any 

contributing sponsor's controlled group meets one of the ``distress 

tests'' in clauses (i), (ii), and (iii) of section 4041(c)(2)(B). The 

tests are that the person is the subject of a bankruptcy liquidation 

proceeding (clause (i)), that the person is the subject of a bankruptcy 

reorganization proceeding (clause (ii)), or that the person is 

suffering business hardship (clause (iii)).

    Although typically all contributing sponsors and controlled group 

members meet the same distress test, that is not required for a 

distress termination under section 4041(c). Thus, while terminations 

where all contributing sponsors and controlled group members meet the 

test in clause (i) seem to be excluded from applicability of the 

termination premium, it is not clear from the statutory language 

whether the termination premium is to apply to terminations where one 

or more contributing sponsors and/or controlled group members meet the 

clause (i) test but others meet the tests in clauses (ii) and/or (iii). 

Examples of such situations would be where there are two contributing 

sponsors, one liquidating and one reorganizing; where the sole 

contributing sponsor is liquidating but there are controlled group 

members that are reorganizing; and where the sole contributing sponsor 

is reorganizing but the controlled group members are liquidating.

    The statutory language provides no basis for distinguishing among 

these examples or others that might be cited. All contributing sponsors 

and controlled group members are liable for plan underfunding under 

ERISA section 4062 and (as discussed below) for the termination premium 

(if it applies), and they must all satisfy one or another distress test 

under ERISA section 4041(c)(2)(B) for a distress termination to take 

place. This suggests that all these entities should be considered 

responsible as a group for the consequences of plan termination and 

that the fact that one entity among several is liquidating should not 

shield the others from liability. PBGC thus interprets new section 

4006(a)(7)(A) of ERISA as applying the termination premium in any 

distress termination case where at least one contributing sponsor or 

controlled group member meets the distress test in either clause (ii) 

or (iii) of section 4041(c)(2)(B) (i.e., is not liquidating).



Payers



    Section 4007(a) of ERISA places responsibility for paying PBGC 

premiums on the ``designated payor'' of a plan, and section 

4007(e)(1)(A) of ERISA identifies the designated payor of a single-

employer plan as the contributing sponsor or plan administrator. 

However, new section 4006(a)(7)(D)(i)(II) of ERISA, as added by section 

8101(b) of DRA 2005, provides that notwithstanding section 4007, the 

designated payor of the new termination premium is ``the person who is 

the contributing sponsor as of immediately before the termination 

date.'' It thus appears that the designated payor is to be identified 

as of the day before the termination date under section 4048 of ERISA. 

Similarly, this rule provides for identification of members of the 

contributing sponsor's controlled group (which are jointly and 

severally liable for premiums under section 4007(e)(2) of ERISA) as of 

the same day.



Participants



    Under new section 4006(a)(7)(A) of ERISA, the termination premium 

is based on the number of ``participants in the plan immediately before 

the termination date.'' It thus appears that participants are to be 

counted--for purposes of computing the termination premium--as of the 

day before the termination date under section 4048 of ERISA (the same 

day on which the contributing sponsor and controlled group members are 

determined). Section 4006.6 of the premium rates regulation already 

includes a definition of ``participant'' (which is used in computing 

the flat-rate premium), and DRA 2005 suggests no reason to depart from 

that definition for purposes of the termination premium.



Due Dates



    The termination premium is payable each year for three years. Under 

new section 4006(a)(7)(D)(i)(I) of ERISA, as added by section 8101(b) 

of DRA 2005, the new premium is due within 30 days after the beginning 

of each of three ``applicable 12-month periods,'' which are in turn 

described in new section 4006(a)(7)(C). New section 4006(a)(7)(C)(i)(I) 

provides that in general, the first applicable 12-month period starts 

with ``the first month following the month in which the termination 

date occurs.'' (From this it is evident that calendar months are 

meant.) Under new section 4006(a)(7)(C)(i)(II), the second and third 

applicable 12-month periods are simply the two 12-month periods that 

follow the first applicable 12-month period.

    But new section 4006(a)(7)(C)(ii) of ERISA defers the beginning of 

the first applicable 12-month period (and thus the due dates) in 

certain bankruptcy reorganization cases. This deferral rule comes into 

play where ``the requirements of subparagraph (B) [of new section 

4006(a)(7) of ERISA] are met in connection with the termination of the 

plan * * *.'' (Section 401(b)(2) of PPA 2006 corrected an erroneous 

reference to ``subparagraph (B)(i)(I)'' in new section 

4006(a)(7)(C)(ii) of ERISA.) Subparagraph (B) of new section 

4006(a)(7)(B) of ERISA defers the applicability of the termination 

premium for distress or involuntary plan terminations that occur when 

bankruptcy reorganization proceedings are pending for terminations 

``under section 4041(c)(2)(B)(ii) [of ERISA] or under section 4042 [of 

ERISA].'' Following the same reasoning discussed above regarding new 

section 4006(a)(7)(A) of ERISA (the general termination premium 

applicability provision), PBGC concludes that the bankruptcy 

reorganization deferral provision in new section 4006(a)(7)(B) of ERISA 

is meant to apply to a distress termination only when at least one 

contributing sponsor or controlled group member satisfies the 

bankruptcy reorganization test in section 4041(c)(2)(B)(ii).

    In order for the due date deferral rule in new section 

4006(a)(7)(C)(ii) of



[[Page 7758]]



ERISA to apply, the requirements of subparagraph (B) of section 

4006(a)(7) of ERISA must be met ``with respect to 1 or more persons 

described in such subparagraph'' (that is, one or more persons must be 

reorganizing in bankruptcy as described in subparagraph (B)). If so, 

then the first applicable 12-month period begins with ``the first month 

following the month which includes the earliest date as of which each 

such person is discharged or dismissed in the case described in such 

clause [sic] in connection with such person.'' (The only clause 

mentioned in section 4006(a)(7)(C)(ii) of ERISA is clause (i)(I) of 

section 4006(a)(7)(C), which describes the first applicable 12-month 

period that applies if the special bankruptcy rule does not. Thus the 

reference to ``such clause'' appears to be intended to refer to ``such 

subparagraph''--that is, subparagraph (B)--and PBGC so interprets the 

reference.)

    However, although subparagraph (B) of new section 4006(a)(7) of 

ERISA describes a case--a bankruptcy case--it does not describe a 

person. The only person mentioned in subparagraph (B) is ``such 

person,'' with no cross-reference to another place where the person is 

described. Nonetheless, it seems clear that the person referred to must 

be a person that has a relationship to both the plan and the bankruptcy 

proceeding mentioned in subparagraph (B). Subparagraph (B) contains 

parenthetical language that is essentially identical to parenthetical 

language that appears in section 4041(c)(2)(B)(ii) of ERISA (which 

describes the bankruptcy reorganization test for distress 

terminations). In section 4041(c)(2)(B)(ii), the words ``such person'' 

in the parenthetical language refer to a contributing sponsor or member 

of a contributing sponsor's controlled group. PBGC infers that ``such 

person'' in new section 4006(a)(7)(B) of ERISA is meant to refer 

likewise to a contributing sponsor of the terminated plan or member of 

a contributing sponsor's controlled group--determined (consistent with 

the designated payor provision in new section 4007(a)(7)(D)(i)(II)) as 

of the day before the termination date under section 4048 of ERISA.

    This inference is supported by the observation that these same 

persons--contributing sponsors and controlled group members--are the 

persons liable for the termination premium. It appears that Congress' 

intent was to defer the due date for the termination premium until the 

persons liable to pay it were not in bankruptcy proceedings. 

Accordingly, where the special bankruptcy rule for due dates applies, 

it is necessary to identify every contributing sponsor and controlled 

group member that was involved in bankruptcy reorganization proceedings 

on the termination date and determine the date when each one left 

bankruptcy--through dismissal of or discharge from the proceeding--or 

ceased to exist. (If an entity ceases to exist, its failure to emerge 

from bankruptcy should not postpone the termination premium due date.) 

Under new section 4006(a)(7)(C)(ii), the first applicable 12-month 

period for the termination will then begin with the calendar month that 

next begins following the last such date.

    One due date issue not addressed by the statute is that the 

agreement or court action establishing a plan's termination date under 

ERISA section 4048 may occur well after the termination date so 

established. Where a termination date is thus ``retroactively'' set, 

one or more statutory due dates for the termination premium may already 

have passed when the termination date becomes known. Thus, termination 

premium payments could be overdue before it was determined that they 

were owed.

    In cases of that kind, PBGC considers it appropriate to provide 

that where the termination date is set retroactively, the first 

applicable 12-month period does not begin immediately after the month 

in which the termination date falls, but rather begins immediately 

after the month in which the termination date is established. Where the 

special bankruptcy rule for due dates applies, this rule would come 

into play if the termination date was established after all 

contributing sponsors and controlled group members were out of 

bankruptcy reorganization proceedings, and would defer the beginning of 

the first applicable 12-month period until immediately after the month 

in which the termination date was established.



Other Bankruptcy Issues



    The parenthetical language in new section 4006(a)(7)(B) of ERISA--

``(or a case described in section 4041(c)(2)(B)(i) filed by or against 

such person has been converted, as of such date, to such a case in 

which reorganization is sought)''--shows that Congress focused on the 

fact that bankruptcy proceedings can be converted back and forth 

between liquidation and reorganization proceedings. But neither section 

4006(a)(7)(B) nor section 4006(a)(7)(C)(ii) (which describes the 

special first applicable 12-month period) mentions conversion of a 

reorganization case to a liquidation case as being sufficient to 

trigger the beginning of the first applicable 12-month period. It thus 

appears that even after such a conversion, the first applicable 12-

month period would be postponed until the (liquidation) bankruptcy 

proceeding were dismissed or the contributing sponsor or controlled 

group member discharged. This could be of significance where there were 

other persons liable for the termination premium that were not (or were 

no longer) in bankruptcy.

    Section 8101(d)(2)(B) of DRA 2005 (which, as discussed above, 

excludes from the termination premium terminations that occur during 

the pendency of bankruptcy reorganization proceedings pursuant to a 

filing before October 18, 2005) says nothing about the persons involved 

in such proceedings. Following the reasoning above, PBGC concludes that 

section 8101(d)(2)(B) is intended to apply only where the subject of a 

pending bankruptcy proceeding is a contributing sponsor of the 

terminated plan or a member of a contributing sponsor's controlled 

group (and that these persons are to be identified as of the day before 

the termination date under section 4048 of ERISA). Section 

8101(d)(2)(B) also does not mention conversion of a bankruptcy case 

from a liquidation proceeding to a reorganization, as new section 

4006(a)(7)(B) of ERISA does. But the language of section 8101(d)(2)(B) 

is consistent with the interpretation that--like section 

4006(a)(7)(B)--it covers bankruptcy proceedings begun as liquidation 

proceedings and converted to reorganization proceedings before the 

termination date under section 4048 of ERISA.



Termination Premium Rate



    Under new section 4006(a)(7) of ERISA as added by section 8101(b) 

of DRA 2005, the termination premium is $1,250 per participant per year 

for three years. But under section 402(g)(2)(B) of PPA 2006 (which does 

not amend ERISA), the rate is increased from $1,250 to $2,500 where a 

commercial passenger airline or airline catering service elects funding 

relief (an extended underfunding amortization period and lenient 

assumptions for valuing liabilities) for a frozen plan under section 

402(a)(1) of PPA 2006, if the plan terminates during the first five 

years of the funding relief period, unless the Secretary of Labor 

determines that the termination resulted from extraordinary 

circumstances such as a terrorist attack or other similar event.



Regulatory Provisions



    This rule would add a new Sec.  4006.7 to the premium rates 

regulation



[[Page 7759]]



providing that the amount of the termination premium with respect to 

each applicable 12-month period is the premium rate (generally $1,250) 

times the number of participants, determined as of the day before the 

termination date, with a cross-reference from Sec.  4006.3 (where the 

flat and variable premium rates are set forth). New Sec.  4006.7(b) 

also explains the circumstances in which the termination premium rate 

is $2,500 rather than $1,250. In addition, the rule would add a new 

Sec.  4007.13 to the premium payment regulation (with a cross-reference 

from Sec.  4006.7), where the rest of the provisions about the 

termination premium are found.

    New Sec.  4007.13 contains provisions specific to the termination 

premium, and it supplements provisions in existing sections of Part 

4007 that also apply to the termination premium. Section 4007.13(a) 

describes when the termination premium applies; Sec.  4007.13 (d), (e), 

and (f) deal with due dates; Sec.  4007.13(g) deals with what persons 

are liable for the termination premium. The provisions on these three 

topics reflect the discussions above.

    Section 4007.13(b) makes each contributing sponsor and controlled 

group member (determined as of the day before the termination date 

under section 4048 of ERISA) responsible for filing required 

termination premium information and payments, and (where there is more 

than one such person) provides that any one can file on behalf of all 

of them. This provision ensures that, so long as there is at least one 

person still in existence that is liable for the termination premium, 

there will be at least one identifiable entity with responsibility to 

file. This provision is similar to Sec.  4010.3 of PBGC's regulation on 

Annual Financial and Actuarial Information Reporting (Part 4010 of 

PBGC's regulations) and Sec.  4043.3(a) of PBGC's regulation on 

Reportable Events and Certain Other Notification Requirements (Part 

4043 of PBGC's regulations). Thus, only a single filing of the premium 

and required premium information is required, but if it is not timely 

made, PBGC could seek enforcement against any or all contributing 

sponsors and controlled group members.

    Section 4007.13(c) provides for a discretionary ``facts-and-

circumstances'' penalty for failure to pay the termination premium 

timely, instead of the automatic 1 percent or 5 percent penalty that 

applies to late payment of flat- and variable-rate premiums under Sec.  

4007.8(a). PBGC wants to preserve flexibility in penalizing failures to 

pay the new premium in full and on time while it gains experience with 

the new premium. The penalty is limited to 100 percent of the amount of 

termination premium not timely filed.

    In addition, this rule would amend several sections in the existing 

premium payment regulation to eliminate inconsistencies or potential 

inconsistencies between existing language in those sections and the 

termination premium provisions.



Technical Changes



    PBGC is taking this opportunity to make some technical changes 

(unrelated to DRA 2005 or PPA 2006) to its regulations on Premium Rates 

and Payment of Premiums.

    Section 4006.3 of the premium rates regulation refers to basic 

benefits guaranteed under section 4022(a) of ERISA (which relates only 

to single-employer plans) and omits mention of section 4022A(a) of 

ERISA (which relates to multi-employer plans). This rule would add a 

reference to section 4022A(a).

    Section 4007.11(d) of the premium payment regulation states that 

where proration of the flat- and variable-rate premiums is available 

under Sec.  4006.5(f) of the premium rates regulation, the un-prorated 

premium must be paid in full (even if the plan would be entitled to a 

refund). This provision is anachronistic: PBGC now permits payment of 

the prorated amount under Sec.  4006.5(f), rather than requiring that a 

filer pay the un-prorated amount and request a refund. This rule would 

remove the outdated provision.

    Section 4007.11(e) of the premium payment regulation permits PBGC 

to return improper filings and consider them not made. PBGC is not 

exercising this authority, and the provision is unnecessary; PBGC has 

authority to assess penalties under ERISA section 4071 for failure to 

submit material information under the premium payment regulation. This 

rule would remove Sec.  4007.11(e).



Applicability



    The regulatory changes made by this rule to implement the 

provisions of section 8101 of DRA 2005 would apply (as section 8101 of 

DRA 2005 does) to plan years beginning after 2005 and to terminations 

with termination dates after 2005 (subject to the special rule for 

bankruptcies filed before October 18, 2005). The regulatory changes 

made by this rule to implement the provisions of section 405 of PPA 

2006 would apply (as section 405 of PPA 2006 does) to plan years 

beginning after 2006.



Compliance With Rulemaking Guidelines



    The PBGC has determined, in consultation with the Office of 

Management and Budget, that this proposed rule is a ``significant 

regulatory action'' under Executive Order 12866. The Office of 

Management and Budget, therefore, has reviewed the rule under Executive 

Order 12866.

    PBGC certifies under section 605(b) of the Regulatory Flexibility 

Act that the amendments in this rule will not have a significant 

economic impact on a substantial number of small entities. This rule 

implements statutory changes made by Congress. It provides guidance on 

how to calculate, pay, and substantiate the premiums prescribed by 

statute and imposes no significant burden beyond the burden imposed by 

statute. Furthermore:

     The statutorily imposed increase in the flat-rate premium 

is at most $11 per participant per year, which does not constitute a 

significant economic impact where a plan has a small number of 

participants. Although the flat-rate premium will increase as the 

number of participants increases, the economic impact of the flat-rate 

premium relative to the size of the entity will remain fairly constant 

and will not be significant for a substantial number of entities of any 

size.

     The statutorily imposed cap on the variable-rate premium 

will save qualifying plans money. The rule simply interprets the 

statutory provisions.

     The statutorily imposed termination premium will not 

affect a substantial number of entities of any size.



Accordingly, as provided in section 605 of the Regulatory Flexibility 

Act (5 U.S.C. 601 et seq.), sections 603 and 604 do not apply.

    The information requirements relating to the flat-rate and 

variable-rate premiums have been approved by the Office of Management 

and Budget under the Paperwork Reduction Act (OMB control number 1212-

0009, expires April 30, 2008).

    PBGC is submitting the information requirements relating to the 

termination premium to the Office of Management and Budget for review 

and approval under the Paperwork Reduction Act. Copies of PBGC's 

request may be obtained free of charge by contacting the Disclosure 

Division of the Office of the General Counsel of PBGC, 1200 K Street, 

NW., Washington, DC 20005, 202-326-4040.

    PBGC needs this information to identify the plan for which a 

termination premium is paid to PBGC,



[[Page 7760]]



to verify the determination of the premium, and to identify the persons 

liable for the premium.

    PBGC expects that it will receive termination premium filings from 

about 30 contributing sponsors or controlled group members annually and 

that the total annual burden of the collection of information will be 

about 40 hours and $264,000.

    Comments on the paperwork provisions under this proposed rule 

should be mailed to the Office of Information and Regulatory Affairs, 

Office of Management and Budget, Attention: Desk Officer for Pension 

Benefit Guaranty Corporation, Washington, DC 20503. Although comments 

may be submitted through April 23, 2007, the Office of Management and 

Budget requests that comments be received on or before March 22, 2007 

to ensure their consideration. Comments may address (among other 

things)--

     Whether the proposed collection of information is needed 

for the proper performance of PBGC's functions and will have practical 

utility;

     The accuracy of PBGC's estimate of the burden of the 

proposed collection of information, including the validity of the 

methodology and assumptions used;

     Enhancement of the quality, utility, and clarity of the 

information to be collected; and

     Minimizing the burden of the collection of information on 

those who are to respond, including through the use of appropriate 

automated, electronic, mechanical, or other technological collection 

techniques or other forms of information technology, e.g., permitting 

electronic submission of responses.



List of Subjects



29 CFR Part 4006



    Pension insurance, Pensions.



29 CFR Part 4007



    Penalties, Pension insurance, Pensions, Reporting and recordkeeping 

requirements.



    For the reasons given above, PBGC is amending 29 CFR parts 4006 and 

4007 as follows.



PART 4006--PREMIUM RATES



    1. The authority citation for part 4006 continues to read as 

follows:



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



    2. In Sec.  4006.3:

    a. The introductory text is amended by removing the words ``Sec.  

4006.5 (dealing with exemptions and special rules)'' and adding in 

their place the words ``Sec.  4006.5 (dealing with exemptions and 

special rules) and Sec.  4006.7 (dealing with premiums for certain 

terminated single-employer plans)''; and by removing the words 

``section 4022(a)'' and adding in their place the words ``section 

4022(a) or section 4022A(a)''.

    b. Paragraph (a) introductory text is amended by removing the words 

``multiplied by--'' and adding in their place the words ``multiplied by 

the applicable flat premium rate determined under paragraph (c) of this 

section.''.

    c. Paragraphs (a)(1) and (a)(2) are removed.

    d. Paragraph (b) is revised, and new paragraphs (c) and (d) are 

added, to read as follows:





Sec.  4006.3  Premium rate.



* * * * *

    (b) Variable-rate premium.

    (1) In general. Subject to the limitation in paragraph (b)(2) of 

this section, the variable-rate premium is $9 for each $1,000 of a 

single-employer plan's unfunded vested benefits, as determined under 

Sec.  4006.4.

    (2) Cap on variable-rate premium. If a plan is described in 

paragraph (b)(3) of this section for the premium payment year, the 

variable-rate premium does not exceed $5 multiplied by the square of 

the number of participants in the plan on the last day of the plan year 

preceding the premium payment year. For example, if the number of 

participants in the plan on the last day of the plan year preceding the 

premium payment year is 20, the variable-rate premium does not exceed 

$2,000 ($5 x 20\2\ = $5 x 400 = $2,000).

    (3) Plans eligible for cap. A plan is described in this paragraph 

(b)(3) 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.

    (4) Meaning of ``employee.'' For purposes of paragraph (b)(3) 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.

    (c) Applicable flat premium rate. The applicable flat premium rate 

is:

    (1) For a premium payment year beginning before 2006--

    (i) For a single-employer plan, $19, and

    (ii) For a multiemployer plan, $2.60.

    (2) For a premium payment year beginning in 2006--

    (i) For a single-employer plan, $30, and

    (ii) For a multiemployer plan, $8.

    (3) For a premium payment year beginning after 2006, the greater 

of--

    (i) The applicable flat premium rate for plan years beginning in 

the calendar year preceding the calendar year in which the premium 

payment year begins, or

    (ii) The adjusted flat rate determined under paragraph (d) of this 

section for the premium payment year.

    (d) Adjusted flat rate. The adjusted flat rate for a premium 

payment year beginning after 2006 is determined by--

    (1) Multiplying the applicable flat premium rate for 2006 by the 

ratio of--

    (i) The national average wage index (as defined in section 

209(k)(1) of the Social Security Act) for the first of the two calendar 

years preceding the calendar year in which the premium payment year 

begins, to

    (ii) The national average wage index (as so defined) for 2004; and

    (2) Rounding the result to the nearest multiple of $1 (rounding up 

any unrounded result that equals some whole number of dollars plus 50 

cents).

    3. New Sec.  4006.7 is added to read as follows:





Sec.  4006.7  Premium rate for certain terminated single-employer 

plans.



    (a) The premium under this section (``termination premium'') 

applies to a DRA 2005 termination described in Sec.  4007.13 of this 

chapter.

    (b) The amount of the premium under this section that is payable 

with respect to each applicable 12-month period (as described in Sec.  

4007.13 of this chapter) is the number of participants in the plan, 

determined as of the day before the termination date under section 4048 

of ERISA, multiplied by the termination premium rate. In general, the 

termination premium rate is $1,250. However, the termination premium 

rate is $2,500 for an ``eligible plan'' under section 402(c)(1) of the 

Pension Protection Act of 2006 (dealing with certain plans of 

commercial passenger airlines and airline catering services) while an 

election under section 402(a)(1) of the Pension Protection Act of 2006 

(dealing with alternative funding schedules) is in effect for the plan 

if the plan terminates during the five-year period beginning on the 

first day of the first applicable plan year (as defined in section 

402(c)(2) of that Act) with respect to the plan, unless the Secretary 

of Labor determines that the plan terminated as a result of 

extraordinary circumstances such as a terrorist attack or other similar 

event.



[[Page 7761]]



    (c) The premium under this section is in addition to any other 

premium under this part.

    (d) See Sec.  4007.13 of this chapter for further rules about 

termination premiums.



PART 4007--PAYMENT OF PREMIUMS



    4. The authority citation for part 4007 continues to read as 

follows:



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



    5. Section 4007.3 is amended by removing the words ``The plan 

administrator'' and adding in their place the words ``Subject to the 

provisions of Sec.  4007.13, the plan administrator''; and by removing 

``Sec.  4007.11'' and adding in its place the words ``this part''.

    6. In Sec.  4007.7, paragraph (a) is amended by removing ``Sec.  

4007.11'' and adding in its place the words ``this part''.

    7. In Sec.  4007.8:

    a. Paragraph (a) introductory text is amended by removing the words 

``If any premium payment due'' and adding in their place the words 

``Subject to the provisions of Sec.  4007.13, if any premium payment 

due''; and by removing ``Sec.  4007.11'' and adding in its place the 

words ``this part''.

    b. Paragraph (a)(1)(i) is amended by removing the word ``plan's''.

    c. Paragraph (a)(1) introductory text is revised to read as 

follows:





Sec.  4007.8  Late payment penalty charges.



    (a) Penalty charge. * * *

    (1) Penalty rate; in general. Except as provided in paragraph 

(a)(2) of this section, the penalty rate is--

* * * * *

    8. In Sec.  4007.9, paragraph (a) is amended by removing the words 

``by a plan administrator''; and by removing the words ``that plan's'' 

and adding in their place the words ``a plan's''.

    9. In Sec.  4007.10:

    a. Paragraph (a)(1) is amended by removing the words ``plan 

administrator'' and adding in their place the words ``designated 

recordkeeper under paragraph (a)(3) of this section''.

    b. Paragraph (a)(2) is amended by removing the words ``The plan 

administrator'' and adding in their place the words ``A designated 

recordkeeper''.

    c. Paragraph (b) is amended by removing the words ``for any premium 

payment year''.

    d. Paragraph (c)(1) is amended by removing the words ``The plan 

administrator'' and adding in their place the words ``A designated 

recordkeeper''.

    e. Paragraph (c)(2) is amended by removing the words ``the plan 

administrator'' and adding in their place the words ``a designated 

recordkeeper''.

    f. Paragraph (c)(2)(ii) is amended by removing the words ``plan 

administrator'' and adding in their place the words ``designated 

recordkeeper''.

    g. New paragraph (a)(3) is added to read as follows:





Sec.  4007.10  Recordkeeping; audits; disclosure of information.



    (a) Retention of records to support premium payments.

* * * * *

    (3) Designated recordkeepers.

    (i) With respect to the flat-rate and variable-rate premiums 

described in Sec.  4006.3 of this chapter, the plan administrator is 

the designated recordkeeper.

    (ii) With respect to the premium for certain terminated single-

employer plans described in Sec.  4006.7 of this chapter, each person 

who was a contributing sponsor of such a plan, or was a member of a 

contributing sponsor's controlled group, as of the day before the 

plan's termination date is a designated recordkeeper.

* * * * *

    10. In Sec.  4007.11:

    a. Paragraph (a) introductory text is amended by removing the words 

``The premium filing due date for small plans'' and adding in their 

place the words ``For flat-rate and variable-rate premiums, the premium 

filing due date for small plans''.

    b. Paragraph (a)(3) introductory text is amended by removing the 

words ``the premium form or forms and payment or payments for the short 

plan year shall be filed by'' and adding in their place the words ``the 

due date or dates for the flat-rate premium and any variable-rate 

premium for the short plan year are''; and by removing the words ``for 

the premium forms and payments''.

    c. Paragraph (c) introductory text is amended by removing the words 

``the premium form and all premium payments due for the first plan year 

of coverage of any new plan or newly covered plan shall be filed on or 

before'' and adding in their place the words ``the due date for the 

flat-rate premium and any variable-rate premium for the first plan year 

of coverage of any new plan or newly covered plan shall be''.

    d. Paragraph (d) is amended by removing the words ``to file the 

forms or forms prescribed by this part and to pay any premiums due'' 

and adding in their place the words ``to make flat-rate and (as 

applicable) variable-rate premium filings and payments under this 

part''; and by removing the last sentence of the paragraph (beginning 

``The entire * * *'' and ending ``* * * Sec.  4006.5(f).'').

    e. Paragraph (e) is removed.

    11. In Sec.  4007.12, paragraph (a) is amended by removing the 

words ``to file the applicable forms and to submit the premium 

payment'' and adding in their place the words ``to make flat-rate and 

variable-rate premium filings and payments under this part''; and by 

removing the words ``liable for premium payments'' and adding in their 

place ``liable for flat-rate and variable-rate premium payments''.

    12. New Sec.  4007.13 is added to read as follows:





Sec.  4007.13  Premiums for certain terminated single-employer plans.



    (a) Applicability.

    (1) In general. This section applies where there is a ``DRA 2005 

termination'' of a plan. Subject to paragraph (a)(2) of this section, 

there is a DRA 2005 termination where a single-employer plan's 

termination date under section 4048 of ERISA is after 2005 and either--

    (i) The plan terminates under section 4042 of ERISA, or

    (ii) The plan terminates under section 4041(c) of ERISA and at 

least one contributing sponsor or member of a contributing sponsor's 

controlled group meets the requirements of section 4041(c)(2)(B)(ii) or 

(iii) of ERISA.

    (2) Plans terminated during reorganization proceedings. Except as 

provided in paragraph (a)(3) of this section, a DRA 2005 termination of 

a plan does not occur where as of the plan's termination date under 

section 4048 of ERISA--

    (i) A bankruptcy proceeding has been filed by or against any person 

that was a contributing sponsor of the plan on the day before the 

plan's termination date or that was on that day a member of any 

controlled group of which any such contributing sponsor was a member,

    (ii) The proceeding is pending as a reorganization proceeding under 

chapter 11 of title 11, United States Code (or under any similar law of 

a State or political subdivision of a State),

    (iii) The person has not been discharged from the proceeding, and

    (iv) The proceeding was filed before October 18, 2005.

    (3) Special rule for certain airline-related plans. Paragraph 

(a)(2) of this section does not apply to an ``eligible plan'' under 

section 402(c)(1) of the Pension Protection Act of 2006 (dealing with 

certain plans of commercial passenger airlines and airline catering 

services) while an election under section 402(a)(1) of the Pension 

Protection Act of 2006 (dealing with alternative funding schedules) is 

in effect for the plan.



[[Page 7762]]



    (4) Termination premium. A premium as described in Sec.  4006.7 of 

this chapter is payable to PBGC with respect to a DRA 2005 termination 

each year for three years after the termination (the ``termination 

premium'').

    (b) Filing requirements; method of filing. Notwithstanding Sec.  

4007.3, in the case of a DRA 2005 termination of a plan, each person 

that was a contributing sponsor of the plan on the day before the 

plan's termination date or that was on that day a member of any 

controlled group of which any such contributing sponsor was a member is 

responsible for filing prescribed termination premium information and 

payments. Any such person may file on behalf of all such persons.

    (c) Late payment penalty charges. Notwithstanding Sec.  4007.8(a), 

if any required termination premium payment is not filed by the due 

date under paragraph (d) of this section, PBGC may assess a late 

payment penalty charge based on the facts and circumstances, subject to 

waiver under Sec.  4007.8(b), (c), (d), or (e). The charge will not 

exceed the amount of termination premium not timely filed.

    (d) Due dates. Notwithstanding Sec.  4007.11, the due date for the 

termination premium is the 30th day of each of three applicable 12-

month periods. The three applicable 12-month periods with respect to a 

DRA 2005 termination of a plan are--

    (1) First applicable 12-month period. Except as provided in 

paragraph (e) or (f) of this section, the period of 12 calendar months 

beginning with the first calendar month following the calendar month in 

which occurs the plan's termination date under section 4048 of ERISA, 

and

    (2) Subsequent applicable 12-month periods. Each of the first two 

periods of 12 calendar months that immediately follow the first 

applicable 12-month period.

    (e) Certain reorganization cases.

    (1) This paragraph (e) applies with respect to a DRA 2005 

termination of a plan if the conditions in both paragraph (e)(2) and 

paragraph (e)(3) of this section are satisfied.

    (2) The condition of this paragraph (e)(2) is that either--

    (i) The plan terminates under section 4042 of ERISA, or

    (ii) The plan terminates under section 4041(c) of ERISA and at 

least one contributing sponsor or member of a contributing sponsor's 

controlled group meets the requirements of section 4041(c)(2)(B)(ii) of 

ERISA.

    (3) The condition of this paragraph (e)(3) is that as of the plan's 

termination date under section 4048 of ERISA--

    (i) A bankruptcy proceeding has been filed by or against any person 

that was a contributing sponsor of the plan on the day before the 

plan's termination date or that was on that day a member of any 

controlled group of which any such contributing sponsor was a member,

    (ii) The proceeding is pending as a reorganization proceeding under 

chapter 11 of title 11, United States Code (or under any similar law of 

a State or political subdivision of a State), and

    (iii) The person has not been discharged from the proceeding.

    (4) If this paragraph (e) applies with respect to a DRA 2005 

termination of a plan, then except as provided in paragraph (f) of this 

section, the first applicable 12-month period with respect to the plan 

is the period of 12 calendar months beginning with the first calendar 

month following the calendar month in which occurs the earliest date 

when, for every person that was a contributing sponsor of the plan on 

the day before the plan's termination date under section 4048 of ERISA, 

or that was on that day a member of any controlled group of which any 

such contributing sponsor was a member, either--

    (i) There is not pending any bankruptcy proceeding that was filed 

by or against such person and that was, as of the plan's termination 

date under section 4048 of ERISA, a reorganization proceeding under 

chapter 11 of title 11, United States Code (or under any similar law of 

a State or political subdivision of a State), or

    (ii) The person has been discharged from any such proceeding, or

    (iii) The person no longer exists.

    (f) Retroactive plan termination date. If a plan's termination date 

under section 4048 of ERISA is in the past when it is established by 

agreement or court action as described in section 4048 of ERISA, then 

the first applicable 12-month period for determining the due dates of 

the termination premium begins with the later of--

    (1) The first calendar month following the calendar month in which 

the termination date is established by agreement or court action as 

described in section 4048 of ERISA, or

    (2) The first calendar month specified in paragraph (d)(1) of this 

section or (if paragraph (e) of this section applies) paragraph (e)(4) 

of this section.

    (g) Liability for termination premiums. In the case of a DRA 2005 

termination of a plan, each person that was a contributing sponsor of 

the plan on the day before the plan's termination date, or that was on 

that day a member of any controlled group of which any such 

contributing sponsor was a member, is jointly and severally liable for 

termination premiums with respect to the plan.



    Issued in Washington, DC, this 13th day of February, 2007.

Vincent K. Snowbarger,

Interim Director, Pension Benefit Guaranty Corporation.

 [FR Doc. E7-2812 Filed 2-16-07; 8:45 am]



BILLING CODE 7709-01-P