compliance alert

February 3, 2014

PBGC Eliminates Early Flat-Rate Premium Payment Requirement for Large Plans

Effective for plan years beginning on or after January 1, 2014, the Pension Benefit Guaranty Corporation (PBGC) has eliminated the requirement that large plans (those with 500 or more participants) pay estimated flat-rate premiums early in the plan year. Large plans will now pay flat-rate premiums on a single date: October 15 for calendar-year plans.1 (For ease of reading, this Compliance Alert refers only to calendar-year plans.) For large single-employer plans, this also means that both flat-rate and variable-rate premiums now are due on the same date.

Background

Under the Employee Retirement Income Security Act (ERISA), plans must pay premiums to the PBGC annually. ERISA does not specify when the premium is due, leaving that for the PBGC to clarify in rules. Since the mid-1980s, the PBGC has required large plans to pay estimated flat-rate premiums by February 28. This payment date was adopted to give the PBGC the use of more of its premium income earlier in the year.2 However, because most plans would not have a final participant count by February 28, large plans had to reconcile the earlier participant count in a filing/payment due on October 15, if necessary.3

The Final Rule and Its Implications

As noted above, the final rule makes October 15 the sole filing date for flat-rate premiums for large calendar-year plans. Plans are no longer required to make estimated premium payments or filings. This change also applies to multiemployer plans.

This consolidation of large-plan flat-rate premium payment dates is a welcome change for two reasons:

  • It simplifies plan administration going forward, with only one premium payment and filing date.
  • Because the single premium payment amount is not adjusted for the time value of money, the plan, rather than the PBGC, will have use of the money for the eight and one-half months from the original February 28 filing date to the new October 15 date.

Additional Guidance Still to Come on Other Changes Proposed Last Year

In July 2013, the PBGC proposed a number of premium-payment related changes.4 The final rules addresses only the large-plan filing date. Final guidance on the proposed acceleration of the flat-rate premium payment for small plans is still to come. The PBGC addressed the large-plan filing date separately and first because of the early due date of the estimated premium filing it was eliminating. Other changes that the PBGC proposed in July 2013 and expects to address in final rules later this year include adjustments to certain premium filing penalties, changes with respect to variable rate premiums for small plans and certain terminating plans, and clarifications of the “at-risk” funding target calculation.

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As with all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for authoritative advice on the interpretation and application of the consolidated PBGC premium filing date. Sibson Consulting can be retained to work with plan sponsors and their attorneys to discuss issues related to PBGC premiums.

 

1 This change was made in a final rule published in the January 3, 2014 Federal Register. (Return to the Compliance Alert.)

2 This change was based on recommendations concerning the PBGC in the report of the President’s Private Sector Survey on Cost Control, known as the Grace Commission, submitted on January 16, 1984. A Congressional Budget Office (CBO) analysis of the Grace Commission’s recommendations, including the PBGC-related recommendations, is available on the CBO website. (Return to the Compliance Alert.)

3 The PBGC considered making this change in the past but was hindered by the movement of the premium payment date reduces, in absolute terms, the PBGC’s premium revenue each year by the 8½ months of interest on the payments that would have otherwise been made on February 28. The economic analysis in the final regulations recognizes this and says it is outweighed by the benefits to plans. (Return to the Compliance Alert.)

4 Under the proposal, small plans (less than 100 participants) that now have an extended filing date of April 30 of the year following the October 15 filing date, would file on October 15 (i.e., earlier than currently required); mid-sized plans (100 to 499 participants) would continue to file only on October 15 (i.e., no change in filing date), and large plans would file only on October 15 (i.e., later). (Return to the Compliance Alert.)