The Pension Benefit Guaranty Corp. is proposing changes that will allow large pension plan sponsors to reduce the number of premium payments they make in half
Currently, large-plan sponsors — those with at least 500 participants — pay insurance premiums twice a year. The new approach would allow them to pay their premium just once a year, 9 ½ months after the start of a plan year.
These changes would take effect in 2014.
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Premium due dates now vary according to plan size: Large plans pay what is known as their flat-rate premiums early in the year and their variable-rate premiums later on; mid-size plans pay both flat and variable rate premiums at that same late-year date; and small plans pay flat and variable rates the following year.
The current flat-rate premium is $42 per plan participant. Plan sponsors pay the variable premium only if the plan is underfunded. That premium amounts to $9 per $1,000 of plan underfunding.
The PBGC wants to simplify the rules so that all premiums for plans of all sizes come due on the same day in the premium payment year: the historical variable-rate premium due date.
Also, the PBCG has proposed a sliding scale designed to encourage self-correction. Late premium penalties would be 1 percent for self-correctors, 5 percent for those who don't self-correct.
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