The ERISA Industry Committee supports new regulations proposed by the Pension Benefit Guaranty Corporation that would tinker with premium payments, premium rates and reduce regulatory burdens, but is against a provision that would apply loading factors to premiums of at-risk plans.
In a letter to the PBGC, ERIC said it appreciated the efforts of the PBGC and its response to the concerns of plan sponsors. It supports the proposal to change the premium due date for large plans and the proposal to lower the self-correction penalty cap. It does believe that the PBGC should not apply loading factors to premiums for plans that are at-risk.
ERIC said in its letter that the Employee Retirement Income Security Act contains separate provisions relating to the funding of pension plans and PBGC's premiums. ERISA 303(d) provides funding rules for plans that are not at-risk; section 303(i)(1) requires a plan that has been in at-risk status in two of the past four plan years to add a loading factor when calculating its funding target; and ERISA 4006 calculates the PBGC annual premium rate for single-employer plans based on an amount for each participant in the plan plus an additional premium that is equal to a dollar amount for each $1,000 of unfunded vested benefits divided by the number of participants.
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ERIC believes the PBGC included the loading factor contained in ERISA 303(i)(1) when calculating the premium amount for plans in at-risk status.
"Reading the loading factors from the funding rules into the premium calculation would blend these provisions together in a manner that is inconsistent with both the language of ERISA and the differing purposes of the two provisions. Participants in at-risk plans would be better served if the plan sponsors were able to use their assets to increase the funding of their plans rather than for higher premiums," ERIC said in its letter.
Regarding the timing of premium payments, ERIC said that currently, large plans must pay the flat-rate premium early in the year and the variable-rate premium later in the year. The proposed regulations simplify the rules so that the annual premiums for plans of all sizes would be due on the 15th day of the 10th calendar month after the premiums payment year.
"Establishing a uniform due date for premiums would significantly benefit companies and their plans," ERIC said in its letter. The uniform date would eliminate the need for the complex penalty safe harbor rules, so companies would no longer need to expend valuable resources to determine whether they satisfy the penalty safe harbor rules.
It also would reduce the time and money that large companies have to spend on filings for their plans and would allow plan consultants to perform all premium and Form 5500 filings at the same time.
As far as the self-correction penalty cap is concerned, PBGC currently assesses late premium payment penalties of 1 percent per month for filers that self-correct and 5 percent per month for those that do not. These penalties are capped at 100 percent of the underpayment amount. The proposed regulations provide that the cap for late premium payment penalties that are self-corrected would be reduced from 100 percent to 50 percent.
"We support the PBGC's efforts to provide greater incentives for companies to identify and self-correct underpayments — both recent underpayments and those that have existed for some time," ERIC said.
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