On September 23, 2016, the Pension Benefit Guaranty Corporation (PBGC) published its final rule that reduces penalty rates for the late payment of PBGC premiums and waives most of the penalty for plans that demonstrate good compliance with premium requirements. The rule applies for plan years beginning after 2015. A copy of the final rule is at this link.

For background information and a discussion of the proposed rule issued on April 28, 2016, please read Cheiron's alert on the proposed rule at this link.

Action Needed Now: The sponsor of a plan with a premium payment year that begins on January 1, 2016, should pay the PBGC premium by October 17, 2016 to avoid any late penalty. For additional due dates click this link.

THE FINAL RULE

PBGC adopted the penalty relief provisions set forth in the proposed rule but made minor clarifications to the text describing the 80-percent waiver.

Premium Penalty Relief Under The Final Rule: Under the final rule, late payment penalties are reduced by 50%. In addition, for plans with good compliance histories that pay promptly after a PBGC underpayment notification, penalties are reduced even more (an 80% reduction, on top of the 50% reduction). The rule applies to both single-employer and multiemployer plans.

The following chart illustrates the new penalty rates under the final rule:

CHEIRON OBSERVATIONS

This penalty relief is good news for plans and plan sponsors. With the increase in PBGC premiums over the past few years, the potential penalties could be substantial. The reduced penalty should still encourage compliance with timely payment of premiums but lessen the absolute impact of mistakes. This relief does not change the requirement to pay interest on late premium payments.

Cheiron pension consultants can assist you with your application for good compliance relief.

Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Accordingly, we do not provide legal services or tax advice.