Tag Archives: PBGC

Regulatory roundup

More retirement-related regulatory news for plan sponsors, including links to detailed information.

PBGC posts 2017 premium rates
The Pension Benefit Guaranty Corporation (PBGC) has updated its “Premium Rates” webpage to show premium rates for 2017.

Flat-rate premiums
The per-participant flat premium rate for plan years beginning in 2017 is $69 for single-employer plans (up from a 2016 rate of $64) and $28 for multiemployer plans (up from a 2016 rate of $27).

The increase in the single-employer rate was provided in The Bipartisan Budget Act of 2015. The increase in the multiemployer rate is the result of indexing…

Variable-rate premiums (single-employer plans only)
For plan years beginning in 2017, the variable-rate premium (VRP) for single-employer plans is $34 per $1,000 of unfunded vested benefits (UVBs), up from a 2016 rate of $30. This $4 increase reflects a $3 increase provided in The Bipartisan Budget Act of 2015 plus a $1 increase due to indexing.

For 2017, the VRP is capped at $517 times the number of participants (up from a 2016 cap of $500). Plans sponsored by small employers (generally fewer than 25 employees) may be subject to a lower cap.

For more information, click here.

IRS issues directive concerning EP determinations on pension equity plans
The Internal Revenue Service (IRS) release a new memorandum (TE/GE-07-1016-0026) that supersedes memorandum #TEGE-07-1114-0028, dated October 9, 2014. The new memo provides direction to EP (R&A) employees on the application of the accrued benefit rules under section 411(b)(1)(G) of the Internal Revenue Code (IRC) to pending requests for determination letters by PEPs.

To read the entire memo, click here.

IRS announces retirement plans can make loans, hardship distributions to victims of Hurricane Matthew
The IRS announced that 401(k) and similar employer-sponsored retirement plans can make loans and hardship distributions to victims of Hurricane Matthew and members of their families.

Retirement plans can provide this relief to employees and certain members of their families who live or work in disaster area localities affected by Hurricane Matthew and designated for individual assistance by the Federal Emergency Management Agency (FEMA). Currently, parts of North Carolina, South Carolina, Georgia and Florida qualify for individual assistance. For a complete list of eligible counties, visit fema.gov. To qualify for this relief, hardship withdrawals must be made by March 15, 2017.

The IRS is also relaxing procedural and administrative rules that normally apply to retirement plan loans and hardship distributions. As a result, eligible retirement plan participants will be able to access their money more quickly with a minimum of red tape. In addition, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply.

For more information, click here.

Proposed Form 5500 revisions seek new retirement plan details

ERISA-covered retirement plan sponsors would be required to provide significantly detailed information about their plans when filing the Form 5500 (Annual Return/Report of Employee Benefit Plan), under a proposed rule from the Department of Labor (DoL), along with a separate proposed rule issued jointly by the DoL, Treasury/IRS, and the Pension Benefit Guaranty Corporation. (For simplicity, this Client Action Bulletin refers to both sets of rules as the DoL’s proposed rule.)

The DoL’s proposal, which affects only ERISA-covered plans, would amend the reporting and disclosure requirements applicable to all employee benefits, but this CAB focuses on the key revisions applicable to defined contribution (DC) and defined benefit (DB) retirement plans, including certain small plans (with fewer than 100 participants) that newly would be required to file certain information. (See CAB 16-5 for the proposed rule’s effects on group health plans.)

The DoL seeks comments on the proposed rule by Dec. 5, 2016; if adopted, the DoL anticipates applying the new requirements to plan years starting in 2019 (i.e., forms filed in 2020). The IRS, however, proposes that retirement plan sponsors answer certain compliance-related questions about the plans for the 2016 plan year when filing the Form 5500 in 2017.

Regulatory roundup

More retirement-related regulatory news for plan sponsors, including links to detailed information.

Final rule lowering rates of penalty charged for late payment of pension premiums
The Pension Benefit Guaranty Corporation (PBGC) is lowering the rates of penalty charged for late payment of premiums by all pension plans, and providing a waiver of most of the penalty for plans with a demonstrated commitment to premium compliance.

The penalty for late payment of a premium is a percentage of the amount paid late multiplied by the number of full or partial months the amount is late, subject to a floor of $25 (or the amount of premium paid late, if less). There are two levels of penalty, which heretofore have been 1% per month (with a 50% cap) and 5% per month (capped at 100%). The lower rate applies to “self-correction”—that is, where the premium underpayment is corrected before PBGC gives notice that there is or may be an underpayment.

This final rule cuts the rates and caps in half (i.e., to 0.5% with a 25% cap and 2.5% with a 50% cap, respectively) and eliminates the floor. The rulemaking also creates a new penalty waiver that applies to underpayments by plans with good compliance histories if corrected promptly after notice from PBGC. PBGC will waive 80% of the penalty assessed for such a plan.

For more information, click here.

Notice extends temporary nondiscrimination relief for closed defined benefit plans
The Internal Revenue Service (IRS) released Notice 2016-57, extending the temporary nondiscrimination relief for closed defined benefit plans provided in Notice 2014-5 and 2014-2, through 2017.

The temporary nondiscrimination relief for closed plans that is provided in Notice 2014-5 is hereby extended to plan years beginning before 2018 if the conditions of Notice 2014-5 are satisfied. This extension is provided in anticipation of the issuance of final amendments to the § 401(a)(4) regulations. Those regulations are expected to be effective for plan years beginning on or after January 1, 2018, and are expected to permit plan sponsors to apply the provisions of the regulations that apply specifically to closed plans for certain earlier plan years.

To read Notice 2016-57, click here.

To read and review Notice 2014-5, click here.

DoL extends deadline for public comments on Form 5500 modernization proposal
The U.S. Department of Labor (DoL) announced a two-month extension of the comment period on the Form 5500 modernization proposals. A range of stakeholder groups asked for an extension of time to submit comments, given the scope and significance of the proposed forms revisions and regulatory amendments. The DoL, IRS, and PBGC decided to extend the public comment period on the proposed forms revisions and regulatory amendments from the original October 4, 2016, deadline to the new December 5, 2016, deadline.

For more information, click here.

Proposal to expand missing participant program
The PBGC administers a program to hold retirement benefits for missing participants and beneficiaries in terminated retirement plans and to help those participants and beneficiaries find and receive the benefits held for them. The program is currently limited to single-employer defined benefit pension plans covered by the pension insurance system under Title IV of ERISA.

The PBGC proposes to make changes to its existing program and, as authorized by the Pension Protection Act of 2006, to establish similar programs for multiemployer plans covered by Title IV, certain defined benefit plans that are not covered by Title IV, and most defined contribution plans. The proposed rule is needed to implement amendments to section 4050 of ERISA.

To read the proposed rule, click here.

For an overview of the proposed missing participants program for defined contribution and other terminated plans, click here.

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Regulatory roundup

More retirement-related regulatory news for plan sponsors, including links to detailed information.

New process for DB plan determination letter applications
The Internal Revenue Service (IRS) published a post on its website highlighting the new process for defined benefit plan determination letter applications.

To read the entire post, click here.

IRS releases draft Form 5300
The IRS issued a draft of the revision for Form 5300, Application for Determination for Employee Benefit Plan. Form 5300 is used to request a favorable determination letter (DL) from the IRS on the qualified status of these plans and the exempt status of any related trust.

Form 5300 has undergone major revisions in format and information required. Many of the revisions reflect the changes affecting individually designed plans described in Announcement 2015-19, and Revenue Procedure 2016-37. The revised form significantly simplifies the information that plan sponsors must provide and is expected to reduce the taxpayer burden in filling out the form.

The IRS expects the final version of Form 5300 to be available by December 2016. If you wish, you can submit comments about the draft Form 5300.

Federal agencies release proposed revisions to improve Form 5500
The Employee Benefits Security Administration (EBSA) of the Department of Labor (DOL), the IRS, and the Pension Benefit Guaranty Corporation (PBGC) are seeking public comments on proposed revisions to modernize and improve the Form 5500 Annual Return/Report filed by private-sector employee benefit plans. The EBSA also published a related notice of proposed changes to its annual reporting regulations under Title I of ERISA.

Form 5500 is the primary source of information about the operations, funding, and investments of private-sector, employment-based pension and welfare benefit plans in the United States.

To read the proposed rule, click here.


Regulatory roundup

More retirement-related regulatory news for plan sponsors, including links to detailed information.

PBGC issues interim final rule on adjustment of civil penalties
The Pension Benefit Guaranty Corporation (PBGC) is amending its regulations to adjust the penalties provided for in sections 4071 and 4302 of ERISA. This interim final rule adjusts the maximum civil penalties that PBGC may assess. The new maximum amounts are $2,063 for section 4071 penalties and $275 for section 4302 penalties.

The amendments are effective August 1, 2016. The increases in the civil monetary penalties under sections 4071 and 4302 provided for in this rule apply on and after August 1, 2016.

To read the entire rule, click here.

FAF releases updated print editions of FASB and GASB accounting standards codifications
The Financial Accounting Foundation (FAF) has released updated print editions of the FASB Accounting Standards Codification, from the Financial Accounting Standards Board (FASB), and the Codification of Governmental Accounting and Financial Reporting Standards, from the Governmental Accounting Standards Board (GASB).

The FASB codification is the single, authoritative source of GAAP for public and private companies and not-for-profit organizations. For more information, click here.

The GASB codification is the single, authoritative source of GAAP for state and local governments. For more information, click here.

The Multiemployer Pension Reform Act and the Central States Pension Plan controversy: What is at stake?

Connor_TimThe Multiemployer Pension Reform Act of 2014 (MPRA) allows certain multiemployer plans that are projected to become insolvent to reduce benefits indefinitely. Ordinarily, when a multiemployer plan goes insolvent, it receives annual financial assistance from the Pension Benefit Guaranty Corporation (PBGC) to support payment of retiree benefits at maximum guaranteed levels. However, the PBGC program itself is in dire straits, recently projecting its own multiemployer program insolvency by 2025. At that point, the PBGC is essentially predicting it will not have enough money to provide the support needed to maintain retiree benefit levels. This means that retiree benefits in an insolvent plan could potentially be reduced below the PBGC-guaranteed levels because there wouldn’t be enough combined money available from the plan and the PBGC to support those levels.

The Central States, Southeast and Southwest Areas Pension Plan (Central States) reported that its own projected insolvency will occur in 2026 in its application to the U.S. Treasury Department in 2015 to implement MPRA suspensions. The plan has close to 400,000 total participants, roughly half of whom are retired. The MPRA cuts, some of which are as high as 70%, are actually designed to produce higher benefit amounts than would be paid if the plan actually went insolvent, although MPRA cuts would be effective July 1, 2016, instead of upon actual insolvency.

The Treasury is scheduled to approve or deny the Central States application by May 7, 2016. During the review, the Treasury has heard from participants and advocate groups that cuts were not designed in an equitable manner; steps were not properly taken by the plan to avoid the current situation; future projections are not based on reasonable assumptions; and, in general, the law is unjust and unfair to the participants involved. Ultimately, it would take Congressional action to address that last concern. In the present, the Treasury will have to review and decide if Central States followed the terms of MPRA in designing its solution to avoid insolvency. If the Treasury approves the application, it will go to a vote. However, even if the participants vote no, it may not matter because the Treasury is likely obligated by MPRA to override the vote and implement some form of suspensions anyway because Central States is likely deemed to be a “systemically important plan,” one which requires $1 billion or more of PBGC assistance.

For now, all eyes are on May 7, waiting to see how the Treasury proceeds. Multiemployer plan sponsors and participants will no doubt pay close attention and stay tuned to any whispers of potential success in attempts by various parties in repealing or changing MPRA in any material way, despite those attempts looking unlikely today. In the meantime, the task for other sponsors in keeping their plans healthy and adequately funded is more essential than ever, and needs to be continually executed with careful attention.

For more perspective, read Tim’s article “Central States Pension Plan and the Multiemployer Pension Reform Act.”