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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
The Pension Benefit Guaranty Corporation (PBGC) has issued final regulations, effective January 16, 2008, which amend the existing rules on premiums payable to the PBGC. The regulations implement changes to the law made by the Deficit Reduction Act of 2005 (DRA; P.L. 109–171) regarding plan years beginning, and terminations occurring, after 2005; and made by the Pension Protection Act of 2006 (PPA; P.L. 109–280) regarding plan years beginning after 2006. The regulations reflect changes to the per-participant flat premium rate, with a provision for future inflation-adjustments; the creation of a cap on variable rate premiums for certain small employers; and the creation of a new termination premium in the case of certain distress and involuntary plan terminations.
For plan years beginning in 2006, the flat-rate premium increased from $19 to $30 for single-employer plans, and from $2.60 to $8 for multiemployer plans, for each individual who is a participant in the plan during the applicable plan year, subject to future inflation adjustments. The PBGC regulations measure the participant count as of the premium snapshot date; generally, the last day of the plan year preceding the premium payment year. The regulations also explain that the future inflation adjustments to the fl at-rate premiums will be based on changes in the national average wage index as defined in Sec. 209(k)(1) of the Social Security Act, with a two-year lag.
The variable-rate premium cap of ERISA §4006(a) (3)(H)(i) , which is $5 multiplied by the number of participants in the plan as of the close of the preceding plan year, applies to employers with 25 or fewer employees. Just as with the rule for fl at-rate premiums, the PBGC regulations measure the participant count as of the premium snapshot date; generally, the last day of the plan year preceding the premium payment year.
In the view of the PBGC, the applicability of the new cap does not necessarily depend on the size of a single employer, but rather depends on the size of a plan’s controlled group. The applicability of the cap must be determined plan by plan, not employer by employer, according to the PBGC.
In order to prevent an employer from qualifying for the cap by artificially lowering its employee count through the use of sophisticated business structuring devices, the regs provide that the employee count is to be determined without regard to Code Sec. 410(b), which might be considered to exclude from the count collective bargaining employees, employees not meeting a plan’s age and service requirements, and employees in separate lines of business.
The new termination premium applies only to single-employer plans where certain distress and involuntary terminations occur, and then only for three years. Other changes to the law restrict the premium to plans terminated after December 31, 2005 and before December 31, 2010. The termination premium is also not imposed on plans terminated during a Chapter 11 bankruptcy proceeding initiated before October 18, 2005, except for “eligible plans” (generally, plans of commercial airlines). In applying the time limitations, the PBGC regulations will use the termination date under ERISA §4048 to determine when the plan is terminated.
The PBGC interprets new ERISA §4006(a)(7)(A) as applying the termination premium in any distress termination case where at least one contributing sponsor or controlled group member meets the distress test in either clause (ii) or (iii) of ERISA §4041(c)(2)(B) (i.e., is not liquidating).
The responsibility for paying PBGC premiums falls to the “designated payor” of the plan, which, in the case of a single-employer plan, is the sponsor or plan administrator. The PBGC regs will identify the designated payor as of the day before the termination date under ERISA §4048 . The PBGC will use the same date when determining the number of participants in the plan immediately before the termination date, which is used in computing the termination premium.
The termination premium is payable each year for three years and due within 30 days after the beginning of each of three applicable 12-month periods. The PBGC’s interpretation of the law is that Congress’s intent was to defer the due date for the termination premium until the persons liable to pay it were not in bankruptcy proceedings. Accordingly, where the special bankruptcy rule for due dates applies, it is necessary to identify every contributing sponsor and controlled group member that was involved in bankruptcy reorganization proceedings on the termination date and determine the date when each one left bankruptcy. The first applicable 12- month period for the termination will then begin with the calendar month that next begins following the last such date.
When a court action or agreement sets the termination in the past, the statutory due date for the termination premium may have already passed. In such a situation, the PBGC will consider the first applicable 12-month period to begin immediately after the month in which the termination date is established.
Under new ERISA §4006(a)(7), the termination premium is $1,250 per participant per year for three years. The PPA increases this rate to $2,500, with some exceptions, for commercial airlines electing funding relief for a frozen plan if the plan is terminated during the first five years of the funding relief period. The PBGC regs reconcile these factors by specifying that the amount of the termination premium for each applicable 12- month period is the premium rate (generally $1,250) times the number of participants, determined as of the day before the termination date, and explains the circumstances under which the rate is increased to $2,500.
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