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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 proposed amendments to its regulations on premium rates and the payment of premiums to implement certain provisions of the Deficit Reduction Act of 2005 (DRA; P.L. 109-171) and the Pension Protection Act of 2006 (PPA; P.L. 109-280) that are effective beginning in 2006 or 2007. The provisions that would be implemented by the proposed regulations change the PBGC's flat premium rate, cap the variable-rate premium in some cases, and create a new "termination premium" that is payable in connection with certain distress and involuntary plan terminations. Comments on the proposed regulations must be submitted on or before April 23, 2007.
The Deficit Reduction Act amended ERISA §4006 to change the per-participant flat premium rate for plan years beginning in 2006 from $19 to $30 for single-employer plans and from $2.60 to $8 for multiemployer plans and provided for inflation adjustments to the flat rates for future years. In addition, DRA 2005 created a new termination premium that is payable for three years following certain distress and involuntary plan terminations that occur after 2005. The Pension Protection Act made changes to the termination premium rules of DRA 2005, including the imposition of a cap on the variable-rate premium for plans of certain small employers beginning in 2007.
The proposed regulations would amend the PBGC's regulations on Premium Rates (29 CFR Part 4006) and Payment of Premiums (29 CFR Part 4007) to conform to these requirements of DRA 2005 and PPA 2006 and to clarify how the requirements apply. PPA 2006 also made other changes affecting PBGC premiums that are not addressed in the proposed regulations.
Under the PPA, a cap on the variable rate premium applies to employers who have "25 or fewer employees on the first day of the plan year." The proposed regulations would define "employee" for this purpose by reference to Code Sec. 410(b)(1), which deals with the minimum coverage requirements for qualified plans and requires that employees be counted to evaluate the breadth of coverage of a plan. For this purpose, certain individuals may be counted as employees although they might not be considered common law employees of the employer, such as, for example, affiliated service group employees or leased employees. The PBGC considers this approach appropriate to prevent an employer from qualifying for the cap by artificially lowering its employee count through the use of sophisticated business structuring devices.
The small plan variable rate premium amount is capped at "$5 multiplied by the number of participants in the plan as of the close of the preceding plan year." The PBGC interprets this to mean that the participant count is to be taken as of the premium snapshot date described in the premium rates regulation and the PBGC's premium instructions (generally the last day of the plan year preceding the premium payment year). The participant count is the same as the count used as a multiplier under ERISA §4006(a)(3)(A)(i) for purposes of both the flat- and variable-rate premiums. Thus, an eligible plan's total variable-rate premium is capped at an amount equal to $5 multiplied by the square of the participant count.
The PPA created a special "termination premium" that applies only where certain distress and involuntary terminations occur (generally, $1,250 per participant per year for three years). The proposed regulations would add a new section 4006.7, providing that the amount of the termination premium with respect to each applicable 12-month period is the premium rate (generally $1,250) multiplied by the number of participants, determined as of the day before the termination date, with a cross-reference from Sec. 4006.3 (where the fl at and variable premium rates are set forth). In addition, a new section 4007.13 would be added to the premium payment regulation that would contain provisions specific to the termination premium, including when the termination premium applies, the premium due dates, and what persons are liable for the termination premium.
For more information on this and related topics, consult the CCH Pension Plan Guide.
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