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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 that provide for a limited waiver of the penalty for failure to pay premiums to allow large and mid-size plans time to “true-up” estimated premium payment liabilities. Interest during the “true-up” period, however, is not suspended.
Generally, the final regulations are nearly the same as proposed rules issued in May 2007. In the final rules, the PBGC has clarified the definition of “new plan,” eliminated unnecessary verbiage from one of the due date rules, clarified the relationship between the funding interest rate transition rule and the premium funding target, extended the small-plan deadline for making certain elections, clarified how participants are counted for purposes of determining plan size, provided illustrations of the provision on vesting, and clarified the provision dealing with plans to which special funding rules apply.
The Pension Protection Act of 2006 (PPA; P.L. 109280) changed the funding rules in Title I of ERISA and in the Code on which the variable rate premium (VRP) is based. Section 401(a) of the PPA amended the variable rate premium provisions of ERISA §4006 to conform to changes in the funding rules and to eliminate the full-funding limit exemption from the variable rate premium. The rules revise the regulations under ERISA §4007 (Payment of Premiums) to alter due dates of variable rate premiums (in some cases) to better coincide with the new definitions of “unfunded vested benefits” (UVBs) and “premium funding target.” Overall, the regulations are streamlined to provide single applicable valuation dates or determination dates for given calculations.
The PBGC’s current due date structure for flat- and variable-rate premiums is based on two categories of plans: those that owed premiums for 500 or more participants for the plan year preceding the premium payment year (“large” plans) and those that did not (“other” plans). The new structure is based on three categories. The large-plan category remains the same. A new “mid-size” category consists of plans that owed premiums for 100 or more, but fewer than 500, participants for the plan year preceding the premium payment year. A category of “small” plans includes all other plans. The participant count for this purpose will continue to be the prior year’s count. The final rules provide uniform language for determining both single- and multi-employer plans’ participant counts for determining due dates, eliminating a slight language difference in the existing regulations.
The due date applicable to “small plans” is extended beyond the due dates for mid-size and large plans to more closely mirror the availability of plan data. The rules provide for one filing deadline for both the flat-rate premium and the variable-rate premium for small plans. All premiums for small plans will be due on the last day of the 16th full calendar month that begins on or after the first day of the premium payment year. For calendar plans, this would be April 30 of the year following the premium payment year.
For mid-size plans, the regulations retain the current premium due date—the 15th day of the tenth full calendar month that begins on or after the first day of the premium payment year (October 15th for calendar-year plans)—for both flat- and variable-rate premiums. With rare exceptions, these plans will perform valuations as of the first day of the premium payment year, and in most cases should be able to calculate UVBs by the current due date. The PBGC recognizes, however, that circumstances might make a final UVB determination by the due date difficult or impossible. Thus, the regulations permit VRP filings to be made based on estimated liabilities and provides a penalty-free “true-up” period to correct a VRP based on an erroneous estimate.
Under the “true-up” provision, the VRP penalty will be waived for a period of time after the VRP due date if, by the VRP due date (April 30 of the following year for calendar-year plans), the plan administrator submits an estimate of the VRP that meets certain requirements and pays the estimated amount. The waiver of the penalty would cover the period from the VRP due date until the small-plan due date or, if earlier, the filing of the final VRP.
Interest would not be suspended, however, if the VRP estimate fell short of the correct amount. In that case, interest would accrue on the amount of the underpayment from the date when the payment was due to the date the shortfall was paid.
The VRP estimate is required to be based on (1) a final determination of the market value of the plan’s assets and (2) a reasonable estimate of the plan’s premium funding target for the premium payment year that takes into account the most current data available to the plan’s enrolled actuary and is determined in accordance with generally accepted actuarial principles and practices. The estimate of the premium funding target must be certified by the enrolled actuary and, like other premium information filed with the PBGC, is subject to audit.
Since this penalty relief is based on the plan’s reporting a final figure for the value of assets by the VRP due date, the relief is lost if there is a mistake in the assets figure so reported, whether the mistaken figure is lower or higher than the true figure. The PBGC will consider a request for an appropriate penalty waiver in such a situation and in acting on the request will consider such facts and circumstances as the reason for the mistake, whether assets were over- or understated, and, if assets were overstated, the extent of the overstatement.
Because the provision of a period for “truing up” the VRP without penalty, after a filing based on an estimate, is not an extension of the VRP due date, the regulations do not provide additional time to make an alternative premium funding target election.
The due date and penalty structure for “large” plans is the same as that discussed above for “mid-size” plans except that the early due date for the fl at-rate premium under the existing regulation is retained, along with the related “safe harbor” penalty rules. However, there is a change in the “safe harbor” rules to accommodate the unlikely event that a plan might be in the small plan category for one year but in the large-plan category for the next year.
Under the new rules, a plan that is small for one year and large for the next year will not have to report its participant count for the first year until after the flat-rate due date for the second year. Thus, to get the benefit of these special safe harbor rules, a plan in such circumstances would have to make its final filing for the first year two months before it was due. To alleviate this problem, the rule provides safe harbor relief for any plan whose fl at-rate due date for the plan year preceding the premium payment year is later than the large-plan fl at-rate due date for the premium payment year.
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