The Pension Benefit Guaranty Corporation (PBGC) has announced that it will be cutting the penalty for late premium payments in half for plan years that begin in 2016 or later. The PBGC issued the final rule on Sept. 23.
Nuts and Bolts
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 penalty levels.
The levels had been 1% per month (with a 50% cap) and 5% per month (capped at 100%). The former rate applies to “self-correction” — that is, when the premium underpayment is corrected before the PBGC provides notification that there is or may be an underpayment.
The new final rule cuts the rates and caps in half (to 0.5% with a 25% cap and 2.5% with a 50% cap, respectively) and eliminates the $25 floor.
And the news is even better for plans with good compliance histories that pay promptly after a PBGC underpayment notification — the new rule will slash the penalties for them by 80%, on top of the 50% cut.
The rule applies to both single-employer and multiemployer plans.
Effective Date
The final rule will be effective on Oct. 23, 2016, 30 days after it is published in the Federal Register.
Nuts and Bolts
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 penalty levels.
The levels had been 1% per month (with a 50% cap) and 5% per month (capped at 100%). The former rate applies to “self-correction” — that is, when the premium underpayment is corrected before the PBGC provides notification that there is or may be an underpayment.
The new final rule cuts the rates and caps in half (to 0.5% with a 25% cap and 2.5% with a 50% cap, respectively) and eliminates the $25 floor.
And the news is even better for plans with good compliance histories that pay promptly after a PBGC underpayment notification — the new rule will slash the penalties for them by 80%, on top of the 50% cut.
The rule applies to both single-employer and multiemployer plans.
Effective Date
The final rule will be effective on Oct. 23, 2016, 30 days after it is published in the Federal Register.
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