Appendix to Part 4007 - Policy Guidelines On Premium Penalties
29:9.1.5.14.6.0.20.14.5 :
Appendix to Part 4007 - Policy Guidelines On Premium Penalties Sec.
General Provisions 1 What is the purpose of this Appendix? 2 What
defined terms are used in this Appendix? 3 What is the purpose of a
premium penalty? 4 What information is in this Appendix and how is
it organized? Premium Penalty Assessment [Reserved] Waiver
Standards 21 What are the standards for waiving a premium penalty?
22 What is “reasonable cause”? 23 What kinds of facts does PBGC
consider in determining whether there is reasonable cause for a
failure to pay a premium? 24 What are some situations that might
justify a “reasonable cause” waiver? 25 What are some situations
that might justify a partial “reasonable cause” waiver? Procedures
[Reserved] General Provisions
1 What is the purpose of this
Appendix?
This appendix sets forth principles and guidelines that we
intend to follow in assessing, reviewing, and waiving premium
penalties. However, this is only general policy guidance. Our
action in each case is guided by the facts and circumstances of the
case.
2 What defined terms are used in this Appendix?
The following terms are defined in part 4001 of this chapter:
contributing sponsor, ERISA, PBGC, person, plan, and plan
administrator. In addition, in this appendix:
(a) Premium penalty means a penalty under ERISA section
4007 and under this part for failing to pay a premium in full and
on time.
(b) Waiver means reduction or elimination of a premium
penalty that is being or has been assessed.
(c) We means PBGC.
(d) You means, according to the context, -
(1) A plan administrator, contributing sponsor, or other person,
if -
(i) The person's action or inaction may be the basis for a
premium penalty assessment,
(ii) The person may be required to pay the premium penalty,
or
(iii) The person is requesting review of the premium penalty;
or
(2) An employee or agent of, or advisor to, any of these
persons.
3 What is the purpose of a premium penalty?
The basic purpose of a premium penalty is to encourage you to
pay premiums in full and on time and to voluntarily self-correct
any failure to do so.
4 What information is in this Appendix and how is it
organized?
This Appendix has four divisions:
(a) General provisions. The General Provisions division
(§§ 1-4) tells you the purpose and organization of the Appendix,
the purpose of a premium penalty, and the definitions of terms used
in the Appendix.
(b) Premium penalty assessment. The Premium Penalty
Assessment division is reserved.
(c) Waiver standards. The Waiver Standards division (§§
21-25) explains the principles that PBGC follows in waiving premium
penalties.
(1) Reasonable cause. We waive premium penalties for
reasonable cause, as explained in §§ 22-25.
(2) Other waivers. We also waive premium penalties in
some other circumstances, such as mistake of law, as explained in §
21.
(d) Procedures. The Procedures division is reserved.
Premium Penalty Assessment
[Reserved]
Waiver Standards
21 What are the standards for waiving a premium
penalty?
(a) Facts and circumstances. In deciding whether to waive
a premium penalty in whole or in part under paragraph (b), we
consider the facts and circumstances of each case.
(b) Waivers.
(1) Provisions of law. We waive all or part of a premium
penalty if a statute or regulation requires that we do so. For
example, ERISA section 4007(b) and § 4007.8 of this part provide
for a waiver in certain circumstances involving business hardship,
and § 4007.8 of this part also provides , and for a waiver of a
premium penalty that accrues after the date of a bill for a premium
underpayment if you pay the premium owed within 30 days after the
date of the bill, and for waivers in certain cases where you pay
not more than a week late or where you estimate the variable-rate
premium and then timely correct any underpayment.
(2) Reasonable cause. We waive a premium penalty if you
show reasonable cause for a failure to pay a premium in full and on
time. See §§ 22 through 25 for guidelines on “reasonable cause”
waivers. If there is reasonable cause for only part of a failure to
pay a premium, we waive the premium penalty only for that part.
(3) Legal errors. We may waive all or part of a premium
penalty if the failure to pay a premium in full and on time that
gives rise to the premium penalty results from certain kinds of
legal errors.
(i) Erroneous legal interpretation - disclosed. If a
failure to pay a premium in full and on time results from your
reliance on an erroneous interpretation of the law, we waive a
premium penalty that arises from the failure if you promptly and
adequately call our attention to the interpretation and the
relevant facts, and the erroneous interpretation is not frivolous.
If the interpretation affects a filing that you make with us, you
should call our attention to the interpretation in writing with the
filing. If you rely on the interpretation to justify not making a
filing with us, you should call our attention to the interpretation
in writing by the time prescribed for the filing not made.
(ii) Erroneous legal interpretation - undisclosed. If a
failure to pay a premium in full and on time results from your
reliance on an erroneous interpretation of the law, and you do not
promptly and adequately call our attention to the interpretation
and the relevant facts, we may nevertheless waive a premium penalty
if the weight of authority supporting the interpretation is
substantial in relation to the weight of opposing authority and it
is reasonable for you to rely on the interpretation.
(iii) Recent change in the law. We may waive all or part
of a premium penalty if the law changes shortly before the date a
premium payment is due and the premium payment that you make by the
due date would have been correct under the law as in effect before
the change. In determining whether and to what extent to grant a
waiver in a case of this kind, we consider such factors as the
length of time between the change in the law and the premium due
date, the nature and timing of any publicity given to the change in
the law, the complexity of the legal issues, and your general
familiarity with those issues.
(4) Pendency of PBGC procedures. We may waive all or a
part of a premium penalty that is attributable to the pendency of
PBGC review or other procedures. For example:
(i) If you request review of a premium penalty, and you make a
non-frivolous argument in your request for review that you were not
required to pay the premium or that you were, and still are, unable
to obtain the information needed to determine the premium, we may
waive the portion of the premium penalty that accrues during the
review process. If you make such a non-frivolous argument with
respect to a portion of the premium, we may apply this principle to
that portion.
(ii) We may waive all or a part of a premium penalty if we
believe that the pendency of PBGC procedures for identifying a
premium delinquency and notifying you of the delinquency
contributed to your failure to correct the delinquency more
promptly.
(5) Other circumstances. We may waive all or part of a
premium penalty in other circumstances if we determine that it is
appropriate to do so.
(c) Action or inaction of outside parties. In some cases
an accountant, actuary, lawyer, pension consultant, or other
individual or firm that is not part of your organization may assist
you in complying with PBGC requirements. If the outside
individual's or firm's action, inaction, or advice causes or
contributes to a failure to pay a premium in full and on time, we
apply our waiver authority as if the outside individual or firm
were part of your organization. In the case of an outside
individual who is part of a firm, we generally consider both the
individual and the firm to be part of your organization.
22 What is “reasonable cause”?
(a) General rule. In general, there is “reasonable cause”
for a failure to pay a premium in full and on time to the extent
that -
(1) The failure arises from circumstances beyond your control,
and
(2) You could not avoid the failure by the exercise of ordinary
business care and prudence.
(b) Overlooking legal requirements. Overlooking legal
requirements does not constitute reasonable cause.
(c) Action or inaction of outside parties. If an
accountant, actuary, lawyer, pension consultant, or other
individual or firm that is not part of your organization assists
you in complying with PBGC requirements, there is generally no
reasonable cause for a failure to pay a premium in full and on time
that arises from circumstances within the control of the outside
individual or firm, or could be avoided by the exercise of ordinary
business care and prudence by the outside individual or firm. The
fact that you exercised care and prudence in selecting and
monitoring the outside individual or firm is not a basis for a
reasonable cause waiver.
(d) Size of organization. If an organization or one or
more of its employees is responsible for taking action, the size of
the organization may affect what ordinary business care and
prudence would require. For example, ordinary business care and
prudence would typically require a larger organization to establish
more comprehensive backup procedures than a smaller organization
for dealing with situations such as computer failure, the loss of
important records, and the inability of an individual to carry out
assigned responsibilities. Thus, there may be reasonable cause for
a small organization's failure to pay a premium in full and on time
even though, if the organization were larger, the exercise of
ordinary business care and prudence would have avoided the
failure.
(e) Size of premium underpayment. In general, the larger
a premium, the more care and prudence you should use to make sure
that you pay it in full and on time. Thus, there may be reasonable
cause for a small underpayment even though, under the same
circumstances, we would conclude that a larger underpayment could
have been avoided by the exercise of ordinary business care and
prudence.
(f) Collection and enforcement. In determining whether
reasonable cause exists, we do not consider either -
(i) The likelihood or cost of collecting the premium penalty,
or
(ii) The costs and risks of enforcing the premium penalty by
litigation.
23 What kinds of facts does PBGC consider in determining whether
there is reasonable cause for a failure to pay a premium?
In determining the extent to which a failure to pay a premium in
full and on time arose from circumstances beyond your control and
the extent to which you could have avoided the failure by the
exercise of ordinary business care and prudence - and thus the
extent to which waiver of a premium penalty for reasonable cause is
appropriate - we consider facts such as the following:
(a) What event or circumstance caused the underpayment and when
the event happened or the circumstance arose. The dates you give
should clearly correspond with the underpayment upon which the
premium penalty is based.
(b) How that event or circumstance kept you from paying the
premium in full and on time. The explanation you give should relate
directly to the failure to pay a premium that is the subject of the
premium penalty.
(c) Whether you could have anticipated the event or
circumstance.
(d) How you responded to the event or circumstance, including
what steps you took, and how quickly you took them, to pay the
premium and how you conducted other business affairs. Knowing how
you responded to the event or circumstance may help us determine
what degree of business care and prudence you were capable of
exercising during that period and thus whether the failure to pay
the premium could or could not have been avoided by the exercise of
ordinary business care and prudence.
24 What are some situations that might justify a “reasonable
cause” waiver?
The following examples illustrate some of the reasons often
given for failures to pay premiums for which we may assess
penalties. The situation described in each example may constitute
reasonable cause, and each example lists factors we consider in
determining whether to grant a premium penalty waiver for
reasonable cause in a case of that kind.
(a) An individual with responsibility for taking action was
suddenly and unexpectedly absent or unable to act. We consider
such factors as the following: The nature of the event that caused
the individual's absence or inability to act, for example, the
resignation of the individual or the death or serious illness of
the individual or a member of the individual's immediate family;
the size of the organization and what kind of backup procedures it
had to cope with such events; how close the event was to the
deadline that was missed; how abrupt and unanticipated the event
was; how the individual's absence or inability to act prevented
compliance; how expensive it would have been to comply without the
absent individual; whether and how other business operations and
obligations were affected; how quickly and prudently a replacement
for the absent individual was selected or other arrangements for
compliance were made; and how quickly a replacement for the absent
individual took appropriate action.
(b) A fire or other casualty or natural disaster destroyed
relevant records or prevented compliance in some other way. We
consider such factors as the following: The nature of the event;
how close the event was to the deadline that was missed; how the
event caused the failure to pay the premium; whether other efforts
were made to get needed information; how expensive it would have
been to comply; and how you responded to the event.
(c) You reasonably relied on erroneous oral or written advice
given by a PBGC employee. We consider such factors as the
following: Whether there was a clear relationship between your
situation and the advice sought; whether you provided the PBGC
employee with adequate and accurate information; and whether the
surrounding circumstances should have led you to question the
correctness of the advice or information provided.
(d) You were unable to obtain information, including records
and calculations, needed to comply. We consider such factors as
the following: What information was needed; why the information was
unavailable; when and how you discovered that the information was
not available; what attempts you made to get the information or
reconstruct it through other means; and how much it would have cost
to comply.
25 What are some situations that might justify a partial
“reasonable cause” waiver?
(a) Assume that a fire destroyed the records needed to compute a
premium payment. If in the exercise of ordinary business care and
prudence it should take you one month to reconstruct the records
and pay the premium, but the payment was made two months late, it
might be appropriate to waive that part of the premium penalty
attributable to the first month the payment was late, but not the
part attributable to the second month.
(b) Assume that a plan administrator underpaid the plan's
flat-rate premium because of reasonable reliance on erroneous
advice from a PBGC employee, and also underpaid the plan's
variable-rate premium because the plan actuary used the wrong
interest rate. A PBGC audit revealed both errors. PBGC billed the
plan for a premium penalty of $5,000 - $1,000 for underpayment of
the flat-rate premium and $4,000 for underpayment of the
variable-rate premium. The plan administrator requested a waiver of
the premium penalty. While the erroneous PBGC advice constituted
reasonable cause for underpaying the flat-rate premium, there was
no showing of reasonable cause for the error in the variable-rate
premium. Therefore, we would waive only the part of the premium
penalty based on underpayment of the flat-rate portion of the
premium ($1,000).
Procedures
[Reserved]
[71 FR 66869, Nov. 17, 2006, as amended at 79 FR 13562, Mar. 11,
2014]