The Pension Benefit Guaranty Corporation (PBGC) announced on June 8, 2010, that it will provide relief to certain premium filers who used the alternative premium funding target (APFT) method to determine the variable-rate premium (VRP), but did not check the appropriate box on the comprehensive premium filing.
The APFT method, as described in PBGC regulations implementing provisions of the Pension Protection Act of 2006 that changed the way VRPs are determined, allows plans to calculate the VRP using a method that is simpler and less burdensome than the “standard” method currently prescribed by statute. For 2009, it was particularly advantageous to use the APFT method because related pension funding relief provided by the Internal Revenue Service may have eliminated or significantly reduced VRP liability under the APFT method. If a plan chooses to use the APFT method, it must do so for five years. PBGC’s regulations and premium filing instructions prescribe the manner and deadline for electing to use the APFT method. Prior to this recent announcement, the PBGC’s position was that the only way for a plan administrator to make an election to use the APFT method instead of the standard method was by checking box five on the comprehensive premium filing.
In response to numerous requests to reconsider its position, including a letter from U.S. Senate leadership, the PBGC announced a change in its stance. Specifically, as explained in a letter dated June 7, 2010, from the PBGC to U.S. Senate leadership, a plan that intended to elect to use the APFT method will be deemed to have made a valid election, which will be locked for five years, if the following conditions are met:
- The plan filed its comprehensive premium filing on time
- The plan used the APFT method to determine the VRP
- The “Alternative” box was checked in line 7d(1) of the comprehensive premium filing, where the actuary reports the method that was used to determine the VRP
- The plan administrator notified the PBGC in writing by a specified date (e.g., 30 days), stating that the plan intended to elect the APFT method
This conditional relief would be available to plans that otherwise would have been required to amend their filings and recalculate the VRP, and also to plans that have already amended their filings to use the standard method.
PBGC intends to issue a formal Technical Update setting forth the scope of the relief and the process for obtaining it. The PBGC also reminded plan administrators who made other errors (e.g., late election of the APFT method, invalid discount rates, etc.) to explain the surrounding facts and circumstances when responding to the initial PBGC determination letter instructing them to amend their filings. Such responses will be reviewed on a case-by-case basis.
If you are a plan administrator of a defined benefit plan, you should contact your legal counsel or actuary to determine if you are affected by this announcement.