New PBGC Voluntary Correction Program
Peter S. Alwardt and Alan Jacobs
AUGUST 2005 - The
Pension Benefit Guaranty Corporation (PBGC) has created
a Voluntary Correction Program (VCP) that allows plan administrators
to correct their failure to comply with the PBGC’s
participant notice requirements. The VCP, which was announced
at the same time as the PBGC’s new participant notice
penalty policy, generally covers participant notices for
the 2002 and 2003 plan years.
section 4011 of the Employee Retirement Income Security
Act (ERISA), certain underfunded plans are required to issue
a notice to participants of the plan’s funding status
and limits on the PBGC’s benefit guarantee. Generally,
a plan sponsor must issue a participant notice for a plan
year if a variable rate premium is payable for that plan
year, unless the plan meets the deficit reduction contribution
exception test for that plan year or the prior plan year.
Job Creation and Worker Assistance Act of 2002 (JCWAA) made
a temporary change to the premium interest rate that did
not apply for the purposes of determining whether a participant
notice was required. Thus, a plan administrator may be required
to provide a participant notice for 2002 or 2003 even though
a variable-rate premium was not paid for that plan year.
Pension Plan Funding Equity Act of 2004 (PPFEA) changed
the rules for determining the required interest rate for
premium payment years, which affects the 2004 and 2005 plan
years. Under the PPFEA, plan administrators may use the
premium interest rate for the purposes of determining whether
a participant notice is required. Thus, a participant notice
may be required for the 2004 or 2005 plan year only if a
variable-rate premium is payable for that plan year.
notices for a plan year are due within two months after
the due date (including extensions) for the plan’s
Form 5500 for the prior plan year. This due date is the
same as the plan’s summary annual report, so both
documents may be issued together.
administrators are required to certify in the PBGC’s
premium filing one of the following: a participant notice
was not required, a participant notice was issued, or an
explanation is attached (e.g., that the participant notice
was issued late).
notices have been required for large plans (generally more
than 100 participants) since the 1995 plan year, and for
small plans (generally 100 or fewer participants) since
1996. Initially, only a few plans had to provide participant
notices, because most plans did not have funding problems.
In the last several years, more plans have become underfunded
because of low interest rates and poor investment returns,
requiring more plan sponsors to issue participant notices.
surveys have found rising rates of noncompliance with the
participant notice requirements. The PBGC attributes the
noncompliance in part to lack of awareness or understanding
of the rules. The VCP is designed to be a transition to
the new enforcement program.
VCP is intended to encourage administrators to correct participant
notice compliance failures and to facilitate future compliance.
Under the program, the PBGC will not assess penalties for
failure to provide a 2002 or 2003 participant notice if
the failure is corrected in accordance with the program.
The PBGC will not pursue pre-2002 participant notice failures
unless there is a failure in 2002 or 2003 that is covered
under the VCP, but that failure does not qualify for penalty
relief under the program.
VCP covers any participant notice for a 2002 or 2003 plan
year that was due before May 7, 2004, and that is not subject
to a PBGC audit as of May 7, 2004. The date a participant
notice is due is determined without regard to any deadline
extension resulting from a disaster relief notice.
PBGC will not assess a penalty for any notice that is covered
under the VCP if the plan administrator issues a corrective
notice and notifies the PBGC that it is participating in
the VCP. A model VCP notice is included in the guidance.
There is a special rule if the only failure is a late issuance
that was corrected before May 7, 2004. The corrective notices
must comply with the VCP requirements.
requirements for the corrective notice allow a plan sponsor
to issue one notice that serves as a corrective notice for
the 2002 or 2003 plan years and a participant notice for
the 2004 plan year. A 2004 notice must include the funded
current liability percentage for the 2003 or 2004 plan year.
Under the VCP, whether the plan administrator is correcting
a failure for 2002, 2003, or both, the corrective notice
must include the funded current liability percentage for
the 2002 and 2003 plan years, and may also include it for
2004. The VCP corrective notice must contain the information
required in a 2004 participant notice. The plan administrator
is not required to inform participants if it had a participant
notice failure for the 2002 or 2003 plan year, or if it
is participating in the VCP, but may choose to include that
information in the corrective notice.
the VCP corrective notice is tied to the requirements for
the 2004 participant notice, rather than the requirements
for the 2002 or 2003 notices, the corrective notice must
be issued only to those individuals entitled to receive
the 2004 participant notice.
plan administrator must notify the PBGC of its participation
in the VCP by the 30th day after the due date for issuing
the corrective notice. The notification must include a copy
of the corrective notice and a contact person’s name
and telephone number. The notification can be made by mail,
e-mail, delivery service, or by hand. In addition, beginning
with the 2005 PBGC premium forms, plan administrators must
indicate that the plan is participating in the VCP. Notification
to the PBGC of participation in the VCP can amend any erroneous
certification that may have been submitted on the plan’s
PBGC premium filing, as long as the correction notice meets
all of the program’s requirements.
sponsors that have used the JCWAA interest rate to determine
whether a participant notice was required should consider
rerunning their calculations using the correct interest
rate. If a participant notice should have been issued for
2002 or 2003, the plan administrator should consider entering
the VCP, given the PBGC’s pending penalty policy.
The PBGC has indicated that plans that participate in the
VCP only as a precaution do not gain extra protection from
possible audits for compliance with the participant notice,
PBGC premium, or other PBGC requirements.
an alternative, some plan sponsors will issue the notice
automatically as part of their annual plan communication
to participants to avoid the possibility of noncompliance.
S. Alwardt is the president of Eisner Retirement
Solutions LLC, and Alan Jacobs is the chief
actuary of Eisner Actuarial Services LLC, New York, N.Y.
Note: For more information on the PBGC penalty policy,
please see “PBGC Proposes Changes to Participant Notice
Penalties” on page