The Pension Benefit Guaranty Corp. is getting tough on companies that don’t communicate to their rank and file that their pension plans are underfunded. The PBGC proposed an expanded enforcement program, including a new penalty structure, for administrators of underfunded pension plans who fail to inform participants of the plan’s funding status and the PBGC’s guarantee limits.
As a transition to this expanded enforcement program, the agency also announced a voluntary correction program to encourage administrators to correct recent failures by issuing underfunding notices to plan participants.
“Workers and retirees have a right to know the financial condition of their pension plan, and that they might lose some benefits if the plan terminates,” said Bradley Belt, the PBGC’s executive director, in a statement. “This new penalty policy will give companies a stronger incentive to fulfill their obligation to keep plan participants informed.”
Under the proposed policy, penalties for failure to issue an underfunding notice are tied primarily to the number of plan participants rather than the number of days of delinquency. The guideline penalty ranges from $5 to $100 per participant, depending on whether the failure is a first-time violation and whether the plan corrects the failure prior to audit. The penalty rate would be prorated for failures corrected within one year, added the PBGC, and could be adjusted up or down by the agency based on the facts and circumstances of the case.
The agency also warned that a stepped-up audit program, with tougher enforcement and significantly higher penalties for repeated non-compliance, will accompany the new policy.
The PBGC added that it will accept comments on the proposed plan until July 6.
The agency’s voluntary correction program (VCP) aims to encourage administrators of PBGC-insured pension plans to correct recent compliance failures and to facilitate future compliance. The VCP generally enables plan administrators to avoid penalties for failing to file participant notices for 2002 or 2003 by issuing a corrective notice by the 2004 due date.
“The PBGC anticipates that many plan administrators will want to participate in the VCP as a precaution, even in the absence of a known participant notice failure,” the agency noted.