Business organizations have asked the PBGC to be more lenient and not fine employers for failing to pay their premiums on time due to inadvertent errors.
“We ask PBGC to announce that inadvertent errors, such as clerical errors, that are made despite a clear intent to comply will not give rise to penalties,” the business groups said in a letter sent this week to Joshua Gotbaum, director of the Pension Benefit Guaranty Corp. “Any other position would be punitive and inconsistent with the PBGC’s mission.”
While incentives are needed for employers to be “conscientious and careful,” the “PBGC needs to balance that objective with the need not to act in a punitive way with respect to plan sponsors that make inadvertent errors despite clear evidence of an intent to comply,” said the letter, signed by seven business groups that include the American Benefits Council, the ERISA Industry Committee and the U.S. Chamber of Commerce.
In the letter, the groups described a recent case in which a plan sponsor paid the required premium on Oct. 14, 2010, one day before the deadline, and contacted the agency, which confirmed the payment had been received. Five days later, the PBGC contacted the plan sponsor and said the payment had been returned.
According to the letter, the sponsor made a clerical error in reporting its account number and made the full premium payment the same day. The sponsor was assessed a “large” penalty. Its requests for reconsideration have been denied, according to the letter.
In its second denial, according to the letter, the PBGC told the plan sponsor: “The payment failure was the result of a clerical error by the plan and therefore does not meet reasonable cause. An oversight is not in keeping with ordinary business care and prudence.”
Mr. Gotbaum said the agency takes “seriously the issues raised in the letter. We’ve already made changes to resolve some of them and we will make more.”
Under PBGC rules, the penalty is 1% per month of the unpaid premium if it is paid before PBGC issues a delinquency notice and 5% after it issues a notice. The penalty is capped at 100% of the unpaid premium.
In fiscal 2010, the PBGC assessed $13 million in penalties and interest, according to its most recent annual report.
Jerry Geisel is editor-at-large at Business Insurance, a sister publication of Pensions & Investments.