PBGC Releases Policy Statement on Premium Changes Based On Recharacterization of Contributions

The Pension Benefit Guaranty Corp. (PBGC) has released a policy statement that addresses PBGC’s policy on accepting and responding to amended premium filings based on recharacterization of contributions. Recharacterization of contributions refers to a situation in which contributions originally designated as being for the plan year in which they were made are retroactively redesignated as being for the preceding plan year. This makes plan assets for the current year higher, and the plan’s variable-rate premium lower, than originally reported. Such recharacterization seeks not to correct a factual error but to change a valid designation and is not an appropriate basis for an amended premium filing or premium refund.

A contribution made to a pension plan during the first eight-and-a-half months of a plan year may be characterized as being either for the current year (the plan year in which it is made) or for the prior year (the preceding plan year). The characterization affects when the contribution is first reflected in plan assets. If a contribution is characterized as being for the prior year, it is treated as a receivable (which increases plan assets) as of the beginning of the current year and thus reduces any variable-rate premium (VRP) for the current year. If a contribution is characterized as being for the current year, it does not increase plan assets as of the beginning of the current year and thus does not affect VRP for the current year. The year for which a contribution is made is designated on Schedule SB (formerly Schedule B) (actuarial information) to the annual report for the plan on IRS/DOL/PBGC Form 5500. PBGC has received a number of amended premium filings, showing increased assets and decreased VRP, supported by amended Schedules SB (or B) that reflect recharacterization of contributions, and submitted with a view to obtaining premium refunds. PBGC has in practice accepted such amended filings and granted the refunds. Upon further consideration of the matter, however, PBGC has concluded that in general, such amendments should be rejected and the associated premium refunds denied.