Pension plan year change not automatic if PBGC premiums affected: IRS
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Employers will not receive automatic Internal Revenue Service approval to change their pension plan years if one of the effects is a delay in federally mandated increases in premiums employers must pay the Pension Benefit Guaranty Corp., the IRS said.
“Automatic approval is not available for a change in plan year if it delays the effect of PBGC premium increases. This is true even if the delay is merely a side effect of the change and not the plan sponsor's primary reason for changing the plan year,” the IRS said in a newsletter released last week.
If a change in plan year is not eligible for automatic approval, the IRS said, plan sponsors still can seek approval through filing IRS Form 5308.
But in reviewing requests for approval to change plan years, the IRS said it will “look for a business reason for making the change — not a change just to achieve a certain result.”
If a plan sponsor, for example, a “wants to align a plan year with its fiscal year, or collect data on a calendar year rather than a fiscal year basis, we'd consider granting approval for the change (taking the plan's facts and circumstances into account) even if the change in plan year also has the effect of delaying an effective date,” the IRS said.
Due to upcoming rate increases, changing the date of when a plan year begins could significantly reduce — on a one-time basis — premiums employers would owe the PBGC.
For example, effective for plan years starting on or after Jan. 1, 2014, the so-called flat rate premium will be $49 per plan participant, up from the current $42 per participant charge, while sponsors of underfunded plans will pay an additional premium of $13 per $1,000 of unfunded vested benefits, up from the current assessment of $9 per $1,000 of unfunded vested benefits.
For plan years starting on or after Jan. 1, 2015, the flat rate premium remains at $49, but the variable rate premium increases to $18 per $1,000 of unfunded benefits.
