First Year PBGC Premium for New Plan

[Guest choirboy]

A defined benefit plan, subject to PBGC, was adopted on December 22, 2004 effective retroactively to January 1, 2004. The contribution is based on a full year's cost for 2004. The plan credits past service for vesting and benefit service, and has an unfunded vested current liability. Does the client pay PBGC premium based on a full year or partial year for 2004? I.e. can we prorate the premium based on a December adoption date? Or do we base the premium on a full year based on the January effective date?

[WDIK]

The following example is found in the 2004-R Premium Payment Package.

Example 4 A new calendar-year plan is adopted February 18, 2004, retroactively effective as of January 1, 2004. The plan administrator may select either January 1 or February 18, 2004, as the premium snapshot date; the date selected must also be used for purposes of prorating the premium for the plan’s first year.

[Effen]

Generally, if the plan granted no past service for benefits then on the first day of the first plan year the liability is $0. If the liability is $0, then the premium is $0, but the plan still must file a PBGC form.

If you use the effective date, 12/22/04, the liability won't be $0, since the plan would have at least one year's accrual. Therefore, the premium would not be $0, but it could be prorated.

I haven't seen the 04 PBGC form, but I think this is explained on Pg. 27 (?) on the 03 PBGC instructions.

[could be me maybe not]

Effen, you mean the variable portion of the premium, right? There is still the fixed rate portion.

I didn't know you could prorate the first year. These rules are incredibly convoluted.

[Blinky the 3-eyed Fish]

No fixed rate portion either CBMMN since there are no participants for premium payment purposes in the first year if no past service credits are granted.

I want to guess as to who this "could be". I guess it's MoeHoward2 in disguise.

[could be me maybe not]

It could be that I was wrong and that Effen and fish were right. Hmm. Guess that's what theez Boards are for. I actually haven't handled any new ones in quite a while. Good thing. Thx.

[Effen]

The only reason I knew the answer was someone pointed it out to me after I had done a few wrong. We all learn from our mistakes.... except Blinky, who never makes any