When should PBGC coverage begin when plan does not yet have vested ben

[mming]

A DB plan's first PYE is 12/31/99. On that date, no participant has a vested benefit because vesting is based on years of participation and they're using a 2/20 vesting schedule. There are 4 participants: the owner and his wife, and his adult daughter and her husband who do not have any ownership. It seems the plan should/will be covered by the PBGC, but when should coverage begin? Should it be covered from 1999 inclusive, i.e., does the PBGC expect coverage even in the absence of vested benefits just in case the plan terminated and everyone became 100% vested in the first year?

Also, in the case of a new plan where PBGC coverage is needed from the start, do most of you file a PBGC return for two premium payment years the first time you do the tax forms?

Thanks much.

[Guest Mr. X]

Your plan is covered the minute one of the non-substantial owners (i.e. the daughter or her husband enter the plan). The fact that there are no vested benefits simply excludes the plan from having to pay a variable premium for that year.

By the way, your filing is late for the 1999 premium payment year.

[richard]

This is a typical problem for small companies starting DB plans. While the dollar amount of PBGC premium is small (as long as you don't have unfunded vested liabilities), the timing for the first year is problematic.

This is particularly true with an end-of-year valuation, whereby work for 1999 (for example) isn't generally done until early 2000.

By the way, what is the penalty for the late PBGC filing. If it's interest on the late premium (due to time value of money) plus interest on the late premium (because you've been a "bad boy"), aren't the amounts pretty small? If so, how about filing late for 1999 without an interest payment, and let the PBGC send a bill for a tiny amount. If you don't file at all for 1999 and the PBGC sends you a notice, what is the potential penalty?

[david rigby]

For newly covered plans, no estimated premium payment is required. The final filing due date is the latest of the following dates:

(i) the 15th day of the 10th full calendar month that begins on or after the first day of the premium payment year,

(ii) the 15th day of the 10th full calendar month that begins on or after the day on which the plan becomes effective for benefit accruals for future service,

(iii) 90 days after the date of the plan’s adoption, or

(iv) 90 days after the date on which the plan became covered under ERISA section 4021.

[Guest chordbender]

Per Amy Viener of the PBGC 4/23/10 the standard interest rate will be a year out-of-synch with the liability for end-of-year valuations. It’s simply the law so the 12/31/99 PBGC liability here (for a hypothetical PPA ’06 application anyway) would use the December 1998 Segment Rates unless the alternative is used.