July 1, 2004
BB 04—74

Council Files Comment Letter on Proposed PBGC Penalty Structure

On July 1, the American Benefits Council filed a comment letter with the Pension Benefit Guaranty Corporation (PBGC) on the PBGC's recently proposed new penalty structure for failure to issue participant notices when the plan is underfunded and (generally) must pay variable rate premiums (VRP). The Council expressed concern that basing the penalty on the number of participants in a plan without any allowance for inadvertent errors (that do not qualify for a reasonable cause waiver) or comparisons to the variable rate premiums (VRP) actually owed by the plan would result in onerous penalties for many large plans. The Council suggested that the PBGC consider a cap on the penalty or a graduated scale of penalties. The Council also recommended a grace period (after discovery) when the failure to provide the notices is due to an error in calculation. For more information, contact Jan Jacobson, the Council's director, retirement policy, at (202) 289-6700.

FASB May Delay Required Stock Option Expensing

Following two public roundtable hearings held over the last week by the Financial Accounting Standards Board (FASB) and the closure on June 30 of the public comment period, FASB officials have stated that the accounting board is considering putting off the enactment date of the proposed rule requiring that stock options be counted as an expense. Faced with more than 7,000 letters on the rule that is slated to go into effect at the end of 2004, FASB officials said they are overwhelmed with comments based upon the proposals released in March. However, the primary reason mentioned for the potential delay is these officials' recognition that plan sponsors also face simultaneous regulatory changes resulting from the Sarbanes-Oxley Act passed in 2002.

If FASB delays the requirement for a year, the timing might more closely coordinate with that of current legislation making its way through Congress. Legislation passed by the House Financial Services Committee on June 15 would delay implementing the rules for at least a year until an economic impact study by the U.S. Commerce and Labor departments could be completed. The Stock Option Accounting Reform Act (H.R. 3574) additionally would limit the stock option expensing requirement to just a company's top five highest-paid employees. H.R. 3574 is expected to be considered by the full House within the next few weeks. Senate prospects for passage of similar legislation appear bleaker though as both the chairman and ranking minority member of the Senate Banking Committee are opposed to the Senate version of the bill (S. 1890).

The Council will keep you informed of further developments on this issue. For more information, contact Jan Jacobson, Council director, retirement policy, at (202) 289-6700.


The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.