Wagner to PBGC: price the sponsor's conduct, not its adviser's error

The Pension Benefit Guaranty Corporation's penalty guidance is being replaced by a regulation, and the lawyers who helped write the guidance want a say in what the regulation says. The Wagner Law Group filed a 20-page comment letter last week on RIN 1212-AB50, urging the agency to change and clarify how the proposal treats plans that fail to provide adequate plan information, including participant reductions and distribution changes. Among those who stated the firm's position in the letter are partners Harold Ashner and Israel Goldowitz, who helped develop the PBGC's earlier policies on penalties.

The proposal, released July 21, would replace longstanding PBGC penalty guidance implementing Sections 4071 and 4302 of the Employee Retirement Income Security Act. Section 4071 authorizes civil penalties for certain reporting and disclosure violations, with a maximum of $2,739 per day of delinquency; Section 4302 authorizes up to $365 per day for certain multiple-employer-plan notice failures. The PBGC describes the package as largely a codification of existing agency practice, with one structural change: penalties would run per diem rather than at a flat rate. General penalties carried over from the 1995 policy sit at $25 per day for the first 90 days of delinquency and $50 per day after that for many notice and reporting violations, while more time-sensitive filings can draw $100 or $1,000 per day depending on the nature of the violation. Measured against the $2,739 statutory ceiling, the opening tier is under 1 percent of what the law allows, which suggests the first ninety days are meant as a nudge and the upper tiers as the deterrent.

Wagner generally supports replacing decades-old guidance with a formal rule. What it wants is a different test for when the penalties land. Its primary recommendation concerns errors made by outside advisers: employers remain legally responsible for required filings, the letter acknowledges, but the PBGC should distinguish between sponsors that exercised appropriate oversight and those that failed to adequately supervise service providers, weighing whether a sponsor showed ordinary business care and prudence in hiring and overseeing advisers before assessing a penalty. The letter then argues the reverse of what a sponsor-side filing might be expected to argue, that employers should not automatically receive penalty relief when an outside adviser makes the mistake. That combination is the letter's sharpest move. It asks the agency to adjudicate fault where it currently adjudicates the calendar, and a fault test at the penalty stage is ultimately a documentation test: the sponsor holding a hiring file and a monitoring record has an argument to make, and the sponsor without one mostly has a bill.

Ashner put the distinction this way in an email to PLANADVISER: "Imputing the adviser's conduct answers who remains legally responsible. It does not answer the separate question of what penalty is fair when a careful filer encounters an isolated professional error." The letter also presses the agency to give greater weight to whether a violation caused actual harm, and it takes up first-time inadvertent violations as a category of their own.

The tier structure is what turns the harm question from philosophy into arithmetic. A $25 daily assessment through the first ninety days is a rounding error against the cost of any compliance program, and $50 a day afterward is unlikely to move a filer; the $1,000-per-day tier for time-sensitive filings is where a lapse becomes a budget item, and it is the tier where a careful-filer defense would do the most work. A harm requirement would matter most there, and so would the burden of showing harm. A notice that arrives late is a different violation from one that never arrives at all, and harm is easier to demonstrate in the second case, which likely makes the mechanics of proving harm rather than the principle of it the fight over any final standard.

The letter's weight comes partly from its authorship. Ashner and Goldowitz helped develop the PBGC's earlier penalty policies, so the filing carries the institutional memory of the guidance it would replace. The agency's own position, that the proposal already codifies what it has been doing, is the answer the letter has to beat, and comment files are where that kind of disagreement gets tested or ignored.

The rulemaking also sits inside a broader redrafting of what plans and their providers must disclose, and who answers when the disclosure is late or thin. At the Labor Department, the GAO has asked for limits on retirement data privacy rules after an audit of 31 providers turned up marketing permissions and unspecified data-selling provisions in plan privacy disclosures. Treasury and the IRS have proposed electronic-first rollover standards under SECURE 2.0. In each case the obligation lands on the plan while the operational work sits with a vendor or an adviser, which is the asymmetry Wagner is asking the PBGC to price properly.

The case for the firm's reading is that a per-diem schedule prices an isolated clerical error the same way it prices a sponsor that never tried; the case against is that a fault inquiry turns a penalty schedule into a fact-finding exercise every time a notice runs late. Both can be true. The version most likely to survive the comment process is documentary: keep the per-diem ladder, keep the $1,000 tier, and have the PBGC publish the oversight file a sponsor must produce if it wants to be judged on its own conduct rather than its adviser's. Until that file is defined, the difference between ordinary business care and carelessness is a phrase in a comment letter, and for many notice and reporting violations the clock still runs at $25 a day through the first ninety, then $50.