The government's pension insurance agency plans to revamp and in some ways toughen the penalties it can assess against employers that fail to tell workers when their pension plans are significantly underfunded.

In a proposed rule to be made public today, the Pension Benefit Guaranty Corp. said it intends to tailor the penalties to the size of the pension plan involved, sharply increasing them for big companies that don't comply with notice requirements while easing them for smaller firms.

Surveys by the agency indicate that "a significant number" of plans have not been notifying participants as required, an agency spokesman said. Notices must be sent when a plan's assets fall below 90 percent of its liabilities.

"We don't want penalties that cost smaller plans more than they can reasonably be expected to pay, and we don't want penalties that large plans simply ignore as a cost of doing business," PBGC Executive Director Bradley D. Belt said yesterday.

Current rules base penalties on the number of days the required notices are late, rather than the number of participants involved. Thus, "for example, if a notice to participants was delinquent for one year, it didn't matter whether a plan had 200 participants or 2,000 participants -- both would face the same $16,000 penalty," Belt said. 

Under the new rule, "if a notice to participants is one year overdue and PBGC catches the violation on audit, the plan with 200 participants would pay $8,000 while the plan with 2,000 participants would pay $80,000" for a first offense, a structure that "makes more sense," he said.

The new rules would also distinguish between companies that correct their own mistakes and those that are caught by the PBGC. And they would boost penalties for repeat offenders to $100 per participant. Thus, under the proposed penalty structure, a plan with 10,000 participants -- active workers, retirees and former employees with vested benefits -- could be fined $1 million for a repeat violation. 

The notice requirement has been in the law since 1994, but penalties have not been an issue, largely because the roaring stock market all but eliminated pension underfunding during the 1990s.

Now the situation is dramatically different. A majority of the nation's largest pension funds are underfunded, and the PBGC has estimated the systemwide underfunding is as high as $400 billion. The agency itself was $11.2 billion in deficit at the end of last year.

The agency said it will waive penalties for companies that failed to meet the notice requirements for 2002 and 2003 if they voluntarily and promptly correct the situation.

The Bush administration has been pressing for increased disclosure, arguing that workers and retirees have a right to know if their benefits are in jeopardy. The PBGC stands behind traditional pensions, but only for those up to about $40,000 a year. In the event a plan fails, workers with generous pensions, such as airline pilots, can see their benefits sharply reduced.

Industry groups have generally questioned the value of more disclosure, contending that pension funding is fairly volatile in the short run because of fluctuations in interest rates -- which are used to calculate liabilities -- and the stock market. Such short-term movements could be alarming to participants even when the plan is sound overall, they say. 

Pension advocates say that if pension-funding information is not accompanied by meaningful explanation and context, it could, for example, alarm participants into taking lump-sum distributions that are not their best option.