January 2014 Spotlight, "PBGC Premium Rates Increase Again: What Plan Sponsors Can Do to Minimize PBGC Premium Payments"
The Bipartisan Budget Act of 2013 that was signed into law on December 26, 2013 significantly increases both the flat-rate and variable-rate single-employer Pension Benefit Guaranty Corporation (PBGC) premiums. Those increases are in addition to the premium increases introduced as part of 2012's Moving Ahead for Progress in the 21st Century Act (MAP-21).
PBGC premiums, unlike contributions to a pension plan, do not fund plan benefits or improve the plan's funded status. As a result, plan sponsors generally want to take steps to minimize the premiums payable.
This Spotlight discusses some strategies to minimize the amount paid for PBGC premiums, including the following:
- For an underfunded plan, increasing pension plan contributions above amounts previously contemplated is the surest way to reduce the amount of the variable-rate premium payment.
- Organizations that do not wish to increase their level of contributions may be able to reduce their variable-rate premium payments by accelerating the timing of contributions.
- One way to reduce the flat-rate premium payment is to reduce the participant count by offering a lump-sum window to terminated vested participants.