Increased PBGC premiums in budget deal

December 11, 2013

On December 10, 2013 Congressman Ryan (R-WI) and Senator Murray (D-WA) announced a bi-partisan budget deal, the Bipartisan Budget Act of 2013 (BBA 2013). The proposal includes increases in PBGC premiums for single-employer plans, as follows:

Increase in the flat-rate premium. The current PBGC flat-rate premium is $42 per participant; it is scheduled to increase to $49 in 2014. BBA 2013 would increase flat-rate premiums further to $57 in 2015 and $64 in 2016, 50% higher than the 2013 rate. After 2016 the flat-rate premium would be indexed to wages.

Increase in variable-rate premium. The current variable-rate premium is $9 per $1,000 of unfunded vested benefits, subject to a cap. It is scheduled to increase (ignoring wage indexing) to $13 per $1,000 in 2014 and $18 per $1,000 in 2015. BBA 2013 would increase variable-rate premiums to $23 in 2015 and $28 in 2016. It would also increase the per-participant cap on variable-rate premiums from $400 to $500 in 2016. We note that this is a tripling of the variable-rate premium over the period 2014-2016.

We recently posted an article reviewing PBGC's 2013 annual report and raising questions about its arguments for higher premiums. We will be following up shortly with articles reviewing the impact of these premium increases on plan finance (the premium vs. borrow-and-fund decision) and de-risking.

October Three Consulting, LLC is a full service actuarial, consulting and technology firm that is a leading force behind the reemergence of defined benefit plans across the country. A primary focus of the consultants at October Three is the design and administration of comprehensive retirement benefits to employees that minimize the financial risks and volatility concerns employers face.

Through effective plan design strategies October Three believes successful financial outcomes are achievable for employers and employees alike. A critical element of those strategies is the ReDB™ plan design. The ReDefined Benefit Plan™ represents an entirely new, design-based approach to retirement and to the management of both the employer’s and the employee’s financial risk, focusing on maximizing financial efficiency and employee value.

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