WASHINGTON — The Pension Benefit Guaranty Corporation is proposing an end to the twice-a-year requirement to calculate and pay premiums.
Currently, companies sponsoring large pension plans calculate and pay premiums in two installments at different times of the year. Each payment requires a separate calculation.
"If we can't cut the premiums, we can at least cut the hassle," said PBGC Director Josh Gotbaum.
The streamlined approach will consolidate the payment period for companies sponsoring plans with 500 or more people. This change affects both single and multiemployer plans. In addition, companies sponsoring plans with fewer than 100 people will be given additional time to calculate their variable rate premium. These changes have no impact on mid-sized plans.
The proposal would also expand premium penalty relief by reducing the maximum penalty for late premium payments in situations where the past due balance is corrected before PBGC intervenes.
PBGC is funded through insurance premiums paid by plan sponsors, assets from failed plans, investment earnings on our assets, and recoveries in bankruptcy. The agency doesn't receive taxpayer dollars.
In 2013, single-employer pension plans pay a flat rate of $42 per participant, and a variable rate premium of $9 per $1,000 of underfunding. Multiemployer plans pay $12 per participant per year.
In fiscal year 2012, the agency's premium income increased to $2.7 billion, up from $2.2 billion reported for fiscal year 2011.
The premium proposal is the agency's latest response to an Obama Administration directive to reduce burdens placed on the business community. In recent months, the agency has proposed changes that would exempt more than 90 percent of companies and plans from many reporting requirements, and announced changes to its enforcement policy for companies that downsized or engaged in other transactions that might affect plans.
Plan Sponsors Support the Proposal
The Committee on Investment of Employee Benefit Assets (CIEBA) appreciates the new proposal for simplifying the premium process.
"CIEBA members applaud PBGC for recognizing the burden that multiple premium filings impose on plan sponsors, and commend Director Gotbaum's decision to simplify the premium process" said Deborah Forbes, CIEBA's executive director.
And the American Society of Pension Professional and Actuaries (ASPPA) applaud PBGC for taking the necessary steps to make premium filing more efficient.
"We are pleased that PBGC has proposed coordinating the premium filing due date with the Form 5500 due date, and providing a small plan look-back rule," said Judy A. Miller, ASPPA's director of retirement policy. "We have expressed concern about the current rule for small plans because the April 30 due date just does not allow enough time for plans with end of year valuation dates to have final numbers available. With this proposed rule, after the transition year, the premium filing can be coordinated with other required due dates, making it much more efficient to handle the filings."
Today's proposal is published in the Federal Register and is expected to go into effect in 2014.
PBGC protects more than 40 million Americans in private-sector pension plans by paying benefits when companies cannot. PBGC receives no taxpayer dollars and never has. Its operations are financed by insurance premiums and with assets and recoveries from failed plans. For more information, visit PBGC.gov.