WASHINGTON — The Pension Benefit Guaranty Corporation is ending the twice-a-year requirement to calculate and pay premiums.
Currently, companies sponsoring pension plans covering more than 500 people calculate and pay premiums in two installments at different times of the year. Each payment requires a separate calculation. Under the new rule, published in the Federal Register today, large plans will make one payment. This change affects both single and multiemployer plans.
"As promised earlier this year, we want to lessen the hassle so companies will be encouraged to keep their plans going," said PBGC Director Josh Gotbaum. "And judging from the feedback, we're on the right track."
After the proposal was announced, a number of groups in the pension community like the American Academy of Actuaries (AAA) and the ERISA Industry Committee (ERIC) embraced it.
The U.S. Chamber of Commerce also weighed in. "We applaud the PBGC for this proposal...it is critical that these burdens be minimized to the extent possible. We believe the proposed rule considerably reduces burdens for defined benefit plan sponsors."
Additionally, when PBGC sought this change, it also proposed giving additional time for companies that sponsor plans with fewer than 100 people to calculate their variable rate premium. 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.
The agency is considering comments on the rest of the proposal, and expects those changes will also apply to 2014 premiums.
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 does not receive taxpayer dollars.
In 2014, single-employer pension plans will pay a flat rate of $49 per participant, and a variable rate premium of $14 per $1,000 of underfunding. Multiemployer plans will pay $12 per participant per year.
In fiscal year 2013, the agency's premium income increased to $3.2 billion, up from $2.7 billion reported for fiscal year 2012. The new premium regulation represents PBGC's latest response to an Obama Administration directive to reduce burdens placed on the business community. During 2013, PBGC 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.
PBGC protects the pension benefits of more than 42 million Americans in private-sector pension plans. The agency is directly responsible for paying the benefits of more than 1.5 million people in failed pension plans. PBGC receives no taxpayer dollars and never has. Its operations are financed by insurance premiums, investment income, and with assets and recoveries from failed plans. For more information, visit PBGC.gov.