Sponsors of large defined benefit pensions will have to calculate and pay premiums to insure their plans just once annually, not twice, under a change made by the federal Pension Benefit Guaranty Corp. (PBGC).
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 on Jan. 3, 2014, 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 in a statement. "And judging from the feedback, we're on the right track."
The U.S. Chamber of Commerce responded in a statement: "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."
The original PBGC proposal also would have given companies that sponsor plans with fewer than 100 people more time to calculate their variable rate premium and would expand premium penalty relief by reducing the maximum penalty for late premium payments in situations where the past due balance is corrected before the PBGC intervenes. The agency is considering comments on the rest of the proposal and expects that those changes will also apply to 2014 premiums.
2014 Premium Rates
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.
The 2014 premium rates reflect an increase enacted as part of the Ryan-Murray Bipartisan Budget Act, signed into law in December 2013. Under the act, pension plan sponsors are required to pay $8 billion in higher premiums to the PBGC each year beginning in 2014. This follows a $9 billion premium hike that took effect in 2013.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
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Budget Deal's PBGC Premium Hike Criticized, SHRM Online Benefits, December 2013