Deadline for PBGC Premiums Is Approaching

The due date for premiums is on October 15; roughly 450 plans still have the opportunity to recover $800 million in 2023 premiums. 



For plan sponsors that have a Pension Benefit Guaranty Corporation Premium payment year that began on January 1, 2024, the due date for premiums is approaching on October 15. 

Pension sponsors must determine how they plan to calculate their PBGC insurance premiums by the deadline. October 15 is also the last day on which there is an opportunity for plan sponsors to seek a refund of some 2023 premium payments.

According to consulting firm October Three, hundreds of plan sponsors saw unprecedented increases in PBGC premiums in 2023, and more than 1,000 sponsors have taken steps to avoid this premium increase. However, another 450 plans still have an opportunity to recover almost $800 million in 2023 premiums.

For 2023, the method plans used to determine plan underfunding and PBGC variable rate premiums—mark to market versus 24-month smoothing—had a “dramatic” effect on the premiums sponsors paid in 2023, according to Brian Donohue, a partner in October Three.

Want the latest institutional investment industry
news and insights? Sign up for CIO newsletters.

Donohue argued in a firm article that the 2023 premium spike was due to sponsors using 24-month average interest rates to measure pension liabilities for PBGC premium purposes. In 2022, long-term market interest rates rose to greater than 5% from 3%, causing 24-month average rates to inflate pension liabilities by 15% to 25% for most plans in 2023.

Plan sponsors that did not or could not elect in 2023 a market rate still have the ability on their 2023 Form 5500 filing to use a market rate for 2023 and get a refund of premium overpayments.

However, Donohue wrote, pursuing a 2023 PBGC premium refund may not make sense for all plans. For example, plans that are underfunded, invested mostly in “mismatched” assets and are open and ongoing are the most likely to value “liability smoothing”—ignoring current interest rates when computing their required contributions. Pursuing a 2023 PBGC refund means temporarily giving up liability smoothing for minimum funding and PBGC premium purposes.

At the other extreme, liability smoothing tends to have a negative effect for frozen plans that are well-funded, invested largely in hedged assets.

“We believe that the savings from moving from a smoothed to a mark to market unfunded vested benefits/PBGC premium calculation for 2023 are so extraordinary that those companies that did not switch to market rates for the calculation of UVBs should simply move to mark to market for 2023 for all purposes—funding and PBGC premium calculation,” Donohue wrote. “If they make that election on their 2023 Form 5500, they will be able to get a refund [of] those 2023 premium overpayments.”

In addition, for plans with a premium payment year that began between January 2 and February 1, the PBGC premium due date is November 15. For plans with a premium payment year that began between February 2 and March 1, the due date is December 16.

More information on how to make a premium filing can be found here.

Related Stories:

PBGC Insurance Funds Well-Funded for Years to Come

PBGC FAQ Speaks to Bond Qualifications for SFA Investing

DOL Budget Notes PBGC Insurance Surpluses, Requests More Administrative Funding

Tags: , , , , ,

«