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Increase in PBGC Premiums Effective for 2017 and Later Years

President Barack Obama signed into law the Bipartisan Budget Act of 2015 (the Budget Act), which raised Pension Benefit Guaranty Corporation (PBGC) premium rates beginning in 2017.

Background

Single-employer defined benefit pension plans must pay annual premiums to the Pension Benefit Guaranty Corporation (PBGC), the U.S. government agency that insures these plans. All single-employer defined benefit pension plans pay an annual fixed premium. Those plans with unfunded vested benefits at year-end must pay an additional variable rate premium. The due date for payment of these premiums has generally been the fifteenth day of the tenth full calendar month of the premium payment year.

In 2016, the fixed premium is set at $64 per participant. The variable rate premium is based on the amount of potential liability that the plan creates for the PBGC. Calculated on a per-participant basis, the variable rate premium is a specified dollar amount for each $1000 of unfunded vested benefits under the plan as of the end of the preceding year, subject to a $500 per-participant cap. For 2016, it will equal $30 per $1000 of underfunding, subject to the cap. Both premiums are indexed for inflation.

Changes to PBGC Rates

The Budget Act makes the following changes:

  1. Single-employer fixed premiums will be raised to $69 per participant for plan years beginning in 2017, $74 per participant for plan years beginning in 2018 and $80 per participant for plan years beginning in 2019. In 2020, the fixed premium will be re-indexed for inflation.

  2. Single-employer variable rate premiums, which will continue to be adjusted for inflation, will increase by an additional $3 for plan years beginning in 2017 (from $30 to $33 per $1000 of underfunding, subject to indexing); by an additional $4 for plan years beginning in 2018 (from $33 to $37 per $1000 of underfunding, subject to indexing); and by an additional $4 for plan years beginning in 2019 (from $37 to $41 per $1000 of underfunding, subject to indexing). There are no scheduled increases (other than indexing) for years after 2019.

  3. To include the 2025 premium revenue within the 10-year budget window, the premium due date for plan years beginning in 2025 will be the fifteenth day of the ninth calendar month beginning on or after the first day of the premium payment year.

© 2020 McDermott Will & EmeryNational Law Review, Volume V, Number 337

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About this Author

Anne S. Becker, McDermott Will Emery Law Firm, Employee Benefits Attorney
Partner

Anne S. Becker is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office

312-984-7592
Stephen Pavlick Employee BenefitsLawyer, McDermott Will Emery Law firm
Partner

Stephen Pavlick is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Washington, D.C. office.  He focuses his practice on the area of employee benefits matters for large multinational corporations.  His clients include several Fortune 100 companies and a major trade association.  He is a member of the Tax Management Advisory Board for Compensation Planning and is a regular participant at their monthly luncheons with government officials.  Stephen is a Certified Public Accountant. 

Mr. Pavlick concentrates on qualified plans, related fiduciary and other Employee Retirement Income Security Act (ERISA) issues, deferred compensation and equity arrangements, and funding strategies for post-retirement welfare benefits. He has worked extensively with cash balance plans.

Stephen has served as an assistant professor at Drexel University. He is the author of several articles on cash balance plans, Code Section 409A, and the taxation of stock options and other executive compensation. He is also a certified public accountant.

202-756-8312
Emily Rickard, McDermott Will Emery, Employee Benefits Matters Lawyer, ERISA Litigation Attorney
Associate

Emily Rickard is an associate in the law firm of McDermott Will & Emery and is based in the Firm’s Washington D.C. office. She focuses her practice on employee benefits matters.

Outside of the ESOP context, Emily’s practice spans a wide range of national and international employee benefits matters. This includes qualified plans, nonqualified plans, executive compensation, health and welfare arrangements, and Employee Retirement Income Security Act of 1974 (ERISA) litigation. She advises employers in connection with fiduciary issues under...

202 756 8370