The U.S. Pension Benefit Guaranty Corp. (PBGC) on October 19 announced that its premiums for single-employer defined benefit (DB) retirement plans will increase to $80 in 2019, from $74 in 2018. This is the last of the scheduled annual flat per-participant increases in single-employer DB plan premiums brought about by the Bipartisan Budget Act (BBA) of 2015. In subsequent years, all PBGC premium rates are subject to indexing.
Multiemployer plans’ per-participant premiums also will rise for 2019, based on indexing. They ease up to $29 from a 2018 rate of $28.
Variable-rate premiums for single-employer plans will increase for 2019 by $5 per $1,000 of unfunded vested benefits to $43. The BBA delivered $4 of that increase and $1 comes from annual indexing.
Variable-Rate Premium Cap
Also for 2019, the PBGC said the variable-rate premium is capped at $541 multiplied by the number of participants, up from a 2018 cap of $523. Plan sponsors that are employers of fewer than 24 workers may be subject to a lower cap. Multiemployer plans are not assessed a variable-rate premium.
By comparison, the per-participant flat-rate premium for single-employer plans was $31 in 2007; for multiemployer plans it was $8 that year.
These escalating PBGC premiums, along with changes in mortality tables that reflect increasing longevity and rising interest rates, all give corporate DB plan sponsors incentives to consider shedding pension liabilities, as executives perceive that the cost to retain the liabilities outweighs the benefits.
Guarantee Limits for 2019 Raised
In other administrative news from the PBGC, the agency on October 22 posted increased guarantee limits for single-employer plans that fail in 2019.
In a press release, the PBGC said these guarantee limits will be 3.46 percent higher than the limits that applied for 2018.
For example, retirees at age 55 in failed plans the PBGC covers will be eligible for a yearly maximum single-life annuity of $30,283 in 2019, and those receiving joint and 50-percent survivor annuities at that age will receive an annual maximum of $27,255 each, if the spouses are of the same age. Retirees at age 70 will get a maximum single-life annuity next year of $111,710 or a joint and 50-percent survivor annuity of $100,539. Special rules apply if the plan fails while the sponsor is in bankruptcy.
Amounts for other ages and other years are posted on PBGC’s Maximum Monthly Guarantee Tables website.
The 2019 increase is not retroactive; payments to retirees whose plans failed before that year will not change. Multiemployer plan guarantee limits are not indexed, so they will not change for next year.
The PBGC maximum guarantee for participants in multiemployer plans is also based on a formula prescribed by federal law. Unlike the single-employer formula, the multiemployer guarantee is not indexed and does not vary based on the retiree’s age or payment form. Instead, the multiemployer guarantee is based on the retiree’s length of service with the plan sponsor.
In addition, the multiemployer guarantee structure has two tiers, providing 100-percent coverage up to a certain level, 75-percent coverage up to a second level, and no coverage beyond that level.
What Is the Guarantee Limit?
The guarantee limit is a cap on what the PBGC guarantees, not on what the agency pays out to participants in failed pension plans. In some cases, the PBGC said in the announcement, it pays more than the guarantee limit. Whether that happens depends on the retiree’s age and how much money the plan had when it terminated.
The single-employer guarantee formula provides for:
- Periodic increases in the amount of the guarantee for plans terminating in different years, linked to increases in wage base information issued by the Social Security Administration (SSA); and
- Adjustments based on the participant’s age and adjustments for retirees who choose a payment form that continues payments to a beneficiary after the retiree’s death.
In most cases, the single-employer PBGC guarantee limit is higher than the pension payment amount earned by people in such plans, the agency said. According to a 2006 study, almost 85 percent of retirees receiving PBGC benefits at that time received the full amount of their earned benefit, the PBGC said.
Finding Out More
For more information on PBGC premiums, see ¶841 in the Pension Plan Fix-It Handbook.