The Pension Benefit Guarantee Association’s insurance premium payment year begins on January 1, 2024, and the deadline for payment of insurance premiums for plan sponsors is approaching October 15th.
Pension sponsors have a deadline to decide how to calculate PBGC premiums. October 15 is also the last day plan sponsors have the opportunity to request a partial refund of their 2023 premium payments.
Hundreds of plan sponsors will experience unprecedented increases in PBGC premiums in 2023, and more than 1,000 sponsors have taken steps to avoid the increases, according to consulting firm October Three. However, an additional 450 plans still have the opportunity to recoup nearly $800 million in 2023 premiums.
For 2023, the planning methodology used to determine plan underfunding and PBGC’s variable rate premiums (mark-to-market and 24-month smoothing ) had a “dramatic” impact on premiums paid by sponsors in 2023. .
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In a robust article, Donahue argued that the higher premiums in 2023 were due to sponsors using a 24-month average interest rate to measure pension obligations for PBGC premium purposes. In 2022, long-term market interest rates rose from 3% to over 5%, and the 24-month average rate would increase pension liabilities by 15% to 25% in 2023 for most plans.
Plan sponsors who did not or were unable to elect the market rate in 2023 may receive a refund of premium overpayments using the 2023 market rate on their 2023 Form 5500 filing.
However, Donahue wrote that pursuing a refund of PBGC premiums in 2023 may not make sense for all plans. For example, a plan that is underfunded, invested primarily in “mismatched” assets, and that is open and ongoing may ignore current interest rates when calculating required contributions, resulting in “debt leveling.” are most likely to place emphasis on Pursuing the 2023 PBGC refund means temporarily waiving minimum funding and debt smoothing for PBGC premium purposes.
Conversely, debt smoothing tends to have a negative impact on frozen plans that are well-funded and invested primarily in hedged assets.
“The savings from moving from smoothing to market rates for unfunded benefits/PBGC premium calculations in 2023 are so significant that companies that have not switched their UVB calculations to market rates should simply move to market rates. We believe there will be a. “If they make that election on their 2023 Form 5500, they will be able to receive a refund of their 2023 premium overpayments.”
Additionally, for plans whose premium year began between January 2 and February 1, the PBGC premium payment due date is November 15. For plans whose premium payment year begins between February 2nd and March 1st, the due date is December 16th. .
Click here for more information on how to declare your insurance premiums.
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PBGC Insurance Fund Provides Abundant Capital for Years to Come
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DOL budget proposal: PBGC insurance surplus, request for further administrative funding
Tags: Brian Donahue, interest rates, October Three, PBGC, PBGC premiums, Pension Benefit Guaranty Corporation
