2018 PBGC Premium Rates Released
On October 17th the PBGC published the increased premium rates that will be used in 2018. For underfunded plans that are limited by the variable premium cap, the total premium payment for 2018 increased to $597 per participant. For plans not limited by the cap, the total premium increased to the sum of $74 per participant and 3.8% of the unfunded liability.
The flat rate premium increase was legislated from the Bipartisan Budget Act of 2015, while the increase in the variable rate premium was due to a combination of legislation and indexing. The variable rate premium cap increase was fully attributable to indexing.
The chart below shows the premiums for 2018 and earlier, along with estimated future premiums due to legislated and index-driven increases.
|Variable rate percent of underfunded||0.9%||3.0%||3.4%||3.8%||4.3%*||4.4%*|
|Variable premium cap per participant||N/A||$500||$517||$523||$539*||$555*|
|Maximum per participant premium||N/A||$564||$586||$597||$619*||$637*|
*Assumes 3% annual wage inflation
The increase in the variable rate premium percentage along with the change in required mortality tables will push more plan sponsors towards the variable rate premium cap. Plan sponsors that end up in this situation should strongly consider risk transfer strategies that will help lower their PBGC premium burden going forward (see our article series on annuity purchases Part 1, Part 2, and Part 3).
In addition, plan sponsors will want to continue to assess the economic feasibility of lump sum cashout windows as well as borrow-to-fund and other strategies in 2018 and beyond.
Director & Consulting Actuary
Michael Clark is a Director and Consulting Actuary in P-Solve’s Denver office.
In his role he consults on all aspects of financial risk management for defined benefit plans as well as retiree medical plans and defined contribution plans. He also has led numerous clients through pension risk transfers as well as other complex, strategic pension projects. Michael leads P-Solve’s business in the West. Prior to joining P-Solve in 2013, Michael worked for Mercer as well as October Three.
Michael is a frequent speaker at industry and professional association conferences on the topics of pension risk management and pension plan administration and has had several articles published in major trade magazines. He currently serves on the Board of Directors for the Conference of Consulting Actuaries as well as the Western Pension & Benefits Council – Denver Chapter.
He is a Fellow of the Society of Actuaries, an Enrolled Actuary, a Fellow of the Conference of Consulting Actuaries, and a Member of the American Academy of Actuaries. Michael graduated magna cum laude from Brigham Young University with a BS in Statistics.
Director & Consulting Actuary
Kevin Morrison is a Director and Consulting Actuary in P-Solve’s Boston office.
He supports clients in all aspects of their retirement programs, including defined benefit, defined contribution, and other post-employment benefit (OPEB) plans. In addition to delivering the recurring annual valuation results and helping clients meet financial reporting requirements under US GAAP, IFRS, and GASB accounting standards, he provides clients with consultative support and cost analysis around plan design, forecasting, de-risking strategies, and plan terminations.
Prior to joining P-Solve in 2016, Kevin was a consulting actuary with John Hancock Retirement Plan Services and was part of the acquisition of New York Life Retirement Plan Services. Kevin started his actuarial career with Mercer in 2004.
Kevin is an Associate of the Society of Actuaries, an Enrolled Actuary under the Joint Board for the Enrollment of Actuaries, and a Member of the American Academy of Actuaries. He received a B.A. in Math and Physics from the College of the Holy Cross.
SECURITY INDICES: This presentation includes data related to the performance of various securities indices. The performance of securities indices is not subject to fees and expenses associated. Investments cannot be made directly in the indices. The information provided herein has been obtained from sources which River and Mercantile LLC believes to be reasonably reliable but cannot guarantee its accuracy or completeness.
CONFIDENTIAL: For addressee use only, not to be disclosed to any other person without express consent from River and Mercantile LLC. Past performance cannot be relied upon to predict future results. River and Mercantile LLC is an investment advisor registered with the US Securities and Exchange Commission.
Subscribe to receive news and updates in the defined benefit, defined contribution, or investment areas of the retirement industry.