This year, we have both bad and good news for PBGC premiums – while the premium amounts have increased for 2014, the PBGC has also taken action to streamline the payment rules for large plans. Since it's a rare occasion when we can report that the government has made a plan administrator's life easier, let's all stop and enjoy this moment, shall we?
The Bad News First - Premium Rates
There are two types of PBGC premiums: flat-rate premiums and variable rate premiums. Flat rate premiums are calculated on a per-participant basis and are paid by every pension plan. If a plan (other than a multiemployer plan) is underfunded, it must also pay a variable rate premium, which is calculated based on the amount of its unfunded vested benefits, subject to a cap based on the number of plan participants.
The annual flat premium rate for single-employer plans for plan years beginning in 2014 is $49 per participant, up from $42 in 2013. The per-participant rate for multiemployer plans is $12 (no change from 2013).
The annual variable-rate premiums for single-employer plans for plan years beginning in 2014, is $14 per $1,000 of unfunded vested benefits (UVBs), up from $9 in 2013. The variable-rate premium is capped at $412 times the number of participants (it was $400 in 2013). Plans sponsored by small employers (generally fewer than 25 employees) may be subject to an even lower cap. Multiemployer plans do not pay a variable-rate premium.
If you like charts, here are the 2014 premium amounts compared to 2013:
Now, the Good News – Streamlining of Premium Payments
In January, the PBGC published a final rule moving the flat-rate premium due date for large single employer and multiemployer plans (which are plans with 500 or more participants) to the variable-rate premium due date for single-employer plans, starting with the 2014 plan year.
Previously, large plans had to pay their flat-rate premiums for a particular plan year by the end of 2nd month of the plan year (generally, February 28 for calendar year plans), while variable rate premiums were due no later than 9½ months after the beginning of the plan year (October 15th for calendar year plans). Many plans found the 2nd month deadline to be problematic since they hadn't completed their participant counts by that time. Accordingly, the plan was forced to pay estimated flat-rate premiums by the earlier deadline, with a true-up (along with interest) later in the year.
The new final rule streamlines this payment process, starting with the 2014 plan year, by allowing a large plan to pay both its flat-rate and variable rate premiums by 9½ months after the first day of that plan year. As a result, a large pension plan with a calendar year will owe its 2014 flat-rate premiums by due October 15, 2014, instead of February 28, 2014 (based on the December 31, 2013 participant count). This is the current rule applicable to mid-size plans, which are plans with between 100 and 500 participants.
Small plans (those with fewer than 100 participants) continue to be subject to a payment deadline for both flat and variable rate premiums of the last day of the 16th month after the beginning of the plan year, but the PBGC has proposed that these plans also be subject to the 9½ month payment deadline, so that there would be a uniform payment date for plans of all sizes. However, small plans would be permitted to determine their variable rate premium based on UVBs for the prior plan year, making it easier for them to comply with the shorter payment deadline. The PBGC has stated that its expects to issue final rules about the small plan premium rules later this year, but well before the October 15, 2014 filing deadline.
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