Premium Rates:

The Pension Benefit Guaranty Corporation (PBGC) protects the retirement benefits of nearly 44 million workers and retirees without the use of tax dollars from the general fund. PBGC's revenue is derived from insurance premiums paid by 30,460 insured defined benefit pension plans, assets from terminated trusteed plans, investment income, and recoveries from employers responsible for terminated underfunded plans. Premium revenue totaled about $1.6 billion in 2007.

For plan years beginning in 2008, all single-employer pension plans pay a basic flat-rate premium of $33 per participant per year. Underfunded pension plans pay an additional variable-rate charge of $9 per $1,000 of unfunded vested benefits. The premium for the smaller multiemployer program is $9 per participant per year. A termination premium of $1,250 per participant per year applies to certain distress and involuntary plan terminations occurring on or after January 1, 2006, payable for three years after the termination. (For plan years beginning in 2007, the per-participant flat-rate premium was $31 for single-employer plans and $8 for multiemployer plans. The variable-rate charge for single-employer plans was the same in 2007 as it is in 2008.)

Background:

The single-employer premium was a flat rate of $1 per participant when the PBGC was created by Congress in 1974 under the Employee Retirement Income Security Act (ERISA). Congress raised the premium to $2.60 in 1978, and to $8.50 in 1986. In 1988, the basic premium was raised to $16 and an additional variable-rate premium was imposed on underfunded plans for a maximum total premium of $50 per participant. In 1991, Congress raised the basic premium to $19 per participant and set the maximum premium at $72 per participant for underfunded plans. Legislative reforms under the Retirement Protection Act of 1994 increased PBGC premiums for the plans that pose the greatest risk by phasing out the maximum limit on premiums for underfunded plans. The maximum was completely eliminated during 1997.

With enactment of the Deficit Reduction Act of 2005, basic premium rates reached current levels for plan years beginning on or after January 1, 2006. The new law provides for indexing basic premiums for wage inflation beginning in 2007, and a new termination premium charged when a company transfers an underfunded pension plan to the PBGC.  Set at $1,250 per participant per year for certain plan terminations occurring after 2005 and before 2011, the new premium is payable for three years after a termination. Special rules apply in certain cases involving bankruptcy: the three-year payment period begins after emergence from bankruptcy, and the premium applies only if the bankruptcy is filed on or after October 18, 2005. This legislation does not alter variable-rate premium charges. 

The interest rate used to calculate the variable-rate premium was increased from 80 percent of the spot rate for 30-year Treasury securities to 85 percent beginning with July 1997 plan years. This rate was temporarily increased to 100 percent of the 30-year Treasury spot rate for plan years beginning in 2002 and 2003 by the Job Creation and Worker Assistance Act of 2002. Under the Pension Funding Equity Act of 2004 (enacted April 10, 2004, and retroactively effective as of January 1, 2004), the rate for plan years beginning in 2004 and 2005 was 85 percent of the annual rate of interest determined by the Secretary of the Treasury based on long-term investment-grade corporate bonds (“corporate bond rate”) for the month preceding the month in which the plan year begins. Under the Pension Protection Act of 2006, the rate for plan years beginning in 2006 was 85 percent of the "corporate bond rate," and the rate for plan years beginning in 2007 is 100 percent of the "corporate bond rate." The change from 85 to 100 percent of the corporate bond rate results from the publication of new mortality tables by the Internal Revenue Service for plan years beginning in 2007. For 2008, the interest assumptions will be completely different. Instead of one rate, there will generally be three rates (called “segment rates”) derived from a yield curve based on corporate bonds, and these rates will be announced monthly.