Pension Benefit Guaranty Corporation Announces 2015 Premium Rate Increases on the Heels of Two Multiemployer Plan Bailouts
The Pension Benefit Guaranty Corporation (PBGC) has published updated premium rates for 2015 on its website, and per person rates in single-employer and multiemployer plans are scheduled to go up for next year. These rate hikes come amid action recently taken by the PBGC to financially assist two multiemployer plans facing insolvency.
2015 Flat, Variable, Termination Rates
According to the PBGC, flat rate premiums will increase $8 per participant from $49 in 2014 to $57 beginning in 2015 for single-employer plans. This amount denotes a $26 per participant increase since 2007. For multiemployer plans, the flat rate will be $13 per participant, up from 2014’s rate of $12. In 2007, the premium was $7 per participant.
The variable-rate premium (VRP) is also slated to increase beginning in 2015. The VRP for single-employer plans will be $24 per $1,000 of unfunded vested benefits (UVBs), up from a 2014 rate of $14. Multiemployer plans do not pay a VRP.
Provisions in the Bipartisan Budget Act of 2013 allowed for the $10 increase in single-employer plans. Before that, the rate from 2007-2013 was $9 per UVBs. While the VRP rate is subject to indexing as well as premium rate increases, indexing had no effect on the VRP for 2015 due to statutory rounding rules.
Beginning in 2015, the VRP is capped at $418 times the number of participants versus in 2014, when the cap was $412 times the number of participants. Plans sponsored by ‘small employers,’ usually defined as fewer than 25 employees, may be subject to a lower cap.
Looking ahead to 2016, the Bipartisan Budget Act of 2013 calls for the VRP to increase an additional $5, apart from indexing. Rates subject to indexing in 2016 include: the VRP for single-employer plans and the per participant rate for flat-rate premiums in multiemployer plans. Therefore, these rates may actually be higher than what is forecast.
After 2016, all rates will be subject to indexing. As of now, there are no scheduled increases after 2016 other than indexing.
For certain distress or involuntary terminations, a special termination premium must be paid to the PBGC for three years after the termination of the plan. The premium is $1,250 per participant except for certain airline-related plans, and has not changed from last year. More specifics can be found on the PBGC’s Termination Premiums page.
For an overview about upcoming premium increases as well as historical data, see the PBGC’s tables on its website.
Financial Assistance Provided to Struggling Multiemployer Plans
The PBGC recently announced that the agency sent its first installment to cover benefits in two insolvent multiemployer plans in New York. The two plans—Teamsters Local 531 Pension Plan and Local 976 International Longshoremen's Association Pension Fund—have depleted their funds and are unable to pay promised benefits.
According to the PBGC, it will send both plans quarterly payments to cover guaranteed benefits for current and future retirees. The PBGC’s financial commitment to the two plans is estimated at almost $25 million—$14.9 million for the Teamsters Local 531 and $9.8 million for Local 976 ILA.
The PBGC doesn't assume responsibility for insolvent multiemployer plans like it does for single-employer pensions. Instead, the agency sends financial assistance so the plans can pay benefits at no more than the guaranteed level, based on years of service and the rate that benefits are accrued.
For the Teamsters Local 531 Pension Plan based in Brooklyn, the agency sent an initial payment of about $108,100 to pay benefits for 184 current and retired transportation workers. The plan notified the PBGC that it was running out of money on July 2013. In addition, the PBGC sent $176,000 to cover benefits for 181 current and former longshoremen under the Local 976 ILA Pension Fund in Manhattan. The PBGC was notified in February 2014 that the plan was insolvent.
Will It Be Enough?
This latest move by the PBGC seems to back up an earlier warning from the agency about the current state of the country’s multiemployer pension plans. In its annual FY 2013 Projections Report, the agency said that pension benefits of more than 10 percent of MEP participants, totaling more than one million people, are in danger.
Other caveats from the report included:
• Insolvencies of distressed multiemployer plans will be “more likely and more imminent”
• Failures of these plans will drain the PBGC of its assets in the program and render it broke and unable to pay guaranteed benefits to MEP members
• The likelihood of the PBGC running out of multiemployer plan program funds is possible in eight years and most likely within 10 years
• The multiemployer program's FY 2013 deficit of $8.3 billion will widen to, on average, $49.6 billion by FY 2023 if failures continue and no significant changes are made with the law or by increasing premiums
The PBGC was hopeful that its report would compel Congress to take greater action and turn over more responsibility to the agency including the authority to raise premiums, but as of yet, that hasn’t happened. It is uncertain whether the agency will be handed more accountability to implement its own measures to preserve multiemployer plans and remain operational.
ABOUT THE AUTHOR: Mark Johnson, Ph.D., J.D.
Mark Johnson, Ph.D., J.D., is a highly experienced ERISA expert. As a former ERISA Plan Managing Director and plan fiduciary for a Fortune 500 company, Dr. Johnson has practical knowledge of plan documents as well as an in-depth understanding of ERISA obligations. He works as an expert consultant and witness on 401(k), ESOP and pension fiduciary liability; retiree medical benefit coverage; third party administrator disputes; individual benefit claims; pension benefits in bankruptcy; long term disability benefits; and cash conversion balances.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.