PBGC Updates 4 Categories of Interest Rates in August

The Pension Benefit Guaranty Corporation updated last week four categories of interest rates that single and multiemployer pension plans use for valuation and funding purposes.

The first rates updated, variable rate premiums, are used to determine the present value of vested benefits, known as the “premium funding target,” unless the plan uses the alternative premium funding target.

The PBGC’s update showed that based on the spot segment rates for plan years beginning in July 2026, the discount rates for determining the standard premium funding target were:

· First spot segment rate: 4.62%, up from 4.49% for plan years that began in June;

· Second spot segment rate: 5.62%, up from 5.43% from June; and

· Third spot segment rate: 6.51%, up from 6.18% from June.

The agency also updated the ERISA 4044 interest assumption rates, which are used for determining the present value of annuities for involuntary or distress terminations, as well as valuing benefits under multiemployer plans following a mass withdrawal.

As of July 31, the ERISA 4044 yield curve rates ranged from 4.86% to 6.13%, according to a spreadsheet attached to the update. For June, the rates ranged from 4.74% to 5.66%.

The PBGC also raised late premium payment interest charges, which are used to determine the amount of interest the PBGC assesses on late premiums. The rates are also used to compute certain interest charges when PBGC takes over a plan, including interest on required contributions unpaid as of the termination date.

According to the update, the ERISA 4044 interest rate is 7% for both the current quarter and Q4 2026, up from 6% in Q2 and consistent with Q1.

Applicable federal mid-term rates, the last category of rates the PBGC updated this month, are used to accumulate back payments to missing participants and determine late payment charges under the PBGC’s missing-participant regulations. The rates are also used when PBGC takes over a plan, including to accumulate the value of past benefits owed but not paid.

Each month, the IRS publishes the annual applicable federal mid-term rate as a percentage rounded to two decimal places. That rate is converted to an equivalent monthly rate.

For September, the applicable federal mid-term rate for annual compounding will be 4.49%, a monthly rate of 0.3667%, up from an annual rate of 4.35% this month.