PBGC Publishes Final Rules on Premium Rates and Payments

The Pension Benefit Guaranty Corporation (PBGC) has published final regulations on premium rates and payment of premiums mandated by provisions of the Deficit Reduction Act of 2005 and the Pension Protection Act of 2006.

The final rules, effective January 16, 2008, change the flat premium rate, cap the variable-rate premium in some cases, and create a new “termination premium” that is payable in connection with certain distress and involuntary plan terminations.

The PBGC flat-rate premium and per-participant variable-rate premium for single-employer pension plans are changed from $19 and $2.60, respectively, to $30 and $8, respectively. The rules also call for inflation adjustments to these premiums based on changes in the national average wage index as defined in the Social Security Act, with a two-year lag.

According to the regulation, if the change in the national average wage index is negative, the premiums will not decrease, but will be the same as in the prior year. Additionally, premium rates will be rounded to the nearest whole dollar.

The final rule provides for a cap of the new variable rate premium for plans with 25 or fewer employees at the beginning of the plan year. The PBGC points out that under new law the applicability of the new cap does not necessarily depend on the size of a single employer, but rather depends on the size of a plan’s controlled group. An eligible plan’s total variable-rate premium is capped at an amount equal to $5 multiplied by the square of the participant count.

The new termination premium applies to plans terminated after December 31, 2005, according to the regulations. If a plan ““is terminated during the pendency of any bankruptcy reorganization proceeding under chapter 11 of title 11, United States Code (or under any similar law of a State or political subdivision of a State) occurring before October 18, 2005,” the new premium does not apply.

The termination premium is payable each year for three years.

Types of terminations covered and other details are included in the regulation published in the Federal Register for December 17.

The final regulations are available here.