By: Russ Kamp, CEO, Ryan ALM, Inc.
On Wednesday of this week, I produced a blog post highlighting the dramatic improvement in the Pension Benefit Guaranty Corporation’s (PBGC) financials. I questioned why the premiums paid by both private pensions and mutliemployer pensions needed to be so high given the current strength with a >$64 billion surplus. Furthermore, I considered that these premiums have gone from being a necessity to a burden today. That burden is one contributor to DB pension plans continuing to be frozen, terminated, and the liabilities eventually transferred to an insurance company.
Well, wouldn’t you know. Just yesterday I read that the PBGC has raised the premium rates applicable for plan years beginning in 2027, which they announced on Oct. 14. Those rates were increased in accordance with the indexing rules provided in Section 4006 of ERISA. Just because they can raise those premiums based on Section 4006, should they? Here are the details from the PBGC.
Rates for Single-employer Plans
Per-participant rate for flat-rate premiums. The per-participant rate for flat-rate premiums will be $116 for 2027. The increase in this rate for 2027 are comparable to those the PBGC set for 2026 compared to 2025, as well as those it set for 2025 compared to 2024 and for 2024 compared to 2023. And as with those other years, the increases from 2026-2027 are generally substantially below the increases in the rates from 2022 to 2023. For all those years, the PBGC increased this premium by $5 from year to year.
Per-participant cap. The per-participant cap for 2027 is $783, $32 higher than that the PBGC set for 2026. That’s a slightly smaller increase than the $34 increase from 2025 to 2026, but bigger than the $31 increase from 2024 to 2025.
The premium rate per $1,000 in unfunded vested benefits (UVBs). The last time this rate has increased was from 2022 to 2023; since then, it has been $52 and will be at that rate for 2027 as well.
Rates for Multiemployer Plans
The per-participant rate for flat-rate premium for multiemployer plans increased by much smaller amounts and the rate per $1,000 in UVBs for single-employer plans stayed the most stable. The per-participant rate for flat-rate premiums for 2027 will be $42, a $2 increase over the 2026 rate. This PBGC has increased this rate by $1 to $3 ever since 2018.
Indexation
For 2019 and earlier years, the PBGC premium rates and the variable rate premiums (VRPs) were not indexed; from 2020-2023, all premium rates and the VRP cap were subject to indexing. Starting in 2024, indexing of the VRP rate stopped; however, all other premium rates and the VRP cap still are indexed.
Again, just because they can increase rates, does it mean that they should? The PBGC should not be a profit center. Yes, markets go up and down and surpluses can be impacted, but a $64 billion surplus seems extreme, especially if the burden of supporting a DB plan becomes more challenging. We need DB pension plans, as asking the American worker to fund, manage, and disburse a “retirement” benefit through a DC offering is just silly given their lack of disposable income, investment acumen, and NO crystal ball to help with longevity. We can and should do better as a pension industy.
