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Higher PBGC Premiums Impetus to Improve Funding

A majority of plans are looking for ways to improve their funding. But the reason is not just the need to make retirement benefits more secure for current and future retirees — they’re also doing so in order to avoid impending Pension Benefit Guaranty Corporation (PBGC) premium hikes, according to NEPC.

NEPC, an investment consulting firm based in Cambridge, Mass., says that two-thirds of corporate pension plans are going to change how they manage their plans to accomplish that result. NEPC Partner Brad Smith in remarks to Chief Investment Officer attributed that to the looming increase in PBGC flat-rate and variable-rate and flat-rate premiums by 35% and 25%, respectively.

Mid-sized plans — plans the NEPC defines as having assets of $250 million to $1 billion — are the most sensitive to the higher premiums, CIO reports, while plans with more than $2 billion in assets are less so.

Higher contributions, pension risk transfers and lump sum payouts are among the devices by which plans are trying to reduce the likelihood of having to pay the higher premiums, CIO says. In addition, Smith says, a growing number of plans are considering partial terminations.