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PBGC Premiums: Surprising See-Saw

Government Affairs

That playground see-saw is more than a reverse-direction teeter-totter. It’s an apt simile for the paradox a recent white paper discusses concerning Pension Benefit Guaranty Corporation (PBGC) premiums.

In “The PBGC Premium Burden Report — 2019,” the defined benefit administration and consulting firm October Three presents bad news and good news, burdens and surprising gains — and their findings suggest that PBGC premiums are in some ways a paradox.

“As documented in prior reports, PBGC premiums have risen dramatically in the past decade, becoming the most significant source of plan overhead cost for thousands of pension plans,” says the paper.

But despite the increase in PBGC premium rates, in 2018 single-employer plan sponsors paid $1.2 billion less in premiums than they did the year before, the paper says, calling it “a stunning 18% reduction following years of relentlessly higher premiums.”

Why the sudden reversal? October Three attributes it to:

  • large voluntary contributions by plan sponsors;
  • strong asset returns in 2017;
  • greater awareness; and
  • aggressive management of premiums.

The paper says that flat rate premiums continued to rise, but that in 2018 as in 2017, variable rate premiums fell dramatically. It attributed that to plans being better funded, employer contributions, benefit accruals and capital market fluctuations.

And there was good news by another measure, the paper reports. PBGC premiums as a percentage of assets have been falling since 2016 as an average for all plans overall, and since 2017 for all plans with a variable rate premium.

And those results held for plans of all sizes — small, medium-sized and large. Still, the report does note that PBGC premiums are a heavier burden for small plans than large plans as a percentage of assets. They averaged more than 0.80% of plan assets for small plans paying a variable rate premium for 2016-2018; for large plans they averaged 0.50% of assets for large plans.

And many plans could have done even better, October Three says — there were plans that because of recordkeeping errors and missed opportunities to accelerate payments ended up overpaying their premiums. Plans of all sizes fell prey to such errors, they found.


Like the see-saw’s central axis, October Three adds a note of balance to the 2018 results. They note that PBGC premiums are still “a major burden” and that burdens in 2018 still were more than three times as high as they were in 2008.

October Three expects premiums to “jump back up” this year, which they attribute to poor asset performance in 2018 and increases in premium rates, which they characterize as “relentless.” They anticipate increases in 2019 for headcount premiums from $74 to $80, and for variable premium rates from 3.8% to 4.3%. The paper also says that they expect variable rate premiums to increase in 2019 since assets performed poorly for most plan sponsors in 2018.

And October Three cautions against taking too much stock in the 2018 results, writing that the PBGC Premium Burden “remains a major threat to pensions.” They suggest keeping attention to premiums a “central part of viable pension management for the foreseeable future.”

The paper also suggests that plan sponsors look to large plans as a model for how to handle rising PBGC premiums. For instance, it says, large plans have done a good job of adopting best practices regarding timing and recording pension contributions, and that they avail themselves of sophisticated internal resources and access to external advice.