PBGC Premiums Increased
Rev. 02/24/06, E-mail Alert 2006-4

In order to help cover the mounting costs facing the Pension Benefit Guaranty Corporation, the Deficit Reduction Act of 2005 (not to be confused with DRA ‘ 84) increases PBGC premiums. The law was signed on February 8, 2006.

PBGC Premium Increases. The Deficit Reduction Act of 2005 increases Pension Benefit Guaranty Corporation (PBGC) premiums for both single employer and multiemployer defined benefit plans. Effective with the 2006 plan year, the premium for single employers will increase from $19 to $30 per participant. Simultaneously, the multiemployer premium will increase from $2.60 to $8.00 per participant. In future years, both the single and multiemployer premiums will be subject to cost of living adjustment (COLA) based on the wage-based index that is used for the social security COLA rounded to the nearest dollar. A mere two decades ago, some industry experts were alarmed when, in 1986, the premium more than tripled from $2.60 to $8.50 per participant. Aah, the good ole days!

Bankruptcy filing special assessment. If, after December 31, 2005, an underfunded defined benefit plan is terminated under distress termination provisions or under involuntary termination proceedings, an additional premium surcharge of $1,250 per participant will be imposed, when the employer emerges from bankruptcy like United airlines just did. This annual surcharge is payable for each of three years, bringing the total to $3,750 per participant. This new exit fee is only applicable to employers filing for bankruptcy on or after October 18, 2005. Thus, United will not be charged this fee. Additionally, though they have not yet emerged from bankruptcy Delta and Northwest airlines will also not be charged this fee; since their filings preceded the October 18 th date when the new bankruptcy law took effect. This surcharge provision will sunset on December 31, 2010, unless extended.

Effective Date. The PBGC has advised that the new rates are effective retroactively to January 1. Employers who filed estimated premiums based on the old rate, will need to submit an amended filing.

Links for more information.
For more details on filing with the PBGC click here.
For PBGC premium forms and instructions click here.
For PBGC premium history click here.