PLANSPONSOR - April/May 2018 - 82

DB FOCUS
Rising
Costs
PBGC premiums
are high, but
there are ways to
control them
I
nsurance: In theory, it is an arrangement
that brings together large groups
of people to share common risks,
where each pays a charge that is small relative
to the potential exposure. In practice,
though, costs can get out of proportion-
as they have in the case of the premiums
charged to corporate defined benefit
(DB) plans for Pension Benefit Guaranty
Corporation (PBGC) insurance coverage
to make good on pension plan defaults.
To be fair, PBGC's fund covering
single-employer plans built up a sizeable
deficit after the financial crisis, and
the increases in premiums, mandated by
Congress, have gone a long way to shore
it up. But some practitioners see the price
of coverage getting out of hand: " There
are 1,000 private single-employer plans
whose premiums are going to be at least
1% of plan assets, " reports Brian Donohue,
a partner at October Three Consulting in
Chicago and author of a series of papers
on the PBGC premium burden. " It's a
deadweight cost for plans that is just crippling,
so sponsors' efforts to control them
are not surprising. "
" There is a fixed per-participant
charge, and a variable charge on plan
underfunding, and increases in both have
been inexorable, " says Greg Meila, senior
investment director at consulting firm
Cambridge Associates in Boston. " There
were three rounds of increases in just a
few years, so the flat rate premium is 2.4
times what it was in 2007, and the variable
premium is up 4.2 times. "
Another increase is coming in 2019,
82 PLANSPONSOR.com April-May 2018
after which premiums will be hiked by
the rate of inflation. Still, that is not much
relief, says Peggy McDonald, senior vice
president of pension and investment solutions
at Prudential Financial, in Newark,
New Jersey. " The variable premium will
be 4.2% of unfunded liabilities next year,
but, assuming five years of future inflation,
that might rise to 5%. That's a lot of
money. "
While not an increase on PBGC's
part, another change in the landscape
could drive up unfunded liabilities, and
hence insurance costs, she adds. " New
mortality tables will increase assumed
Art by Katherine Streeter
longevity for employees, valuing liabilities
3% to 5% higher, so a plan that is now 5%
underfunded could become 10% underfunded.
A plan in that situation could see
a doubling of its variable premiums. "
Sponsors have a few approaches to
controlling PBGC costs, at least somewhat.
None is particularly new, but they
can still be effective.
One involves " thinking small " -
reducing the number of participants
where possible, to trim the fixed $80 per
participant fee. One popular tactic has
been offering lump sums to terminated
employees with vested benefits. " They

http://www.PLANSPONSOR.com

PLANSPONSOR - April/May 2018

Table of Contents for the Digital Edition of PLANSPONSOR - April/May 2018

2018 Plan Sponsors of the Year
Plan Administration Guide, Part 1
From Strength to Strength
Finding the Best Course
Managed Accounts
Rising Costs
Taking Responsibility
PLANSPONSOR - April/May 2018 - C1
PLANSPONSOR - April/May 2018 - FC1
PLANSPONSOR - April/May 2018 - FC2
PLANSPONSOR - April/May 2018 - C2
PLANSPONSOR - April/May 2018 - 1
PLANSPONSOR - April/May 2018 - 2
PLANSPONSOR - April/May 2018 - 3
PLANSPONSOR - April/May 2018 - 4
PLANSPONSOR - April/May 2018 - 5
PLANSPONSOR - April/May 2018 - 6
PLANSPONSOR - April/May 2018 - 7
PLANSPONSOR - April/May 2018 - 8
PLANSPONSOR - April/May 2018 - 9
PLANSPONSOR - April/May 2018 - 10
PLANSPONSOR - April/May 2018 - 11
PLANSPONSOR - April/May 2018 - 12
PLANSPONSOR - April/May 2018 - 13
PLANSPONSOR - April/May 2018 - 14
PLANSPONSOR - April/May 2018 - 15
PLANSPONSOR - April/May 2018 - 2018 Plan Sponsors of the Year
PLANSPONSOR - April/May 2018 - 17
PLANSPONSOR - April/May 2018 - 18
PLANSPONSOR - April/May 2018 - 19
PLANSPONSOR - April/May 2018 - 20
PLANSPONSOR - April/May 2018 - 21
PLANSPONSOR - April/May 2018 - 22
PLANSPONSOR - April/May 2018 - 23
PLANSPONSOR - April/May 2018 - 24
PLANSPONSOR - April/May 2018 - 25
PLANSPONSOR - April/May 2018 - 26
PLANSPONSOR - April/May 2018 - 27
PLANSPONSOR - April/May 2018 - 28
PLANSPONSOR - April/May 2018 - 29
PLANSPONSOR - April/May 2018 - 30
PLANSPONSOR - April/May 2018 - 31
PLANSPONSOR - April/May 2018 - 32
PLANSPONSOR - April/May 2018 - 33
PLANSPONSOR - April/May 2018 - 34
PLANSPONSOR - April/May 2018 - 35
PLANSPONSOR - April/May 2018 - 36
PLANSPONSOR - April/May 2018 - 37
PLANSPONSOR - April/May 2018 - 38
PLANSPONSOR - April/May 2018 - 39
PLANSPONSOR - April/May 2018 - 40
PLANSPONSOR - April/May 2018 - 41
PLANSPONSOR - April/May 2018 - 42
PLANSPONSOR - April/May 2018 - 43
PLANSPONSOR - April/May 2018 - 44
PLANSPONSOR - April/May 2018 - 45
PLANSPONSOR - April/May 2018 - 46
PLANSPONSOR - April/May 2018 - 47
PLANSPONSOR - April/May 2018 - 48
PLANSPONSOR - April/May 2018 - 49
PLANSPONSOR - April/May 2018 - 50
PLANSPONSOR - April/May 2018 - 51
PLANSPONSOR - April/May 2018 - 52
PLANSPONSOR - April/May 2018 - 53
PLANSPONSOR - April/May 2018 - 54
PLANSPONSOR - April/May 2018 - 55
PLANSPONSOR - April/May 2018 - Plan Administration Guide, Part 1
PLANSPONSOR - April/May 2018 - 57
PLANSPONSOR - April/May 2018 - 58
PLANSPONSOR - April/May 2018 - 59
PLANSPONSOR - April/May 2018 - 60
PLANSPONSOR - April/May 2018 - 61
PLANSPONSOR - April/May 2018 - 62
PLANSPONSOR - April/May 2018 - 63
PLANSPONSOR - April/May 2018 - 64
PLANSPONSOR - April/May 2018 - 65
PLANSPONSOR - April/May 2018 - 66
PLANSPONSOR - April/May 2018 - 67
PLANSPONSOR - April/May 2018 - From Strength to Strength
PLANSPONSOR - April/May 2018 - 69
PLANSPONSOR - April/May 2018 - 70
PLANSPONSOR - April/May 2018 - 71
PLANSPONSOR - April/May 2018 - 72
PLANSPONSOR - April/May 2018 - 73
PLANSPONSOR - April/May 2018 - 74
PLANSPONSOR - April/May 2018 - 75
PLANSPONSOR - April/May 2018 - 76
PLANSPONSOR - April/May 2018 - 77
PLANSPONSOR - April/May 2018 - Finding the Best Course
PLANSPONSOR - April/May 2018 - 79
PLANSPONSOR - April/May 2018 - Managed Accounts
PLANSPONSOR - April/May 2018 - 81
PLANSPONSOR - April/May 2018 - Rising Costs
PLANSPONSOR - April/May 2018 - 83
PLANSPONSOR - April/May 2018 - Taking Responsibility
PLANSPONSOR - April/May 2018 - 85
PLANSPONSOR - April/May 2018 - 86
PLANSPONSOR - April/May 2018 - 87
PLANSPONSOR - April/May 2018 - 88
PLANSPONSOR - April/May 2018 - C3
PLANSPONSOR - April/May 2018 - C4
https://www.plansponsordigital.com/plansponsor/march_april_2024
https://www.plansponsordigital.com/plansponsor/january_february_2024
https://www.plansponsordigital.com/plansponsor/november_december_2023
https://www.plansponsordigital.com/plansponsor/september_october_2023
https://www.plansponsordigital.com/plansponsor/july_august_2023
https://www.plansponsordigital.com/plansponsor/may_june_2023
https://www.plansponsordigital.com/plansponsor/march_april_2023
https://www.plansponsordigital.com/plansponsor/december_2022_february_2023
https://www.plansponsordigital.com/plansponsor/october_november_2022
https://www.plansponsordigital.com/plansponsor/august_september_2022
https://www.plansponsordigital.com/plansponsor/june_july_2022
https://www.plansponsordigital.com/plansponsor/excellenceawards_2022
https://www.plansponsordigital.com/plansponsor/april_may_2022
https://www.plansponsordigital.com/plansponsor/february_march_2022
https://www.plansponsordigital.com/plansponsor/december_2021_january_2022
https://www.plansponsordigital.com/plansponsor/october_november_2021
https://www.plansponsordigital.com/plansponsor/august_september_2021
https://www.plansponsordigital.com/plansponsor/june_july_2021
https://www.plansponsordigital.com/plansponsor/april-may_2021
https://www.plansponsordigital.com/plansponsor/february-march_2021
https://www.plansponsordigital.com/plansponsor/december-january_2021
https://www.plansponsordigital.com/plansponsor/october-november_2020
https://www.plansponsordigital.com/plansponsor/august-september_2020
https://www.plansponsordigital.com/plansponsor/june-july_2020
https://www.plansponsordigital.com/plansponsor/april-may_2020
https://www.plansponsordigital.com/plansponsor/february-march_2020
https://www.plansponsordigital.com/plansponsor/december-january_2020
https://www.plansponsordigital.com/plansponsor/october-november_2019
https://www.plansponsordigital.com/plansponsor/august-september_2019
https://www.plansponsordigital.com/plansponsor/june-july_2019
https://www.plansponsordigital.com/plansponsor/april-may_2019
https://www.plansponsordigital.com/plansponsor/february-march_2019
https://www.plansponsordigital.com/plansponsor/december_2018-january_2019
https://www.plansponsordigital.com/plansponsor/october-november_2018
https://www.plansponsordigital.com/plansponsor/august-september_2018
https://www.plansponsordigital.com/plansponsor/june-july_2018
https://www.plansponsordigital.com/plansponsor/april-may_2018
https://www.plansponsordigital.com/plansponsor/february-march_2018
https://www.plansponsordigital.com/plansponsor/december_2017-january_2018
https://www.plansponsordigital.com/plansponsor/november_december_2017
https://www.plansponsordigital.com/plansponsor/october_2017
https://www.plansponsordigital.com/plansponsor/september_2017
https://www.nxtbookmedia.com