PLANSPONSOR - October-November 2022 - 14
UPFRONT
Considering PBGC Premium Strategies?
PLAN SPONSORS of defined benefit
plans have an opportunity each fall to
change how their Pension Benefit Guaranty
Corporation
insurance
premiums
are
calculated, factoring in current market
dynamics, in order to save money. This
year's rising interest rates and inflation
meant some sponsors deemed it sensible
to change their calculations. Still, it is not
a straightforward process for all.
Premium minimums and caps get
calculated by the PBGC annually. For this
year, the variable rate premium was 4.8%
of the plan's 2022 unfunded vested benefits
up to a cap of $598 per participant.
According to the PBGC, DB sponsors
with underfunded plans may calculate
their premium payments in one of two
ways: the spot rate, which uses interest
rates from the month prior to the start of
the plan year, or the alternative method,
which uses the average interest rate over
the past 24 months. Once sponsors elect
a calculation method, they have to keep
it for five years. For instance, plan sponsors
that were able to make a change this
year, and elected to do so before October
15, started their five-year clock.
When interest
rates were low for
many years in a row, this choice had little
" There's a decline in assets
because of market performance,
but there is not a corresponding
decline in liabilities. "
14 PLANSPONSOR.COM October - November 2022 Art by James Heimer
impact on premiums. Now that rates are
rising, when they rise and by how much
can help or hurt the size of payments,
says Tonya Manning, chief actuary and
wealth practice leader at pension consultancy
Buck.
" There's a decline in assets because
of market performance, but there is not
a
corresponding decline
in liabilities, "
Manning explains. " Usually the way
the market works if assets go down and
interest rates go up, you have a gap between
assets and liabilities that holds relatively
steady. But, right now, the change in assets
and the change in interest rates [are] not
moving in the same magnitude. "
Buck explains that sponsors using
the spot rate will realize the recent rise in
interest rates. Sponsors using the alternative
method may not fully capture the
rise because the 24-month average will
be brought down by the lower rates of
2021. So, each calculation can come away
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PLANSPONSOR - October-November 2022
Table of Contents for the Digital Edition of PLANSPONSOR - October-November 2022
INSIGHTS
INDUSTRY ANALYSIS
RULES & REGULATIONS
UPFRONT
Deep Dive
Managing Volatility
New Solutions
Participant ESG Demands
Good Practices
FIDUCIARY FORUM
INSIDE ANGLE
PLAN PROFILE
PLANSPONSOR - October-November 2022 - Cover1
PLANSPONSOR - October-November 2022 - Cover2
PLANSPONSOR - October-November 2022 - 1
PLANSPONSOR - October-November 2022 - INSIGHTS
PLANSPONSOR - October-November 2022 - 3
PLANSPONSOR - October-November 2022 - RULES & REGULATIONS
PLANSPONSOR - October-November 2022 - 5
PLANSPONSOR - October-November 2022 - 6
PLANSPONSOR - October-November 2022 - 7
PLANSPONSOR - October-November 2022 - 8
PLANSPONSOR - October-November 2022 - 9
PLANSPONSOR - October-November 2022 - UPFRONT
PLANSPONSOR - October-November 2022 - 11
PLANSPONSOR - October-November 2022 - 12
PLANSPONSOR - October-November 2022 - 13
PLANSPONSOR - October-November 2022 - 14
PLANSPONSOR - October-November 2022 - 15
PLANSPONSOR - October-November 2022 - Deep Dive
PLANSPONSOR - October-November 2022 - 17
PLANSPONSOR - October-November 2022 - 18
PLANSPONSOR - October-November 2022 - 19
PLANSPONSOR - October-November 2022 - 20
PLANSPONSOR - October-November 2022 - 21
PLANSPONSOR - October-November 2022 - 22
PLANSPONSOR - October-November 2022 - 23
PLANSPONSOR - October-November 2022 - 24
PLANSPONSOR - October-November 2022 - 25
PLANSPONSOR - October-November 2022 - Managing Volatility
PLANSPONSOR - October-November 2022 - 27
PLANSPONSOR - October-November 2022 - 28
PLANSPONSOR - October-November 2022 - 29
PLANSPONSOR - October-November 2022 - New Solutions
PLANSPONSOR - October-November 2022 - 31
PLANSPONSOR - October-November 2022 - 32
PLANSPONSOR - October-November 2022 - 33
PLANSPONSOR - October-November 2022 - Participant ESG Demands
PLANSPONSOR - October-November 2022 - 35
PLANSPONSOR - October-November 2022 - Good Practices
PLANSPONSOR - October-November 2022 - 37
PLANSPONSOR - October-November 2022 - FIDUCIARY FORUM
PLANSPONSOR - October-November 2022 - INSIDE ANGLE
PLANSPONSOR - October-November 2022 - PLAN PROFILE
PLANSPONSOR - October-November 2022 - Cover3
PLANSPONSOR - October-November 2022 - Cover4
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