Corporate Pensions Weigh Options As They Look to Avoid Higher PBGC Premiums: Survey

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Flat-rate and variable-rate premiums are set to increase significantly over the next three years, and that’s forcing corporate pension plans to consider changing the way they manage themselves, according to a new survey.

More on the NEPC survey, from CIO:

Two-thirds of corporate pensions will change how they manage their plans in response to skyrocketing Pension Benefit Guarantee Corporation (PBGC) premiums, according to NEPC.

With flat-rate and variable-rate premiums set to increase over the next three years by 25% and 35%, respectively, plan sponsors are looking for ways to close funding gaps, NEPC Partner Brad Smith told CIO.

“A lot of our clients were saying, ‘Hey, this is a big deal, this has got our attention,’” Smith said. “Given the magnitude of the increase, it’s not really surprising.”

To avoid paying increasingly costly PBGC premiums—up this year to a $64 fixed rate and $30 variable rate—plan sponsors are turning to higher contributions, lump sum payouts, and pension-risk transfers.

Of the 66% who planned on changing their plans, 32% said they were considering making higher contributions. Another 32% cited the possibility of lump sum payouts.

A smaller proportion, 17%, said they would look into partial risk transfers.

“We’ve seen over the years a pretty significant increase in the number of plan sponsors at least evaluating the merits of a partial plan termination, and for those plan sponsors on the bubble this could be the data point they need to make it more economical for it to occur,” Smith said.

 

Photo by Sarath Kuchi via Flickr CC License

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