PBGC Provides Guidance for New Premium Rules

September 4, 2012 (PLANSPONSOR.com) – The Pension Benefit Guaranty Corporation (PBGC) issued Technical Update 12-1, providing guidance for new regulations regarding PBGC premiums.

The Moving Ahead for Progress in the 21st Century Act (MAP-21) establishes stabilization rules that limit the volatility of certain discount rates that are used for funding purposes by constraining them within a corridor (see “DB Sponsors Have Incentive to Keep Plans Well-Funded”).  MAP‑21 also amends Employee Retirement Income Security Act (ERISA) section 4006(a)(3)(E) to provide that the stabilization rules do not apply to the discount rates used to determine the variable-rate premium “notwithstanding any regulations issued by [PBGC].” Thus the stabilization rules do not apply to the discount rates used to calculate the standard premium funding target under ERISA section 4006(a)(3)(E) and § 4006.4(b) of PBGC’s regulations or to the alternative premium funding target under section § 4006.5(g) of PBGC’s regulations.  

The asset value used to determine the variable-rate premium continues to be the amount determined under ERISA section 303 for funding purposes, taking into account the rules about disregarding averaging and certain prior-year contributions in § 4006.4(c) of PBGC’s regulations (generally, the amount required to be reported on line 2a of Schedule SB of Form 5500).  This is the case even if contributions made after the valuation date were discounted for funding purposes using an effective interest rate that was based on stabilized rates.  

Effective beginning in 2013, MAP-21 changes the flat and variable premium rates, and puts a cap on the variable-rate premium.  Each flat or variable rate is subject to a different inflation adjustment, and the variable-rate premium cap has its own inflation adjustment.  

The Technical Update is at http://www.pbgc.gov/res/other-guidance/tu/tu12-1.html.