PBGC Revises Timeline to Calculate Premiums
The Pension Benefit Guaranty Corp. (PBGC) recently issued new guidance that gives single-employer pension plan sponsors an opportunity to reduce the variable-rate premiums that they owe for 2020, if they were planning on delaying their 2019 contributions until after they filed their premiums.
The new guidance, which was issued on Sept. 21, complements changes in defined benefit plan contribution schedules made by the Coronavirus Aid, Relief and Economic Security (CARES) Act. The guidance allows plan sponsors to potentially get a refund on previously paid premiums in 2020 by counting 2019 contributions made through the end of the year toward their variable-rate premium calculations.
Aligning Variable-Rate Premium Calculations with CARES Act Deadlines
The CARES Act, passed in March, allows plan sponsors to suspend required contributions to pension plans until Jan. 1, 2021. It does not, however, make any accommodations for determining variable-rate premium payments, which are calculated based on the funded status of the plan.
Under normal rules, the funded status for 2020 premiums can be reduced with 2019 receivable contributions made during 2020, but only if they are made by the date of the filing.
Under the new PBGC guidance, plan sponsors still need to adhere to the Oct. 15 deadline to pay premiums based on the contributions made by that date. But now, when 2019 plan year contributions are made between Oct. 15 and Jan. 1, 2021, plan sponsors can amend their premium filings with the lower funded status and request a refund for the reduced amount. This is now similar to the DOL’s guidance on amending the Form 5500 after making 2019 receivable contributions.
September Guidance Overrides July Q&A
The September guidance reverses guidance that the PBGC gave in its July Questions and Answers. The July Q&A said that even though plan sponsors had until Jan. 1, 2021 to make contributions, 2020 premium payments would continue to be based on contributions up until Oct. 15, based on the rules already in place. The new September guidance changed the PBGC’s position from the Q&A, allowing contributions after the Oct. 15 filing date to count toward the premium payment for this year.
Insight: New Guidance Doesn’t Change Oct. 15 Payment Deadline
It is important to reiterate that plan sponsors still need to make their PBGC premium payments by Oct. 15, but plan sponsors planning on making contributions later in the year don’t need to rush those contributions to get the benefit of lower premiums for 2020.
Getting that refund requires the additional administrative step of refiling at the end of the year, but savings could be significant. This year, the variable-rate premium is $45 per $1,000 of unfunded vested benefits (capped at $561 per participant). That means premiums get reduced 4.5 percent of contributions, up to the per-participant cap (or upon reaching 100% funding).