Published on April 9, 2014

PERSONNEL MATTERS: Senate approves pension premium prepayment measure

By Jerry Geisel, Crain News Service

WASHINGTON (April 9, 2014) — Employers would be allowed to prepay up to five years of insurance premiums to the Pension Benefit Guaranty Corp. (PBGC) under legislation approved April 7 by the Senate.

Under the proposal—attached to a broader bill, H.R. 3979, that also would extend unemployment benefits to the long-term unemployed—employers could pay their current year PBGC premium and up to five additional years of premiums starting in 2015. In calculating premiums for future years, employers would use the number of plan participants in the current year. The bill passed on a 59-38 vote.

The prepayment option would only apply to the so-called flat rate premium, which will be $57 per participant in 2015. It would not apply to the variable-rate premium paid by employers with underfunded pension plans.

The appeal of the prepayment approach is that it would shield the employer from future premium increases for up to five years. In 2016, for example, the premium is scheduled to rise to $64 per plan participant, and after that, premiums will rise in tandem with wage inflation.

There are, though, potential risks for employers adopting a multi-year prepayment approach, experts earlier said.

That is because employers, under the legislation, would not receive a premium refund if the number of plan participants fell in succeeding years. With many employers, for example, freezing their plans and participant counts declining, employers that prepay would not be reimbursed for premiums they prepaid for individuals no longer in their plans.

On the other hand, if an employer’s participant count increased in subsequent years, employers that prepaid would have to pay the current year rate on the additional participants.

The broader measure now goes to the House, where Speaker John Boehner, R-Ohio, has shown little interest in bringing the bill to a floor vote.

This report appeared on the website of Crain’s Business Insurance magazine, a Chicago-based sister publication of Tire Business.

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