Plan sponsors overpaying PBGC premiums — study

Defined benefit plan sponsors overpaid $700 million in Pension Benefit Guaranty Corp. premiums in the past six years by not following best practices, according to a research report released Monday by October Three Consulting.

The firm analyzed public Form 5500s and the PBGC's historical premium database for 23,000 single-employer plans, with a focus on the 5,000 plans with at least 250 participants that represented more than 96% of the premiums paid.

In 2015 alone, those larger plans paid $145 million in premiums that could have been avoided, according to October Three, and 65% of eligible companies paid too much in variable-rate premiums.

Strategies for reducing PBGC premium costs include understanding and optimizing the rules for recording and timing plan contributions, October Three said. For example, a $10 million contribution made as late as Sept. 15, 2017, could be considered a “grace period” contribution for the 2016 plan year, reducing the 2017 PBGC premium by about $340,000.

PBGC premiums have tripled in the past five years, rising to $6.4 billion in 2016 from $2.1 billion in 2011, and are scheduled to increase another 25% to 50% by 2019.

“PBGC premiums have become a major source of overhead costs for pension sponsors,” said Brian Donohue, October Three partner and actuary, in a statement. “Many plans have failed to adopt best practices, missing out on simple but significant savings opportunities in past years. As premium rates continue to increase in the years ahead, a greater attention to effectively managing these premiums will be crucial to successful pension financial management.”