Some plan sponsors are paying more PBGC premiums than they should, according to an analysis released Thursday by actuarial consulting firm October Three.
Since 2011, some employers have paid $525 million more in premiums than they needed to, through "completely avoidable" missed opportunities, said the fourth annual report on premiums paid to the Pension Benefit Guaranty Corp. by 5,000 defined benefit plans.
The PBGC Premium Burden report noted that some sponsors have taken various steps to reduce PBGC premiums, including making voluntary contributions to reduce variable premiums, and offering annuities or lump sums to reduce headcount.
The additional $525 million in potential savings could come from taking advantage of rules related to timing and recording of plan contributions, managing funding balances and making strategic elections of premium calculation methods, the report said.
While some sponsors elect the standard method for calculating premiums, October Three characterizes the alternative method as the best practice.
In 2019, the firm saw more than 100 employers switch to the standard method to reduce their 2019 premiums, but that "may prove to be costly" for 2020 calculations, said the report, which recommends considering the switch closer to the end of the year, the extended election date for many plans.
