The Bipartisan Budget Act of 2015 has significant implications for pension plan sponsors, according to Jon Waite of SEI Institutional. The director of the advisory team and chief actuary for the firm told ThinkAdvisor on Wednesday that the bill touches on three areas that will affect sponsors differently.
The biggest change is in the premiums that sponsors pay to the Pension Benefit Guaranty Corp. Sponsors won’t be impacted until 2017, he said, but the increases are significant.
“Plan sponsors in general expected to see more increases come. I don’t think they expected it to come this soon, or this level of an increase. It’s not good news for plan sponsors,” he said.
The premiums include a flat, per-participant rate and a variable rate based on the plan’s underfunded level. “The per-participant charge is increasing substantially over the next several years, all the way up to $80 per participant. It’ll be even more than that plus inflation,” Waite said.
The flat rate premium for plan years beginning in 2016 is $64 for single-employer plans and $27 for multiemployer plans. In 2017, the premium for single-employer plans will increase to $69, then $74 in 2018 and $80 in 2019. The premium for multiemployer plans will remain $27.
The variable rate will increase from $30 in 2016 to $33 in 2017 and will reach $41 by 2019. After 2019, all rates are subject to indexing, according to the PBGC.
Regarding the variable rate, the question is, “how much can plan sponsors and do plan sponsors want to contribute to the plan to help solve this,’” Waite said. “For every dollar you put in, you get a 4% return in the plan because you’re paying less of this variable premium. The question will be, ‘Where is this money best spent: in the pension plan or invested in the business of the plan sponsor?’”