Pension Changes from COVID Relief: Multi-Employer Plans

Estimated reading time: 4 minutes

The fifth round of COVID relief, the American Rescue Plan Act of 2021 (ARPA) was signed by President Biden on March 11, 2021. There are several changes in the details of the law that affect pension plan sponsors. This article focuses on changes to multi-employer plans. If you are a sponsor of or participate in a single employer plan, please check out our update on those changes here: Pension Changes from COVID Relief: Single Employer Plans.

Like the changes to the single employer system, the changes to the multi-employer system also contained modifications to reduce the amount of the annual required contribution, however, the primary purpose of the law was to provide governmental financial assistance to significantly underfunded plans.  

Reform concept. Stacked Wooden letters on the office desk.  Multi-Employer Plans Impact from the American Rescue Plan Act of 2021 (ARPA).

Special Financial Assistance

Troubled multi-employer plans will be eligible to receive funding from the PBGC necessary to keep the plan solvent until at least 2051, with no reduction in participant benefits. Eligible plans include:

  1. plans in critical and declining status for any plan year beginning in 2020 through 2022
  2. plans that have approved benefit suspensions
  3. plans in critical status with a modified funded percentage of less than 40%, and a ratio of active to inactive participants which is less than two to three
  4. plans that became insolvent after December 16, 2014, and have remained insolvent and not been terminated

Any plan receiving special financial assistance would be deemed to be in critical status until the last day of the plan year ending 2051. The funds received would be segregated from other plan assets and only invested in investment grade bonds or other investments permitted by the PBGC. Any benefit reductions from a previously approved benefit suspension would have to be reinstated prospectively for participants and beneficiaries and no future suspensions would be permitted. 

Multi-employer plans have until December 31, 2025, to apply to the PBGC for special funding assistance. Once submitted, the PBGC will have 120 days to reject the application. If the application is not rejected within 120 days, it is deemed to be approved.  If the original submission is rejected, funds would have until December 31, 2026 to submit a revised application.

One of the primary differences between the new law and the original Butch Lewis Act is that in the original bill the PBGC financial support was in the form of a loan that was to be paid back over 30 years. The new law does not contain this requirement.

The PBGC is required to provide regulatory guidance within 120 days of the enactment of the Law.

Delayed Status Recognition and Extended Recovery Periods

The new law allows plans to delay the recognition of any funding status changes (Endangered, Critical, or Critical and Declining) until the first plan year beginning on or after March 1, 2021 (or the next succeeding plan year) and permits plans with funding improvement or rehabilitation plans not to update their funding improvement or rehabilitation plans and schedules for this designated plan year. In addition, for plans in endangered or critical status for a plan year beginning in 2020 or 2021, the new law allows them to extend their rehabilitation period by five years. These changes allow funds additional time to recover from the economic impact of COVID both on the economy and the financial markets.

Extended Amortization Bases for 2020 Market Losses

Similar to legislation passed after market declines in 2008 and 2009, plans would be permitted to amortize the impact of investment losses for the first two plan years ending after February 29, 2020 over a 30 year period. This is an extension of the current requirement to amortize gains and losses over a 15 year period.

Increase in PBGC Premiums

The new law will increase the PBGC premiums paid by multi-employer plans from the current $31 per participant to $52 per participant but this doesn’t kick in until 2031. Future increases will be indexed for inflation.


The new law will provide a lifeline to many multi-employer funds that have been most impacted by the economic changes over the past 15 years. Without this much-needed relief, hundreds of thousands of retirees were facing significant reductions in their retirement benefits. Also, the additional time granted to allow Rehabilitation and Funding Improvement Plans and the ability to recognize 2020 investment losses over a longer period will lower the impact of the current economic conditions for many plans.

If you have any questions regarding how the ARPA might have impacts on your multi-employer pension plan, we encourage you to contact the Findley consultant you normally work with, or contact us in the form below to start the conversation on how this can impact your multi-employer plan.

Published March 11, 2021

Print the article

Copyright © 2021 by Findley, A Division of USI. All rights reserved.

Pension Changes from COVID Relief: Single Employer Plans

Estimated reading time: 4 minutes

The fifth round of COVID relief, the American Rescue Plan Act of 2021 (ARPA) was signed by President Biden on March 11, 2021.  There are several changes in the details of the law that affect pension plan sponsors. This article focuses on changes to Single Employer plans. If you are a sponsor of or participate in a multi-employer plan, please check out our update on those changes here: Pension Changes from COVID Relief: Multi-Employer Plans.

While changes to the multi-employer system were designed to provide funding to significantly underfunded plans, the single-employer changes were designed to reduce the funding requirements for plans for the rest of the decade.

Extended Amortization Period

Since the Pension Protection Act (PPA) went into effect in 2008, the actuary calculates the change in the funded status of the plan every year.  A new base is set up each year to amortize unexpected changes in the funded status over seven years. As a result, most single employer plans currently have seven amortization bases. The new law wipes away all the old bases and resets all underfunding in one new base.  This base, and all future bases, will be amortized over 15 years instead of seven. This would be similar to refinancing a loan over a new longer period in order to reduce the required payment.

Extension of Interest Rate Stabilization

As interest rates continue to hover near historical lows, pension plan sponsors feel the pinch. Since pension liabilities are discounted using bond yields, low yields make for higher liabilities. The original Pension Protection Act (PPA) law was set to use a 24-month average of corporate bond rates. Later, an upper and lower boundary was created based on a 25-year average of corporate bond rates for the purpose of determining the minimum required contribution. The boundaries were set to start expanding in 2021 and effectively would have been fully phased out by 2024. Because current interest rates are lower than historical rates, this would lead to higher required contributions at a time when businesses can least afford them. Hence, the need for a law change.

Under the new law, the corridor’s range is being narrowed and won’t start widening until 2026. This will keep rates more level and mitigate the impact of the currently low interest rates for years. Finally, in an attempt to avoid having to re-visit these rules again if interest rates remain at historical lows, a 5% floor has also been added. Meaning, the interest rate used to determine the required contribution won’t drop below 5.0% regardless of market conditions. The chart below will help you understand how much the new law moves the needle.

Chart - Impacts of ARPA on Single Employer Plans - Interest Rates to be Used for Minimum Funding Purposes

Other Items

It is important to note that the extended amortization period can be retroactive to plan years beginning in 2019 and the extension of interest rate stabilization can be retroactive to plan years beginning in 2020. Even though many valuations have already been completed it may be advantageous to revise those reports in order to take advantage of the new law. 

There also is the ability to not have the new law apply until 2022. An election form will be needed for most single employer pension plan sponsors regardless as sponsors can specify not only when the new law applies but also for which purposes. There is also an extension of special funding rules that apply only to community-based newspapers.


It is important to note what is not included in the relief package: reductions to PBGC premiums. Contrary to the PBGC Multiemployer Trust which was projected to go bankrupt in 2026, the Single Employer Trust is overfunded and projected to increase overfunding each year moving forward. However, even with this projected overfunding neither of the changes outlined above alter the skyrocketed premium increases that occurred during the last decade.
It is important for plan sponsors to keep in mind that making lower contributions will likely increase their PBGC premiums and the management of those premiums will be a significant driver of funding decisions in the future. Even with lower contribution requirements, it may be prudent to make higher contributions in order to improve the plan’s funded status and lower PBGC premiums.

If you have any questions regarding how the ARPA might be impacting your single-employer pension plan, we encourage you to contact the Findley consultant you normally work with, or contact us in the form below to start the conversation on how this can impact your single employer plan.

Published March 11, 2021

Print the article

Copyright © 2021 by Findley, A Division of USI. All rights reserved.

PBGC Clarifies Rules around Pension Plan Changes Made by CARES Act

On July 20th, the PBGC published an update for how to calculate PBGC premium payments for pension plan sponsors that are taking advantage of the delayed contribution due dates afforded by the CARES Act. Further, it provides relief from unneeded filings. Employers that are taking advantage of the delayed due dates should read on. 

Updated Message

The PBGC changed the deadline for reflecting 2020 contributions on the PBGC form and now contributions made as late as December 31, 2020 can be counted toward the 2020 premium. The plan sponsor would complete the PBGC premium filing on October 15 as usual not reflecting the contributions and then amend both the Form 5500 and PBGC forms in early 2021 reflecting the 2020 contributions. You can find out more in our updated article, Quarterly Contributions: To Delay or Not to Delay. PBGC Premium Savings Either Way

Of important note, contributions can only be included as assets for PBGC variable premium calculations if the contribution is made by the date of the filing.  So an employer looking to make their premium payment on the last day possible, October 15th for calendar-year plans, can only include 2019 receivable contributions up to that date, even though some 2019 contributions may still be made after that date.  Furthermore, the PBGC will not accept an amended filing by an employer looking for a premium credit once those delayed contributions are made. 

PBGC Clarifies Rules around Pension Plan Changes Made by CARES Act

The PBGC clarified for employers that as long as they make their required contributions by the adjusted due date, no late contribution notice requirements are triggered.  If contributions are not made by the revised dates, the usual reporting requirements will then apply.

Further miscellaneous provisions related to distress termination and early warning program inquiries are also included but will only apply to a limited number of pension plans.  The full Q&A style release can be found here.

For more information about adjusted due dates, late contribution guidelines, or pension plan changes, please contact Matt Klein in the form below.

Published July 21, 2020

Copyright © 2020 by Findley, Inc. All rights reserved

Filing Extensions to July 15th for Approaching Form 5500 and PBGC Deadlines

A pair of government releases provides Form 5500 filing deadline relief for employee benefit plans, and PBGC filing relief for pension plans.

On April 9th, the IRS released Notice 2020-23, in which the Secretary of the Treasury determined that any person required to perform a time-sensitive action between April 1, 2020 and July 15, 2020 is affected by the Coronavirus/COVID-19 emergency. That includes filing a Form 5500 for an employee benefit plan, among other things. Any filing that is due on or after April 1, 2020, and before July 15, 2020, is automatically postponed to July 15, 2020. This is true for original filing deadlines and those obtained via a previous filing for extension. It is also automatic, so there is no need to contact the IRS or file any extension forms.

Filing Extensions to July 15th for Approaching Form 5500 and PBGC Deadlines

On April 10th, in Press Release Number 20-02, the Pension Benefit Guaranty Corporation (PBGC) announced it is offering flexibility to pension plan sponsors in response to the Coronavirus/COVID-19 outbreak.  Any deadlines for upcoming premium payments, and for other filings that originally fell on or after April 1, and before July 15, 2020, have been extended to July 15, 2020. So this includes regular premium filings as well as 4010 filings, but there are exceptions for filings that the PBGC requires related to tracking possible high risk of harm to participants or the PBGC’s insurance program. Some examples of exceptions are notification of large missed contributions through Form 200 and advanced notice of reportable events through Form 10-Advance. For a list of filings not covered by disaster relief announcements, see the PBGC’s Exceptions List.

These two releases provide welcome news for benefit plan sponsors with original deadlines approaching very quickly. However, it does not address deadlines for sponsors of plans with calendar year measurement periods. As more unfolds about how and when the stay-at-home requirements begin to be lifted, we may see additional deadline relief from the IRS and PBGC. Findley will continue to monitor these events and keep you updated.

Questions? Contact the Findley consultant you normally work with, or contact Colleen Lowmiller at, 216.875.1913.

Published April 14, 2020

Print the article

© 2020 Findley. All Rights Reserved.

Coronavirus Crisis Workforce Reduction Can Adversely Affect Retirement Programs

The coronavirus pandemic continues to ripple across the country and many organizations face several unprecedented, difficult decisions surrounding their workforce and the use of cash. While payroll-reducing strategies may be necessary during this time of substandard revenue, they may also present other costs or hurdles in the company’s pension, retiree medical, and retiree life insurance programs. Significantly changing employee demographics can trigger unexpected accounting, cash flow, and compliance issues that could be an unwelcome surprise given current market conditions.

State mandated stay-at-home orders not only reduce the ability for consumers to purchase, but also the need for employees to produce. For many industries, this means downsizing workforces and payroll at record levels via layoffs, furloughs, reductions in force, and salary cuts. However, in this time where management decisions are focused on the best positioning of their organization from “crisis” to “rebound” mode, it is important that pension and retirement programs are not placed on the back burner. 

Coronavirus Crisis Workforce Reduction Can Adversely Affect Retirement Programs

Identify and Prepare for Potential Consequences

A proactive analysis of an organization’s workforce reduction program, as well as the group of employees impacted, may help identify and prepare for the impact of some of these potential unintentional consequences due to coronavirus:

Curtailment Accounting Under U.S. GAAP

Curtailment accounting may be initiated when more than 5-10% of the plan’s active participants are impacted by a workforce reduction event such as layoffs or forced termination, or a reduction or elimination of future benefit accruals. The curtailment impact is an immediate recognition of a portion of unrecognized prior service costs and could also prompt an interim re-measurement at the time of the event, likely unfavorable given the current market environment. Curtailment accounting can increase the “below the line” expense for accounting for pension, retiree medical, and retiree life insurance plans under U.S. GAAP.

Settlement Accounting Under U.S. GAAP and Cash Concerns for Pension Plans Offering Lump Sums

Settlement accounting is set into motion when lump sum payouts exceed the service cost and interest cost components of net periodic pension cost during the fiscal year. This may be increasingly likely as laid off participants may access their pension benefits for their own financial security. The settlement impact is an immediate recognition of unrecognized gains and losses, and similar to curtailments, could also cause an interim re-measurement at the time of the event. 

In addition, while payroll reducing strategies may be advantageous for cutting current expenses, pension plans that offer lump sums upon termination could end up in a situation where the plan requires more cash in the future. Paying an increased number of lump sums to participants could force the pension plan to raise cash by selling equities at a time when the market is significantly depressed. Selling equity at market lows may inhibit the pension plan’s ability to recover in the long term. 

Benefit Enhancements and Plant Shutdown Liability under PBGC and ERISA

Benefit enhancements and plan shutdown liability may be triggered when either a facility closure impacts more than 15% of the plan sponsor’s active participants benefitting in any pension or defined contribution plan; or if the pension plan document provides for special shutdown benefits in any size closure. Special, enhanced shutdown benefits that can increase pension plan liability and plan costs may be required to protect employees close to retirement if defined in the plan document. In addition, the Pension Benefit Guaranty Corporation (PBGC) may require special reporting and accelerated cash contributions under ERISA 4062 for some underfunded pension plans. The PBGC also may require a special report under ERISA 4043 if the number of active participants is significantly reduced for any reason.

Vesting Enhancements under IRS Partial Pension Plan Termination

A partial pension plan termination may occur when more than 10-20% of the plan’s active participants are impacted by closing a facility or division, or from any higher turnover due to economic factors. Partial pension plan termination requires the plan sponsor to grant immediate vesting eligibility or face Internal Revenue Service (IRS) disqualification in the pension plan. This is ultimately an IRS decision based on facts and circumstances and might be avoided if the reduction is structured to furlough (not typically a formal separation) rather than permanently terminate employees. 

Increased Liability and Cash Requirements for Unfunded Retiree Medical Plans

Eliminating participants who are retirement eligible can lead to a spike in retiree medical claims costs and liabilities. Unfunded retiree medical plans “pay as you go” and do not have back-up trust assets to use toward claims in the event more participants begin retiree medical plan benefits sooner than expected. Retiree medical plans with early eligibility may be responsible for benefits over a much longer period than expected at a time when rates charged by insurers may also be increasing. Together, plan sponsors may see increased claim costs in 2021, as well as higher liability and net periodic benefit costs in fiscal 2021.

IRS Compliance Concerns Related to Passing Pension Plan Non-discrimination Testing

There is a likelihood for increased difficulty in obtaining favorable non-discrimination testing (NDT) results when there is a significant change in the demographics of the plan’s active employees. For example, NDT results will be less favorable when non-highly compensated employees (NHCEs) are forced to terminate at higher rates than highly compensated employees (HCEs) and also when salaries for NHCEs are reduced at higher levels than HCEs. Alternatively, workforce reductions impacting HCEs at higher rates could improve testing results.

Violation of Union Agreements and Debt Covenants

While not tied exclusively to workforce reductions, any decision that deviates from normal practice has a potential to violate established agreements with union contracts and debt covenants. Keep in mind, relief permitted by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) may not be permitted under current arrangements.

Minimum or Variable Interest Credit Rates for Cash Balance Plans

While interest crediting rates have already been set for most cash balance plans with calendar plan years, if low interest rates persist it could mean a significant drop in the crediting rate for 2021, possibly requiring the minimum interest crediting rate to apply. In addition, plans using variable interest crediting rates may see negative returns, making non-discrimination testing more difficult.   

Seek Guidance

The bottom line is this: the coronavirus crisis continues to evolve and any workforce strategy decision should be pursued with guidance from your actuary, auditor, or legal counsel. Early analysis may help your company prepare for retirement program concerns that may arise from implementation of the selected cost-saving payroll strategy. Contact your Findley consultant to discuss any workforce reduction program you may be considering to ensure all relevant issues are addressed.

Questions? For more information, contact the Findley consultant you normally work with, or contact Debbie Sichko at, or 216.875.1930

Published April 13, 2020

Print this article

© 2020 Findley. All Rights Reserved.

Impact of Historic Interest Rate Decline on Defined Benefit Plans

How will defined benefit pension plans be impacted by historic year-to-year interest rate declines? The U.S. has experienced over a 100 basis point decrease on 30-year treasury rates and significant decreases across treasury bonds of all durations from year-to-year. After a slight uptick in rates during the fourth quarter of 2019, interest rates have plummeted in the first quarter of 2020. The low interest rate environment, coupled with recent volatility in the market arising from concerns over the Coronavirus, has pension plan sponsors, CFOs, and actuaries alike, taking an in-depth look at the financial impact.

Historic Interest Rate Decline on Defined Benefit Plans and options to consider.

How Will Your Company be Impacted by Historic Interest Rate Decline?

Under U.S. GAAP and International Accounting Standards, pension liabilities are typically valued using a yield curve of corporate bond rates (which have a high correlation to Treasury bond rates) to discount projected benefit payments. Current analysis shows that the average discount rate has decreased approximately 100 basis points from the prior year using this methodology.

Due to the long-term benefit structure of pension plans, their liabilities produce higher duration values than other debt-like commitments, that are particularly sensitive to movement in long-term interest rates. The general rule of thumb is for each 1% decrease in interest rates, the liability increases by a percentage equal to the duration (and vice versa). The chart below, produced using Findley’s Liability Index, shows the percentage increase in liabilities for plan’s with varying duration values since the beginning of 2019.

Pension Liability Index Results - 2/29/2020

Assuming all other plan assumptions are realized, the larger liability value caused by the decrease in discount rates will drive up the pension expense and cause a significant increase in the company’s other comprehensive income, reflecting negatively on the company’s financial statements.

Considerable Growth in Lump Sum Payment Value and PBGC Liabilities

Additional consequences of low treasury bond rates include growth in the value of lump sum payments and PBGC liabilities. Minimum lump sum amounts must be computed using interest rates prescribed by the IRS in IRC 417(e)(3) which are based on current corporate bond yields. PBGC liabilities are also determined using these rates (standard method) or a 24-month average of those rates (alternative method). For calendar year plans, lump sums paid out during 2020 will likely be 10-20% higher for participants in the 60-65 age group, than those paid out in 2019. For younger participants, the increase will be even more prominent.

In addition, if the plan is using the standard method to determine their PBGC liability, there will be a corresponding increase in the liability used to compute the plan’s PBGC premium. In 2020, there will be a 4.5% fee for each dollar the plan is underfunded on a PBGC basis. Depending on the size and funding level of the plan, the spike in PBGC liability may correspond to a significant increase in the PBGC premium amount.

What If We Want to Terminate our Pension Plan in the Near Future?

For companies that are contemplating defined benefit pension plan termination, there will be a significant increase in the cost of annuity purchases from this time last year. The actual cost difference depends on plan-specific information; however, an increase of 15-25% from this time last year would not be out of line with the current market. This can be particularly problematic for companies who have already started the plan termination process. Due to the current regulatory structure of defined benefit pension plan terminations, companies must begin the process months before the annuity contract is purchased. The decision to terminate is based on estimated annuity prices which could be significantly different than those in effect at the time of purchase.

Actions You Can Take to Mitigate the Financial Impact

Contributions to the plan in excess of the mandatory required amount will help offset rising PBGC premiums since the premium is based on the underfunded amount, not the total liability. Additional contributions would also help offset the increase in pension expense.

The best advice we can offer at this time is to discuss these implications internally and with your service providers. Begin a dialogue with your investment advisors about the potential need to re-evaluate the current strategy due to market conditions. Contact your plan’s actuary to get estimated financial impacts so you can plan and budget accordingly. If your plan has recently begun the plan termination process, you may need to reconvene with decision-makers to make sure this strategy is still economically viable.

Questions? For more information, you can utilize Findley’s Pension Indicator to track the funded status of a variety of plan types each month. To learn more about how this historic interest rate decline may impact your plan specifically contact your Findley consultant, or Adam Russo at or 724.933.0639.

Published on March 3, 2020

© 2020 Findley. All Rights Reserved.

Print the article

Multiemployer Pension Plans Could See Significant Change


Major changes in the operation and management of multiemployer pension plans may be coming. On November 20th, U.S. Senators Chuck Grassley (R-IA) and Lamar Alexander (R-TN), released a white paper on a proposal that if passed, would dramatically change the playing field for multiemployer pension plans.

Grassley (Finance Committee chairman) and Alexander (Health, Education, Labor and Pensions Committee chairman) released the 12-page white paper which illustrates various components to help plans fulfill the financial obligations to their retirees. These are outlined below.

PBGC Premium Structure Would Be Reformed

The PBGC estimates the multiemployer system will be bankrupt by 2025. In order to help stabilize the system, and to provide for increased benefits, PBGC multiemployer premiums would be increased from the current $29 per participant to $80 per participant.

In addition, plans that are more at risk of failing would be required to make additional payments based on the amount of their shortfall.

The proposal also introduces “copays” to active participants and retirees. Since the members of a poorly funded pension plan stand to benefit the most from the PBGC guarantees, the proposal would require a “copayment” of up to 10% of their monthly benefit. Older retirees and disabled participants would be exempt.

PBGC Multiemployer Insurance Guarantee Would Increase

The proposal calls for the minimum benefit for participants in multiemployer pension plans to be increased significantly. The current maximum benefit for a participant with 30 years of service in a multiemployer pension plan is just over $1,000/month, compared to over $15,000/month for a similar participant in a single employer plan. The proposal would increase the guarantee to a more reasonable value, but likely still far below the single employer guarantee.

Expanded Partition Authority Would Address Orphaned Participants

Partitioning is a way to separate participants who have been “orphaned” by employers who have left the plan without paying their full share of contributions. The proposal would expand a plan’s ability to transfer the liability for these orphaned participants to the PBGC.

In essence, the proposal creates a “healthy” plan that continues to be operated as before, and a “sick” plan that requires assistance from the PBGC. This reduces the overall plan liability because once a plan is partitioned, the benefits for the members of the “sick” plan are decreased to the PBGC guarantee limits.

Mandated Actuarial Funding Assumptions Would Be More Conservative

Although single employer pension plans have been required to use mandated funding assumptions for many years, the multiemployer actuaries have been free to use their best estimate of long-term rates of return.

The proposal would gradually transition the funding assumptions to more conservative funding assumptions and would likely include changes to the methodology used to determine required contributions.

Revised Zone Certifications May Result in Additional Restrictions

Multiemployer pension plans are categorized or “certified” by zones based on their financial health. The current system of zone certifications would be revised and restrictions on benefit changes would be increased. Plans would be required to prepare additional projections to determine how they would stand up in times of significant economic or demographic change.

New upper-tier zones would be created for very healthy plans. Fewer restrictions would be placed on the very healthy plans, but they would still need to demonstrate long-term health and an ability to handle unexpected economic or demographic changes.

Calculation of Withdrawal Liability Could Be Simplified

Withdrawal liability is the required payment made by employers who wish to withdraw from underfunded pension plans. The rules for determining the amount of the payments are extremely complex and often utilize different assumptions from those used for actual plan funding.

The proposed calculation rules would be simpler and more transparent and would determine the withdrawal liability using the same methods and measures used by the plan for funding and reporting purposes. This would allow contributing employers to better understand their overall liability to the plans, and would reduce unforeseen obligations.

Federal Funding Would Be Required

Due to the pending insolvency of the PBGC and the amount of substantial additional stress that will be placed on the system when several large multiemployer funds become insolvent within the next few years, additional federal funds will be needed to support the system. The proposal calls for a “transfer of a limited amount of federal taxpayer funds to PBGC” in order to ensure sufficient funds are available to provide the federal guaranteed minimum benefits.

For additional information, the white paper can be found at this link, Multiemployer Pension Recapitalization and Reform Plan White Paper.

The Senate Finance committee is currently accepting public comments on the proposal, which can be submitted to the following email,

Questions? Contact the Findley consultant you normally work with, or Keith Nichols,, 724.933.0631.

Published November 25, 2019

Print the article

© 2019 Findley. All Rights Reserved.

Pension Strategy Driver – 2020 PBGC Premium Rates Announced

For many sponsors of single-employer pension plans, the minimum cash funding requirement is no longer the most important number discussed with their actuaries every year. Instead, pension plan sponsors have shifted their focus to managing their PBGC premiums.

PBGC Premium Rates Chart 2007-2020. Flat-Rate vs. Variable-Rate

PBGC Premiums Defined

The PBGC premium is essentially a tax paid to a government agency to cover required insurance for the plan and the participant benefits in the event that the plan sponsor goes bankrupt. The annual premium is calculated in two parts – the flat-rate premium and the variable-rate premium – and is subject to a premium cap.

The flat-rate premium is calculated as a rate per person.

The PBGC variable-rate premium is an amount that each plan sponsor pays based on the underfunded status of its plan.

The variable-rate premium cap is a maximum amount that a plan sponsor of a significantly underfunded plan has to pay. It is calculated based on the number of participants in the plan. There are other caps that apply for small plans.

2020 Premiums Announced

For 2020, the flat-rate premium amount is $83 per person. This is 168% higher than the rate of $31 per person at the beginning of this decade.

For 2020, the variable-rate premium has jumped to $45 per $1,000 of the underfunded amount. Up until 2013, that rate was $9 per $1,000. That amounts to a 400% increase in just seven years.

The cap for 2020 is $561 per person; which means for a 10,000-life plan, the maximum PBGC variable premium is $5,610,000.

Therefore, the PBGC premium for a 10,000-life plan at the premium cap would total $6,440,000.

More information about various strategies to manage PBGC premiums can be found here: Managing PBGC Premiums: There is More Than One Lever.

More information regarding PBGC’s Current and Historical Premium Rates can be found on the PBGC’s website link above.

Questions? Contact the Findley consultant you normally work with, or contact Colleen Lowmiller at, 216.875.1913.

Published October 29, 2019

© 2019 Findley. All Rights Reserved.

Pension Mortality Updates May Decrease Liabilities

The Society of Actuaries’ (SOA) new Scale MP-2019 mortality improvement rates will lead to lower liabilities compared to the previous versions. Along with the improvement scale, the SOA’s Retirement Plans Experience Committee (RPEC) also released a set of new mortality tables, Pri-2012, both on October 23rd. The new tables and improvement scale may be used for financial reporting purposes now. The improvement scale is expected to be used in 2021 for PBGC, lump sum, and cash funding calculations.

Pri-2012 Mortality Tables

The Pri-2012 tables are the most recent private mortality tables released by the SOA since the RP-2006 tables. The SOA estimates that most plan liabilities will fall within 1.0% (up or down) of the liability they would have seen under the RP-2006 tables. The new tables were developed using data from 2010-2014 and reflect the RPEC’s commitment to update the base mortality tables every five years.

When compared to the RP-2006 tables, life expectancy for a 65 year old female remains at 87.4, while the life expectancy of a 65 year old male decreased from 85.0 to 84.7.

The new Pri-2012 tables are based on more multiemployer data compared to the prior tables. Mortality experience under multiemployer plans did not differ significantly from experience in single employer plans. The SOA determined that job classification (blue-collar and white-collar) is an increasing forecaster of mortality and more indicative of future experience than benefit amount.

The SOA identified that surviving beneficiaries had higher mortality than the general population and created separate mortality tables for this demographic with the Pri-2012 tables update.

MP-2019 Mortality Improvement Scale

The new mortality improvement scale MP-2019 is based on historical U.S. population mortality. This continues to fulfill the RPEC’s pledge to update the improvement scales annually.

Consistent with all prior updates since the first table (MP-2014) was released, the MP-2019 improvement scale will reduce liabilities for pension plans compared to the MP-2018 improvement scale. The SOA estimated that pension obligations will typically be 0.3% to 1.0% lower when compared to using Scale MP-2018.

According to the study, the observed age-adjusted mortality rate increased slightly from the prior year, yet it is fairly level relative to the last several years. Also, the age-adjusted mortality improvement rate averaged just 0.3% per year from 2010 to 2017, compared to 0.5% that was observed in the prior study from 2009 to 2016.

Implications for Pension Plans

Pri-2012 may be adopted for financial accounting disclosures and pension expense purposes. The adoption of the new tables will likely result in little change to liabilities. We expect plan sponsors will generally adopt the Pri-2012 tables to replace the RP-2006 tables.

Plan sponsors who have updated their improvement scale annually will generally adopt the MP-2019 improvement scale. As noted, it is expected to lower liabilities, and thus will result in lower pension expense.

We do not expect that the minimum funding calculations, PBGC premiums, and lump sum calculations will use the Pri-2012 table in the near future. However, the 2021 plan year will likely incorporate the MP-2019 scale based on the currently proposed intent from the IRS. Absent any other changes, this update will result in lower funding liability, PBGC liability and lump sum amounts for pension plans in that plan year.

More information regarding the Pri-2012 mortality table and the Scale MP-2019 mortality improvement scale release can be found on the Society of Actuaries’ website links above.

Questions? Contact the Findley consultant you normally work with, or contact Matthew Gilliland at, 615.665.5306 or Matthew Widick at, 615.665.5407.

Published October 28, 2019

© 2019 Findley. All Rights Reserved.

Minimum Participation Rule Puts Pension Benefits at Risk

Almost all pension plans are subject to certain compliance tests that are outlined by the IRS. The compliance requirements are in place to make sure that if a plan sponsor’s contributions to a pension plan are deductible for tax purposes, then the pension plan’s benefits must not be designed too heavily in favor of the highest paid employees. One set of compliance rules for most pension plans are the minimum participation requirements. As some defined benefit pension plans continue operating, these rules are causing compliance concerns.

Minimum Participation Rule Details

Under Internal Revenue Code (IRC) Section 401(a)(26), a defined benefit pension plan must benefit a minimum of

  • 50 employees or
  • 40% of the employees of the employer.

If the pension plan is not benefiting any highly compensated employees (HCEs), it automatically satisfies the rule.

HCE is generally determined as an individual earning more than a specified dollar threshold established by the IRS for the prior year. This dollar limit is $125,000 based on 2019 earnings to determine HCEs for the 2020 year. All others are considered non-highly compensated employees (NHCEs).

Unintended Consequences

Today, many pension plans have been “partially frozen” for years, which means they have benefits accruing only for a specified group of employees. As time passes and ordinary turnover and retirement occur, the number of employees that accrue benefits in these defined benefit pension plans is decreasing.

Although the original purpose was to provide “meaningful” benefits to employees across the plan sponsor’s organization, these requirements are now causing accruals to be shut off as some plans approach and fall below the minimum threshold of employees accruing benefits.

For the affected employees, it comes at a time close to retirement age when their promised pensions, by design, would be accumulating at the highest rates, and defined contribution style benefits, like 401k plans, can’t realistically replace all lost future accruals.

Potential Strategies

Do Nothing and Wait

  • We can hope that legislative relief will be passed to eliminate the participation issues. However, Congress has considered addressing these issues over the last 5 to 7 years, and no movement towards enacting relief rules has been seen yet.

Merge Pension Plans

  • This provides immediate relief to minimum participation issues.
  • It could be a temporary solution if the benefits are also partially frozen across the combined defined benefit pension plan. Review the demographics to project how long this solution will last when weighing the advantages of this strategy for your situation.

Open the Pension Plan

  • Reopen the pension plan to additional participants. (Yes, this could make sense!)
  • More employees will be benefiting and eliminate minimum participation rule issues.
  • New plan participants can receive a different formula (something similar to the current plan formula but reduced, cash balance formula, variable annuity formula, etc.)
  • Consider if recruiting or employee retention issues can be reduced or alleviated by designing new pension benefits for targeted employee groups.
  • This can be designed to help bridge the time until the potentially affected employees reach retirement age.
  • Watch the mix of HCEs and NHCEs because the additional pension benefit design still needs to satisfy other IRS coverage, nondiscrimination, and design-based compliance rules.

Freeze Remaining Pension Benefits

  • The freeze can be for all participants or only for current and future HCEs.
  • Replacement benefits can be provided to address employee retention and retirement readiness issues.
    • Provide projected lost benefits as cash payment(s).
    • Executive employees can have some or all lost benefits replaced in a nonqualified deferred compensation plan or other executive compensation arrangement.
    • Design partial replacement benefits in a 401k plan.
  • Consider the impact of the pension plan freeze on other sponsored benefit plans. For example, are there benefits that are automatically available, or not available, based upon whether an employee is accruing benefits in the pension plan?
  • Curtailment accounting rules are triggered which may require an additional one-time expense to be recognized through income in the year of the benefit freeze.

In Perspective

There are many valid business reasons that explain why a plan sponsor would want to stop pension accruals for everyone except a specified group. We know the IRS rules were not intended to cause the loss of benefits for employees late in their careers. Regardless, several pension plan sponsors are at the point where their partially frozen pension plans are close to becoming noncompliant. While we continue to wait for legislative relief for this issue (that may never come), if you sponsor a partially frozen pension plan, you should determine when this will become an issue for you. Begin discussing possible strategies, and have an approach in place well ahead of time to minimize the disruption to your organization as much as possible.

Questions? Contact the Findley consultant you normally work with, or contact Colleen Lowmiller at, 216.875.1913.

Published October 28, 2019

© 2019 Findley. All Rights Reserved.