These pension plan sponsors are hardest hit by higher PBGC premiums
October Three study finds these sponsors in particular could have reduced costs by accelerating funding, reducing headcounts and more.
Companies offering pension plans to employees are paying higher premiums to the Pension Benefit Guaranty Corporation than they normally would, hitting hospitals especially hard, according to a recent study from October Three.
According to the study, which looked at 5,000 pension plans, single-employer plan sponsors have paid $46 billion in PBGC premiums since 2008.October Three said that over the years, employers have continued to pay more in premiums than they should.
“In fact, our research shows that employers have paid $525 million more in premiums than they needed to since 2011. Missed savings in 2018 alone were $40 million,” researchers said. “And these missed opportunities were completely avoidable.”
Some ways employers have chosen to reduce premium costs are by settling liabilities with lump sums and making voluntary contributions, which October Three said it expects to see increase. But researchers added that many companies don’t take such measures and continue to pay more than they should in premiums.
October Three’s research showed that hospitals are missing out the most by failing to implement such best practices.
The company said that three large plans it examined, by themselves, have paid over $10 million between 2011 and 2018 that October Three said could have been avoided “simply by recording contributions optimally.” Researchers said the situation is worsening for those plans,, with $7 million of the missed savings coming in the past three years and $3 million in 2018 alone.
And while dollar amounts might not be as high for small and medium sized plans, the impact is just as significant, the study said.
“Under current law, PBGC premium rates will continue to increase in the future,” the study said. “Pension sponsors that make use of the entire suite of strategies for managing higher premium rates will manage this burden most effectively, while those that don’t will continue to suffer huge headwinds due to these premiums. Poor asset performance and lower interest rates in the first half of 2020 will not help the situation.”
But, October Three said, accelerating funding, reducing headcounts and splitting plans are helpful in managing premiums, especially for plans at the variable rate plan cap.
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