Do PBGC premiums incent sponsors to borrow to fund their pension plans?
The Bipartisan Budget Act of 2015 ("BBA 2015") increases premiums payable to the Pension Benefit Guaranty Corporation ("PBGC"), the third major increase since 2012.1 The variable rate component of these premiums is now a very significant cost for sponsors with underfunded pension plans. However, the same legislation makes it easier for an underfunded plan to be maintained, by giving greater flexibility to sponsors in determining their contribution schedules (i.e. reducing the required minimum contributions).
This Russell Practice Note responds to the question: Are sponsors better off taking advantage of the increased flexibility and deferring contributions or is it better to fully fund the plan and avoid the PBGC variable premium?