PBGC Premiums
PBGC premiums are annual fees paid by sponsors of ERISA-covered defined benefit pension plans to the Pension Benefit Guaranty Corporation, a federal agency that insures pension benefits up to statutory limits when a plan sponsor becomes insolvent and cannot fund promised benefits.
The PBGC was created by ERISA in 1974 to protect workers' pension benefits in the event of plan termination. It operates two insurance programs: single-employer and multiemployer. Plan sponsors pay premiums to maintain PBGC coverage, which guarantees a portion of the benefits their employees have earned even if the company fails.
For single-employer plans, there are two components to the annual premium. The flat-rate premium is charged per participant — $101 per participant for plan year 2024, indexed annually. The variable-rate premium is charged on underfunded liabilities at a rate of $52 per $1,000 of unfunded vested benefits (2024), capped at $686 per participant. Plans that are fully funded owe only the flat-rate premium; significantly underfunded plans can face substantial variable-rate bills that create a powerful financial incentive to improve funding.
The PBGC's maximum guaranteed benefit for single-employer plans in 2024 is approximately $81,000 per year for a worker retiring at age 65 (adjusted for form of payment and age at termination). Benefits above that ceiling are not insured, which is why executives with large SERP or defined benefit promises should model their exposure to employer bankruptcy.
For multiemployer plans, the insurance program has historically been weaker, with much lower guarantee levels. The American Rescue Plan Act of 2021 provided the PBGC with $86 billion to shore up the multiemployer program, which had faced insolvency projections from several large troubled plans.