US - The Deficit Reduction Act of 2005, which was signed into law yesterday, hikes the premium rates paid to the Pension Benefit Guaranty Corporation (PBGC) by sponsors of defined benefit pension plans from US$19 to $30 a year.
Under the new legislation, flat rate premiums for single-employer pension plans will increase to $30 a year for each plan participant. A previous proposal had set the hike to $46.75 - a figure hotly disputed by the ERISA Industry Committee (ERIC) who claimed it contravened the “interests of plan participants and violate[d] the mission of the PBGC.”
The legislation, effective for plan years beginning on or after 1 January 2006, also commits multi-employer plans to yearly premium rises $8 per participant from $8 and introduces a new termination premium payable when a company transfers its underfunded pension plan to the PBGC.
The new premium is set at $1,250 per participant per year, payable for three years after plan termination.
Under funded pension plans pay an additional variable-rate premium of $9 per $1,000 of unfunded vested benefits. The rate is unchanged by the measure enacted today.
The current working deficit of the PBGC is estimated at US$23bn.
By Daniel Flatt
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