“My client is delaying a portion of her defined benefit plan contribution that is due in 2020 until January 1, 2021, as allowed under the Coronavirus Aid, Relief and Economic Security (CARES) Act. However, she already filed and paid her PBGC premiums for 2020, which showed an underfunding liability because of the delayed contribution. Consequently, she was required to pay more in variable rate premiums than she would have had to pay if she had made her contributions in 2020. Is she stuck with the higher variable-rate premium, or is there a way for her to get back the overpayment?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from New Jersey is representative of a common inquiry related to the payment of Pension Benefit Guaranty Corporation (PBGC) premiums.

Highlights of the Discussion

Yes, there is a way to get a refund of an overpayment in variable-rate premiums in this unusual situation. Fortunately, the PBGC realized the discrepancy that was created, and came up with a way to rectify the matter in its September 2020 Technical Update 20-2. Under this guidance, a prior year contribution received after the PBGC premium was filed and on or before January 1, 2021, may be included in the asset value used to determine the variable-rate premium. This relief did not change the premium due dates, however, (e.g., October 15, 2020, for calendar year plans), and does not permit a premium filing to reflect a contribution that has not yet been made. Therefore, plan sponsors that want to take advantage of this relief must amend their 2020 PBGC premium filing by February 1, 2021, to revise the variable-rate premium data to add in contributions due in 2020 that are made on or before January 1, 2021. Once the PBGC approves the amended filing, it will refund any excess variable-rate premium, or credit the excess to the plan’s “My Plan Administration Account” (whichever option the plan sponsor elects).

For a bit of background, the PBGC is the governmental entity that insures private sector defined benefit plans. All single employer defined benefit plans are required to pay a flat rate premium annually to the PBGC for coverage based on the number of participants in the plan. Additionally, for plans that are underfunded (i.e., where plan liabilities exceed assets), a variable-rate premium also applies based on the plan’s unfunded vested benefits (UVBs).

Conclusion

Plan sponsors who remitted their PBGC premiums on time for 2020, who also are delaying a contribution due in 2020 until January 1, 2021, pursuant to the CARES Act, may have become subject to or were required to pay higher variable-rate premiums because of the delayed plan contribution. Such sponsors may be entitled to a refund of some or all of the variable-rate premiums paid. They can reclaim an overpayment by submitting an amended PBGC premium filing by February 1, 2021, to claim a refund or credit.