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Borrow to fund

Updated: 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?


NOVEMBER 2015

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1Moving Ahead for Progress in the 21st Century Act (MAP-21), the Bipartisan Budget Act of 2013 (BBA 2013), and the Highway and Transportation Funding Act of 2014 (HATFA).

Authored by

James Gannon
James Gannon, FSA, CFA, EA
Managing Director, Asset Allocation and Risk Management

 

Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.