PBGC Updates Interest Rates Relevant to Valuation, Compliance

The Pension Benefit Guaranty Corporation (PBGC) has updated a variety of interest rates used in determining the value of benefits, premiums, and penalties. 

Variable Rate Premiums 

The PBGC has adjusted the interest rates used in determining the value of vested benefits for purposes of variable rate premiums. The valuation rules for plan years beginning after 2007 are different than those for plan years beginning before 2008. 

Before 2008. For plan years beginning before 2008, the value of vested benefits for purposes of the variable-rate premium is determined using the required interest rate, which is equal to the applicable percentage of a specified reference rate.

After 2007. For plan years after 2007, the PBGC only provides the rates for the standard premium funding targets. For those years, under the Pension Protection Act of 2006, either the standard premium funding target or the alternative premium funding target is determined as the present value of vested benefits. 

ERISA 4044 Annuities 

These select and ultimate interest rates are issued for determining the present value of annuities in involuntary and distress terminations of single-employer plans. They also are used to value benefits and certain assets under multiemployer plans following mass withdrawal. The PBGC has set different factors to be used in those valuations for the first and second quarters of 2024. 

Late Premium Payment Interest Charges

Interest on late PBGC premiums accrues at the rate imposed under Internal Revenue Code Section 6601(a), compounded daily. The IRS issues those rates on a quarterly basis. These rates also are used to compute certain interest charges applicable when the PBGC serves as trustee of a plan—for example, the interest on required contributions unpaid as of the termination date.

For the first three quarters of 2023, that interest rate was 7%. It rose to 8% in the fourth quarter of 2023, and will remain at that rate for the first and second quarters of 2024. 

Late or Defaulted Withdrawal Liability

Unless a plan’s rules provide otherwise, multiemployer plans charge withdrawing employers interest if their withdrawal liability payments are late or in default. Similarly, such plans credit interest at these rates to employers that overpay their withdrawal liability. For the first quarter and second quarter of 2024, that rate is 8.5%.

Finding out More 

The interest rates that are used to value vested benefits for variable rate premium purposes are available here. 

The interest rates relevant to ERISA 4044 Annuities are available here. 

The interest rates relevant to late premium payment interest charges are available here. 

Interest rates relevant to Late or Defaulted Withdrawal Liability are available here.