Changes to PBGC and Form 5500 filings filed in 2023
This Client Action Bulletin outlines the changes to the annual Pension Benefit Guaranty Corporation (PBGC) premium filing for the 2023 plan year and the Form 5500 filing for the 2022 plan year. Plan sponsors of defined benefit (DB) and defined contribution (DC) pension plans are advised to review new and changed items in advance and address any questions before the filings are due.
- PBGC premiums are due1 9½ months after the beginning of the plan year for DB plans (e.g., October 15 for calendar year plans). Because October 15 lands on a Sunday this year, the due date for the 2023 PBGC premium is October 16, 2023.
- The Form 5500 reports on a DB or DC plan’s financial status and operations for the plan year and is due1 seven months after the end of the plan year (e.g., July 31 for calendar year plans). Prior to that date plans can file Form 5558 to extend the due date an additional 2½ months (e.g., to October 15 for calendar year plans). As noted above, because the extended due date falls on a Sunday this year, the due date for the 2022 Form 5500 is also October 16, 2023.
PBGC premiums for the 2023 plan year
DB pension plans pay premiums to fund the PBGC’s single-employer and multiemployer insurance programs. The PBGC guarantees a significantly higher level of benefits for participants of single-employer plans than for those of multiemployer plans. This is reflected in the premium rates these plans pay.
Multiemployer plans
These plans pay a per-participant annual premium. For the 2023 plan year, the premium has increased to $35 per participant (up from $32 per participant in 2022).
Single-employer plans
All these plans pay a per-participant annual premium, and underfunded plans also pay a variable-rate premium (VRP) based on the plan’s level of underfunding. For the 2023 plan year, the per-participant premium increased to $96 per participant (up from $88 per participant in 2022). The VRP is 5.2% of the plan’s unfunded vested benefits (UVB), up from 4.8%, which is capped at $652 per participant (up from $598).
- The variable rate premium can be determined using either the “Standard” or “Alternative” Premium Funding Target, the only difference being the interest rates used to determine the liability. The Standard method uses spot or current rates, whereas the Alternative method uses rates averaged over 24 months. Plan sponsors can switch between the two methodologies, but when a switch is made it must remain in place for five years.
Observation: Given the rapid increase in interest rates that occurred during 2022, the spot rates for January 2023 were much higher than the averaged rates. Because higher interest rates result in lower liabilities and thus lower PBGC variable-rate premiums, the Standard method is preferable for 2023 calendar year plans. Plans that have been on the Alternative method for at least the last five years could benefit this year by electing to switch. However, plan sponsors should consult with their actuaries to carefully evaluate making the switch, because trends in interest rates, expected returns, and future contributions may also factor into the decision.
- Additional information is required to be disclosed on the filing if a plan transferred some or all its assets and liabilities to another plan since last year’s premium filing, froze the plan to new entrants or froze benefit accruals, purchased annuities or provided a lump sum window during 2022, or if the filing is subject to disaster relief.
- SECURE 2.0 as passed last December made a couple of changes that will help some underfunded plans reduce their premiums starting in 2024. These changes are discussed here.
Common filing errors
Filers should avoid making these common filing errors: providing incorrect plan Employer Identification Number (EIN) and Plan Number (PN), providing an incorrect plan effective date, sending premium payments without properly identifying the plan, calculating incorrect VRPs based on the Lookback Rule (small plans), not providing sufficient explanation for a change in premiums on an amended filing, reporting incorrect plan year information for short plan years, and disregarding warning messages when the filing is submitted.
Finally, the PBGC changed its email address for customer support to [email protected].
Form 5500 for the 2022 plan year
On May 23, 2022, the Internal Revenue Service (IRS), U.S. Department of Labor (DOL), and PBGC (the Agencies) jointly released revisions to the Form 5500 to reflect changes related to the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) and to improve reporting by single-employer and multiemployer DB plans. These revisions apply to plan years beginning on or after January 1, 2022.
Revisions to the filing are noted below. Changes impacting DC plans are highlighted in blue and those impacting DB plans are shown in red. Most of the changes apply to the filings for DB plans.
Form 5500
New plan characteristic codes were added to classify the various kinds of multiple-employer DC plans, pooled employer plans, association retirement plans, professional employer organization (PEO) multiple-employer plans, and other multiple-employer plans. (Line 8)
Schedule MB
Changes to the schedule summarizing the actuarial information for multiemployer DB plans include:
- A new attachment was added to break out withdrawal liability payments made during the year from other contributions to the plan. (Line 3)
- Plans in critical or critical and declining status are required to indicate the year the plan is projected to either emerge from critical status or become insolvent in the next 30 years. The instructions have been clarified to align the cash flow attachment to the plan’s Pension Protection Act (PPA) zone status certification. (Line 4f)
- A new line item was added for the interest rate(s) the plan used for withdrawal liability purposes. This could be a single rate, the rates the PBGC prescribes for mass withdrawal (ERISA 4044), or some other rate that must be described in an attachment. (Line 6f)
Observation: The instructions to the form provide that the “N/A” box should be checked if the plan’s liabilities were not determined by the time of filing. However, the preamble to the revisions notes that, if no employers withdrew and were assessed withdrawal liability during the plan year, then filers can check the “N/A” box.
The interest rate(s) used for withdrawal liability purposes has been challenged in the courts in recent years when the rate(s), chosen by the actuary, is lower than the rate used for ERISA minimum funding purposes. Lower interest rates result in higher withdrawal liability assessments. Trustees should be aware that this new disclosure will bring greater visibility to the assumptions being used for withdrawal liability, which has not been disclosed in the past.
- The line item describing how plan expenses are reflected in the annual actuarial cost of benefits (i.e., normal cost) was moved and refined. (Line 6i)
- For plans with 1,000 or more total participants (up from 500), the current schedule of projected benefit payments is extended to show amounts over the next 50 plan years (up from 10), broken down by participant type (active, terminated vested, and retired). (Line 8b[1])
- For plans with 1,000 or more active participants, the schedule of active participants was changed to add the average accrued monthly benefit for all plans, rather than the average cash balance for cash balance plans. (Line 8b[2])
- For plans with 1,000 or more total participants, a new attachment was added to show projected employer contributions and withdrawal liability payments over the next 10 years. (Line 8b[3])
Schedule R
Previously, multiemployer DB plans would identify employers that contributed more than 5% of the plan’s total contributions for the year. This was expanded to identify employers that either contributed more than 5% or were one of the top-10 highest contributors during the plan year. (Line 13)
Schedule SB
Changes to the schedule summarizing the actuarial information for single-employer DB plans include:
- For plans with 1,000 or more total participants, a requirement was added to include a schedule of projected benefit payments over the next 50 plan years, broken down by participant type (active, terminated vested, and retired). (Line 26b)
- A new line item for indicating the first plan year the plan elected to use the extended amortization rule under the American Rescue Plan Act of 2021. (Line 41)
Plans are allowed (but not required) to provide certain information in spreadsheet format (such as CSV) instead of in PDF or TXT format. Information that can be submitted this way includes the schedule of projected benefit payments, schedule of active participant data, schedule of withdrawal liability amounts, and the projection of employer contributions and withdrawal liability payments.
Form 5500 for the 2023 plan year
On February 24, 2023, the Agencies released revisions to the Form 5500 filing for plan years beginning on or after January 1, 2023, and the DOL released related revisions to the Summary Annual Report for DC plans. Filings for the 2023 plan year are due in 2024. These changes are reviewed here.
Please contact your Milliman consultant for how these provisions may impact your plans.
1 Due dates can be extended for plans affected by federally declared disasters. The PBGC generally grants disaster relief when the IRS grants such relief for taxpayers. IRS announcements for tax relief are found here.