Solutions to Ridiculous PBGC Premium?

Client (small medical company) has had a CB plan for several years and just became large enough to trigger coverage in the middle of 2017. 2018 is first full year of coverage.

The plan has more than 25 employees at 1-1-18, so the small plan cap is not usable.

The plan has a few doctors with large benefits who are 10-15 years from retirement. CB rate is 5%, but PBGC rate for them is about 4%, leading to inflated PBGC funding targets (i.e., PBGC FT is significantly higher than the actual CB benefits). The alternative rate is even lower, so that doesn't help.

Plan is end of year val, so assets are as of 12-31-17. Can't do anything to make that asset value higher, though a large contribution could be made for the 2017 plan year to increase 12-31-18 assets and decrease next year's premium.

This seems like a perfect storm, as the premium is coming out to be over $15,000! And this is for a group with about 30 participants that is 99% funded on a  lump sum basis!

This seems absolutely ridiculous, and I'm just wondering if I'm missing something as a potential solution.

Looks like your TPA gave you excuse to get him fired for not understanding the situation and/or not providing proper advices. 

Now regarding the actual situation:

1. The first year filing was 2017.
2. Since you mention that the coverage was triggered in the middle of 2017, the filing for the 2017 year is already late.
3. For the 2017 year plan will not have any variable premium due to an exemption.
4. For the 2017 year the flat premium is eligible for proration so your total premium should be under $1,000
5. You most likely will get penalized for the late 2017 filing.
6. If you intend to use a lookback rule, it appears that your estimated $15k premium will be for the 2018 year.
7. If you will opt out of using a lookback rule, you may eliminate the variable premium by making contributions for the 2017 plan year. However, due to the end of year valuation, you will need to file estimated PBGC filing and amend it later.

I suggest carefully read the PBGC premium instruction to understand it better that could be found on pbgc.gov.

Sorry - to clarify:

I (TPA/actuary) took over this plan in late 2017. I filed the initial 2017 filing (late), and it was a fairly small premium for the reasons you mentioned. I am looking at the 2018 filing now ($15k).

Also, note that the lookback rule must be used because it's an end of year val.

The PBGC instructions say this: "Note for small plans with year-end valuation dates – It is not practical for a small plan with a year-end valuation date to opt out of the Lookback Rule."

I always figured that when it says it's not practical for a small plan to opt out of the lookback rule, that it means it's basically not an option. Have you opted out with an end of year val before? The filing an estimated filing now and amending after year end is intriguing...

Aha, takeover plan. - Sorry for a firing comment

Well, then you are right on target. You have 2 options:1. Opting-out of using lookback rule and fund 2017 year so your 2018 assets is higher reducing 2018 premium. I agree it is not practical because you will be stuck with estimated/amended filing (see Estimated Premium Funding Target section of the PBGC instruction).

2. Not opting-out, paying ~15k premium for 2018. Still funding 2017 year so your 2018 assets is higher to reduce 2019 premium.

Additional ideas are:
a) changing the retirement age assumptions (if possible);b) changing AVA to MVA or MVA to AVA (whatever is applicable in your case) if it is beneficial
c) introducing termination assumptions along with immediate distribution upon termination if it is beneficial

Thanks for the follow-up.

I was thinking about plan termination as well. It might make sense to shut this one down and start a new plan with a different design. I'm not sure how well this design has been working for them.

I was also thinking about messing with assumptions, as you mention - something like assuming people quit/retire at age 55. I'm just not sure  I can feel good about that being reasonable given that several people, including some doctors, are past that age.  But a $15k premium for this group is not reasonable either. Maybe I can come up with some assumptions I feel good about. I've been trying to see if I can justify using at-risk assumptions, since that makes the funding target pretty close to the actual CB benefits (again, plan is 99% funded on actual CB benefit basis). It doesn't appear that such approach would be acceptable unless the plan was actually at-risk though.

I'll need to think about this one a bit more.