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CCH® PENSION AND BENEFITS — 2/13/06

PBGC flat-rate premium hiked to $30 under Deficit Reduction Act

PBGC single-employer flat-rate premiums will increase from $19 to $30 for 2006 premium payment years under legislation approved by Congress and signed by the President. The Deficit Reduction Act of 2005, passed by the House on February 1, 2006, and by the Senate late last year, also increases the multiemployer flat-rate premium and will index the premiums to national average wages. The President signed the Act on February 8, 2006.

CCH Note: Pension reform legislation, currently pending in the House and Senate (see CCH Pension Plan Guide ¶29,141 and ¶29,142) contain a number of changes that, if enacted, could result in further premium changes (for example, changing how liabilities are calculated for the PBGC variable-rate premium).

Increase in flat-rate premiums

The Act increases the single-employer flat rate premium to $30 per participant (from the current level of $19) and increases the multiemployer plan flat-rate premium to $8 (from the current level of $2.60). The increases are effective for plan years beginning after December 31, 2005. For each plan year beginning in a calendar year after 2006, the flat rate premiums will be indexed to the national average wage index.

CCH Note: Anticipating the increase in premiums, the PBGC has delayed issuing the 2006 premium forms and instructions (Form 1-EZ, Form 1, Schedule A) and rolling out premium e-filing for plan year 2006. The PBGC has advised that large calendar-year plans are expected to have sufficient time to file their estimated premiums at the new rates before the February 28, 2006 due date. Plans that have filed estimated premiums at the current rate will need to submit an amended filing. The amended filing will be treated as timely if made by the estimated premium due date (e.g., February 28, 2006, for calendar-year plans).

Additional premium for terminated plans in bankruptcy

The Act contains a new premium for single-employer plans that are terminated under ERISA §4041(c)(2)(B)(ii) or (iii) or ERISA §4042 (generally, situations where the PBGC takes over as trustee of the terminated plan). Such plans are subject to a premium of $1,250 multiplied by the number of participants in the plan immediately before the termination date. This new premium is generally effective for plan years beginning after December 31, 2005. However, the premium will not apply to a single-employer plan that is terminated during the pendency of any bankruptcy reorganization under Chapter 11 of the U.S. Code (or under any similar law of a state or political subdivision of a state), if the proceeding is pursuant to a bankruptcy filing occurring before October 18, 2005. In addition, the bankruptcy premiums will not apply to plans terminated after December 31, 2010.

Increase in FDIC coverage

The Act also increases the limit on federal deposit insurance available for retirement funds held at banks and credit unions from $100,000 under current law to $250,000.

For more information on this and related topics, consult the CCH Pension Plan Guide.

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