SECURE Act: Modification of PBGC Premiums for Cooperative and Small Employer Charity Plans (Section 206)

Many charities and cooperative associations provide their employees with retirement benefits through defined benefit multi-employer pension arrangements known as Cooperative and Small Employer Charity (“CSEC”) plans. The Cooperative and Small Employer Charity Pension Flexibility Act (“the Act”), ratified in 2014, provides the capability for small, community-focused employers to pool their resources and achieve economies of scale otherwise only available to large employers. As defined benefit plans, they are subject to their own minimum funding standards, and plan assets are insured by the Pension Benefit Guaranty Corporation (PBGC).

A bit of history helps explain how the Act came to fruition. Congress had determined that the funding rules enacted under the Pension Protection Act of 2006 were inappropriate for the structure of CSEC plans, recognizing that the plans would be forced to either divert money from services to pay PBGC premiums and fund the plans or, worse, be unable to continue to provide pension benefits.

So, in March of 2014, Congress passed the Cooperative and Small Employer Charity Pension Flexibility Act, which implemented funding rules that better reflected the unique design of CSEC plans. But the formula for determining the cost of insurance premiums paid to the PBGC remained the same. As a result, between 2014 and 2018, the PBGC realized a 3,000% return on the premiums paid by the CSEC plans.

Modifications to the Act now reduce PBGC premiums for CSEC plans to $19 per participant for flat-rate premiums, and $9 per $1,000 of unfunded vested benefits for variable-rate premiums. The provision is effective for plan years beginning after December 31, 2018. Since most CSEC plans have already paid 2019 premiums, these plans will be eligible for a refund. By comparison, in 2020, single-employer defined benefit plans are subject to flat-rate premiums of $83 per participant and variable-rate premiums of $45 per $1,000 of unfunded vested benefits (with a per person cap of $561).

Congressman Mike Kelly of Pennsylvania was one of the House of Representative members instrumental in reducing the PBGC premiums for these CSEC plans.

Interested in learning more about the SECURE Act? Download the SECURE Act eBook from the Schneider Downs Retirement Solutions team for a full overview of provisions and highlights at www.schneiderdowns.com/secure-act-ebook.

Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC).  SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services.  Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.