Pension Benefit Guaranty Corporation 

87-9 

August 24, 1987 

REFERENCE: 

 [*1] 4006 Premium Rates

29 CFR Part 2610 Declaration and Payment of Premiums 

OPINION: 

This is in response to the issues raised in your letter of July 27 to * * * concerning PBGC premiums in Social

Security integrated plans. As I understand it, your question is whether premiums are payable for participants in an

integrated excess plan where their service will not result in a unit of credit for accrued benefit purposes because the

plan is a "true unit credit plan" and their compensation is below the minimum compensation level. It is the view of

the PBGC that premiums are required in a plan year for employees who are participants in a plan, even though they

are neither accruing benefits nor entitled to service credits for accrual purposes because their compensation is below

the minimum compensation level in an excess plan. 

Your letter recognizes that the instructions for PBGC Form 1 provide that the participant count must include

employees who may not be accruing benefits because their compensation is below the minimum compensation level

in an integrated excess plan. You postulate that such employees are included in the participant count, although they

are not currently accruing benefits, as a [*2] protection for the PBGC from large amounts of benefit liability that

could occur if such employees moved above the minimum compensation level and became entitled to accrued

benefits based on full service. You then ask whether or not, in an integrated unit credit plan, where accrued benefits

are not based on total service but only on each year's credited service, premiums should be payable for those

employees below the covered compensation level. 

Implicit in your question is the assumption that the PBGC premium payment obligation reflects the traditional

"risk spreading" insurance concept. The PBGC's termination insurance, however, is not comparable to traditional

insurance programs. Under section 4006 of ERISA, the initial premium payment obligation is unrelated to the risk at

plan termination and does not "buy" protection. On the contrary, the PBGC must guarantee benefits even if

premiums have not been paid (see section 4007(d) of ERISA), and the guarantee is not limited to benefits accrued or

service credits earned during a year when premiums have been paid (see 29 CFR Part 2613). 

Section 4006 of ERISA gives the PBGC discretion to establish per capita premiums or risk-related [*3] 

premiums, and the PBGC has, by regulation (29 CFR Part 2610), chosen to exercise that authority so as to base

premiums exclusively on the number of participants in a plan. As a result, premiums must be paid on behalf of all

individuals coming within the plan's definition of "participant", notwithstanding the absence of a guaranteed pension

benefit for each participant or the risk of future exposure. The PBGC premium regulation does not distinguish

between types of covered plans, or the ultimate risk that each may present. 

As you know, the Administration has proposed to the Congress legislation that would establish a variable-rate

premium for the single-employer plan termination insurance program. Under that legislation, a flat-rate per capita

premium charge would continue for all plans, irrespective of risk or exposure, and an additional premium charge

would be imposed on larger plans (those with 100 or more participants) on a basis that reflects the possible exposure

of the PBGC, i.e., the funding status of the plan and the risk of plan termination. As under the current premium

provisions, there would be no adjustment for risk with respect to individual benefits or types [*4] of plans. 

I hope this information is useful to you. 

Royal S. Dellinger 

Deputy Executive Director