DB Plans at 109% Funded Face Record PBGC Premium Pressure: When the Math Favors Pension Risk Transfer

The PBGC Premium Escalation

The Pension Benefit Guaranty Corporation published its 2026 premium rates in October 2025, continuing a trajectory that has reshaped the economics of maintaining a defined-benefit plan. Single-employer plan sponsors now pay $111 per participant in flat-rate premiums, up from $106 in 2025 and more than triple the $35 rate that applied as recently as 2012. The variable-rate premium stands at $52 per $1,000 of unfunded vested benefits (equivalent to 5.2% of underfunding), with a per-participant cap of $751, up from $717 in 2025.

From tracking these rates since the MAP-21 and Bipartisan Budget Act legislation of 2013 and 2015, the acceleration is unmistakable. Congress used PBGC premium increases as a deficit-reduction tool in successive budget agreements, and the indexing provisions locked in compound growth that continues today.

Plan Year	Flat Rate	Variable Rate (per $1,000 UVB)
2012	$35	$9
2014	$49	$14
2016	$64	$30
2018	$74	$38
2020	$83	$45
2022	$88	$48
2024	$101	$52
2025	$106	$52
2026	$111	$52

Source: PBGC Premium Rates Table. Variable rate frozen at $52 by SECURE 2.0 Act Section 349; flat rate continues to be indexed.

The flat-rate premium has grown at a compound annual rate exceeding 8.5% since 2012. The variable-rate premium increased from $9 per $1,000 of underfunding to $52 over the same period, a nearly sixfold increase, before Congress froze it through Section 349 of the SECURE 2.0 Act. The flat rate, however, remains subject to annual indexing with no legislative freeze in effect.

For the roughly 18.4 million workers and retirees covered by approximately 22,000 PBGC-insured single-employer plans, these premiums represent an increasingly significant cost. The PBGC’s Single-Employer Program reported a $62.2 billion positive net position as of September 30, 2025, with $152.3 billion in assets against $90 billion in liabilities. That surplus raises a question pension actuaries have heard with growing frequency from plan sponsors: why are premiums still rising when the insurer is this well-funded?

Where Funded Status Stands in Mid-2026

The aggregate funded position of U.S. corporate DB plans has strengthened to levels not seen in over 15 years, driven by a combination of strong equity returns and elevated discount rates.

This sustained strength creates a distinctive set of conditions. Plans that were underfunded during the decade of near-zero interest rates following 2008 have migrated to surplus positions without making large discretionary contributions. The improvement came primarily from discount rate increases (reducing the present value of liabilities) and equity market performance (boosting plan assets). For sponsors who maintained their plans through the low-rate period, the current funded position represents an opportunity to act from a position of strength rather than necessity.

The multiemployer system has followed a similar trajectory. Milliman reported that U.S. multiemployer DB plans reached 103% aggregate funded status in 2026, five years after the American Rescue Plan Act provided special financial assistance. Multiemployer plans pay a $40 per-participant flat-rate premium to PBGC in 2026, roughly a third of the single-employer rate.

The Breakeven Analysis: When Premium Drag Alone Justifies PRT

From modeling PBGC premium projections against pension risk transfer settlement costs for plans between 100% and 115% funded status, a clear pattern emerges. The analysis consistently shows that premium drag alone can justify transaction exploration once a plan crosses the 105% funded threshold. Here is the arithmetic.

The Per-Participant Cost Structure

PBGC premiums are charged per participant, not scaled to benefit size. This creates a regressive cost structure where small-benefit participants are disproportionately expensive to keep in the plan relative to their liability. October Three’s April 2026 PRT pricing analysis highlights this dynamic: PBGC premiums now exceed 1% of total plan assets annually for many sponsors, particularly those with large retiree populations drawing modest monthly benefits.

Consider a deferred vested participant with a $500-per-month benefit. The present value of that liability, depending on discount rates and mortality assumptions, falls roughly between $60,000 and $80,000. The $111 annual flat-rate premium on this participant represents 0.14% to 0.19% of the associated liability each year. Over a 15-year holding period, accumulated PBGC premiums alone could consume 2% to 3% of the total liability value.

For an active participant with a $3,000-per-month benefit and a projected benefit obligation of $400,000 or more, the same $111 annual premium represents only 0.03% of the liability. The cross-subsidy within the flat-rate structure is substantial.

The Breakeven Thresholds

October Three’s analysis identifies specific monthly benefit levels where PRT becomes cost-effective on a PBGC-premium-only basis:

These thresholds explain why pension risk transfer transactions frequently begin with retiree lift-out buyouts targeting the smallest monthly benefits. The economics are most compelling at the bottom of the benefit distribution, where the per-capita PBGC charge consumes the largest share of associated liability.

The Full-Plan Economics at Current Pricing

The Milliman Pension Buyout Index (PBI) reported competitive-bid PRT buyout pricing at 101.1% of accounting liability in April 2026, down from 102.5% in March. This was the sharpest single-month decline in nearly a year, and it widened the spread between competitive and average bids to 3.0 percentage points.

For a plan at 108% funded status (the Milliman 100 average range), the arithmetic works as follows. A full buyout at 101.1% of projected benefit obligation leaves a surplus of 6.9% of PBO in plan assets after settlement. For a plan with $200 million in liabilities and 3,000 participants, the annual PBGC flat-rate premium alone is $333,000. Adding actuarial valuation fees, PBGC filing costs, trustee fees, investment management fees, and audit expenses, total annual plan maintenance costs typically run $150,000 to $300,000 for a plan of this size. The combined annual cost of $483,000 to $633,000, discounted over a 10-year horizon at 5%, produces a present value of $3.7 million to $4.9 million in avoidable ongoing costs.

The settlement premium of 1.1% of liabilities on a $200 million plan is $2.2 million, well below the present value of ongoing costs. The plan’s 8% surplus ($16 million) covers the settlement premium with $13.8 million to spare.

Even at 103% funded status, the surplus of $6 million exceeds the $2.2 million settlement premium, and the PV of eliminated ongoing costs adds further economic justification. The breakeven funded ratio, where the surplus just covers the settlement premium and where eliminating future PBGC premiums and admin costs produces positive net economics, falls around 101% to 102% at current competitive PRT pricing.

PRT Market Capacity and Pricing Dynamics

The pension risk transfer market has expanded to accommodate the wave of de-risking activity that funded-status improvement enables. According to LIMRA, 22 carriers now offer group annuity contracts for transferring qualified plan liabilities, with additional entrants exploring the market for 2026. This represents a near doubling of capacity from a decade ago, when roughly 12 to 14 insurers were active in the PRT space.

Full-year 2025 PRT sales totaled approximately $49 billion in premium volume, making it the third-strongest year in market history following the record $51.8 billion in 2024. The year included 683 buyout contracts and 17 buy-in contracts. While buyout volume declined 35% year over year to $31.3 billion, buy-in volume surged 372% to a record $17.5 billion across those 17 transactions.

October Three’s May 2026 pricing update shows annuity purchase rates at elevated levels, with the duration-7 rate at 4.94% and the duration-15 rate at 5.02%, both among the highest levels observed since June 2025. Higher annuity purchase rates translate to lower PRT costs for plan sponsors, since the insurer can generate more investment income on the premium received. This creates a pricing tailwind that reinforces the funded-status improvement already benefiting sponsors.

The competitive landscape has driven a meaningful compression in settlement premiums. The average PRT buyout cost historically ran 105% to 108% of accounting liability. The April 2026 competitive-bid level of 101.1% reflects both the rate environment and the intensity of insurer competition for deal flow. For plan sponsors who solicit competitive bids rather than accepting a single quote, the spread between competitive and average pricing has widened to 3.0 points, underscoring the value of a structured RFP process.

The Buy-In Surge: Partial De-Risking Gains Momentum

Patterns we’ve seen in recent PRT data point to a structural shift in how sponsors approach de-risking. The 372% surge in buy-in transactions during 2025 signals that sponsors are increasingly using partial risk transfer strategies rather than committing to full plan termination.

A buy-in is a group annuity contract purchased by the pension plan as a plan asset. The insurer pays benefits matching the plan’s obligations for a specified group of participants, but the plan retains legal responsibility for paying those benefits. This contrasts with a buyout, where the insurer assumes direct responsibility and the participants are removed from the plan entirely.

Buy-ins offer several advantages for well-funded plans that are not yet ready for full termination:

Q4 2025 alone produced $12.7 billion in buy-in sales across seven contracts, a record quarter that included several transactions exceeding $1 billion each. LIMRA noted that the fourth quarter combined single-premium total of $28 billion (buy-in plus buyout) surged 132% year over year.

SECURE 2.0 Adds an Operational Complexity Layer

Beyond the premium arithmetic, sponsors maintaining both defined-benefit and defined-contribution plans face mounting regulatory complexity that strengthens the case for simplifying the retirement benefit structure.

The SECURE 2.0 Roth catch-up mandate took effect January 1, 2026, requiring all catch-up contributions from participants earning above $145,000 in the prior year to be made on a Roth (after-tax) basis in 401(k), 403(b), and 457(b) plans. Plan amendments implementing this and other SECURE 2.0 provisions must be adopted by December 31, 2026 (December 31, 2028 for collectively bargained plans). The IRS published final regulations in late 2025, confirming the operational requirements and adding a deemed-election safe harbor for plans that do not separately designate catch-up contributions.

While these provisions apply to DC plans rather than DB plans directly, sponsors maintaining both types of retirement programs face compounding administrative burden. The SECURE 2.0 amendment deadline, combined with ongoing DB plan requirements (annual actuarial valuations, AFTAP certifications, PBGC premium filings, participant notices), creates an operational environment where simplifying the benefit structure through DB plan termination carries an administrative dividend beyond the pure financial economics.

For large employers with dedicated benefits teams, this incremental complexity may be manageable. For mid-size sponsors, particularly those with frozen DB plans and relatively small participant counts, the combined administrative cost of dual-plan management can tip the de-risking decision.

The Excise Tax Constraint on Plan Termination

Plans considering full termination must account for the Section 4980 excise tax, which imposes a 50% tax on any surplus assets that revert to the sponsor upon plan termination. This provision, unchanged by SECURE 2.0, can significantly reduce the economic benefit of terminating an overfunded plan.

For a plan at 108% funded status with $200 million in liabilities, the $16 million surplus would face an $8 million excise tax if reverted to the sponsor (less applicable deductions). However, sponsors have strategies to mitigate this exposure. They can transfer surplus assets to a replacement qualified plan under Section 4980(d)(2), apply surplus to fund retiree health benefits through a Section 420 transfer, or time the termination to minimize reversion by purchasing additional benefits for participants with the excess assets.

Alternatively, many sponsors execute a buyout at or near 100% funded status, using the slight premium over PBO as the settlement cost and retaining minimal reversion. At competitive-bid pricing of 101.1%, the economic friction is far lower than the excise tax on a large surplus reversion.

Insurer Credit Quality and Participant Protection

Plan sponsors and their actuaries must evaluate PRT insurer credit quality carefully. ERISA fiduciary standards require that the annuity provider be selected following the DOL’s Interpretive Bulletin 95-1 criteria, which include the insurer’s financial condition, capital adequacy, and claims-paying history.

This due diligence has taken on greater significance as the PRT market has expanded to include newer entrants, some backed by private equity capital with investment portfolios weighted toward higher-yielding (and less liquid) asset classes. AM Best has flagged a two-notch decline in the average credit quality of assets backing annuity reserves since 2007, driven in part by PE-backed insurers that now hold approximately 25% of life and annuity liabilities.

The NAIC has responded with several initiatives. These include the CLO capital factor overhaul, collateral loan look-through requirements under SSAP 48, negative IMR treatment under SSAP 109, and FABN disclosure rules under SSAP 52. For pension actuaries advising on insurer selection, these regulatory developments provide a framework for assessing whether a PRT insurer’s asset portfolio can support the guarantees being transferred.