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

The Pension Benefit Guaranty Corporation's 2026 single-employer flat-rate premium is $111 per participant, up from $106 and more than triple the $35 that applied in 2012. The variable rate sits at $52 per $1,000 of unfunded vested benefits, capped at $751 per participant.

At the same time corporate DB funded status has reached levels not seen in more than 15 years. Those two facts together change which plans should be running a settlement analysis, and the answer is more of them than sponsors assume.

Key Takeaways

• $111 per participant is the 2026 PBGC flat-rate premium, compounding at more than 8.5% a year since 2012 with no legislative freeze, while the variable rate is frozen at $52 under SECURE 2.0 Section 349.
• 107.8% was the Milliman 100 funded ratio at the end of April 2026, off a 109.3% February peak, on $1.297 trillion of assets against $1.204 trillion of obligations.
• 101.1% of accounting liability was competitive-bid buyout pricing in April 2026, down from 102.5% in March, the sharpest single-month decline in nearly a year.
• Roughly $380 per month is the benefit level below which annuity purchase pays for itself on PBGC premiums alone, rising to about $1,070 for plans subject to the variable-rate cap.
• A 50% excise tax under Section 4980 applies to surplus assets reverting to the sponsor on termination, which is what keeps well-funded plans from simply terminating.

Two Curves Crossing

The premium curve first. Congress used PBGC premium increases as a deficit-reduction tool through MAP-21 and the Bipartisan Budget Acts of 2013 and 2015, and the indexing locked in compound growth.

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

The flat rate has compounded at better than 8.5% a year since 2012. The variable rate went from $9 per $1,000 of underfunding to $52 over the same span, a nearly sixfold rise, before SECURE 2.0 Section 349 froze it. The flat rate carries no such freeze and indexes annually.

The funding curve went the other way. The Milliman 100 funded ratio peaked at 109.3% in February 2026 and settled at 107.8% at end-April, on $1.297 trillion of assets against $1.204 trillion of projected benefit obligations, a $94 billion aggregate surplus. Mercer put S&P 1500 plans at 108% in April after a 104% dip in March; Aon put the S&P 500 ratio at 105.3%, up from 103.3%.

None of that came from discretionary contributions. It came from discount rate increases cutting the present value of liabilities and from equity performance lifting assets, which means sponsors who held their plans through the near-zero-rate decade arrived in surplus without paying for it.

One number complicates the premium story. PBGC's Single-Employer Program reported a $62.2 billion positive net position at September 30, 2025, with $152.3 billion of assets against $90 billion of liabilities. Premiums keep indexing against a well-capitalized insurer.

The Premium Is Per Head, and That Is the Whole Mechanism

PBGC flat-rate premiums are charged per participant, not scaled to benefit size. That makes them regressive against liability, and it is what moves the settlement decision.

Take a deferred vested participant with a $500 monthly benefit. The present value of that liability runs roughly $60,000 to $80,000 depending on discount rate and mortality. The $111 flat-rate premium is therefore 0.14% to 0.19% of the associated liability every year, and over a 15-year holding period accumulated premiums alone consume 2% to 3% of the liability.

Run the same premium against an active participant with a $3,000 monthly benefit and a $400,000 obligation and it is 0.03%. The cross-subsidy inside the flat rate is large enough to invert the usual intuition about which participants are expensive to keep.

That is why the breakevens sit where they do. Annuity purchase pays for itself on PBGC premiums alone below roughly $380 a month for plans without the variable-rate cap, and below about $1,070 for plans subject to it, with well-funded zero-VRP plans falling between the two depending on administrative cost allocation. It also explains why retiree lift-outs consistently start at the bottom of the benefit distribution rather than the top.

The full-plan arithmetic follows from the same structure. For a plan with $200 million of liabilities and 3,000 participants, the flat-rate premium alone is $333,000 a year. Valuation fees, PBGC filings, trustee and investment management fees and audit costs add $150,000 to $300,000, so total annual maintenance runs $483,000 to $633,000. Discounted over ten years at 5%, that is a present value of $3.7 million to $4.9 million.

Against it, the settlement premium at 101.1% competitive-bid pricing on a $200 million plan is $2.2 million. A plan at 108% funded holds a $16 million surplus, which covers that premium with $13.8 million to spare. Even at 103%, the $6 million surplus clears it. The breakeven funded ratio at current pricing sits around 101% to 102%, not the comfortable margin most sponsors picture.

What Stops the Trade

Two constraints keep the arithmetic from settling the question, and one of them is a tax.

Section 4980 imposes a 50% excise tax on surplus assets reverting to the sponsor on plan termination, and SECURE 2.0 did not change it. On that same 108% funded, $200 million plan, the $16 million surplus faces an $8 million excise charge if it reverts, nearly four times the settlement premium the surplus was supposed to cover.

The mitigations exist: transferring surplus to a replacement qualified plan under Section 4980(d)(2), a Section 420 transfer to fund retiree health, or buying additional participant benefits to run the surplus down. Each one spends the surplus rather than banking it. The practical answer for many sponsors is to settle at or near 100% funded and retain minimal reversion, which means the strongest funded position is not the one producing the cleanest exit.

The second constraint is who is on the other side of the trade. LIMRA counts 22 carriers writing group annuity contracts, against roughly 12 to 14 a decade ago, and part of that expansion is private-equity-backed capital. AM Best has flagged a two-notch decline in the average credit quality of assets backing annuity reserves since 2007, with PE-backed insurers now holding approximately 25% of life and annuity liabilities.

That lands on the fiduciary rather than the sponsor's finance team. Interpretive Bulletin 95-1 requires the annuity provider to be selected on financial condition, capital adequacy and claims-paying history, and the NAIC's response, the CLO capital factor overhaul, collateral loan look-through under SSAP 48, negative IMR under SSAP 109 and FABN disclosure under SSAP 52, exists because the asset side of these balance sheets changed faster than the capital framework measuring it. Transferring a liability does not end the obligation to have assessed who now carries it.