The Pension Benefit Guaranty Corporation (PBGC) requires single-employer defined benefit pension plans to pay annual premiums. While the flat-rate premium is based solely on the number of participants, the Variable-Rate Premium (VRP) is based on the plan's funding status. It effectively penalizes plans that have "Unfunded Vested Benefits" (UVB).
How VRP is Calculated
The calculation follows a specific multi-step process defined by ERISA and PBGC regulations:
Determine Unfunded Vested Benefits (UVB): This is the excess of the plan's Vested Benefit Liability over the Fair Market Value of Plan Assets. If assets exceed liabilities, the UVB is zero.
Apply the VRP Rate: For 2024, the rate is $52 per $1,000 of UVB.
Calculate the Per-Participant Cap: To protect employers with significantly underfunded plans, the total VRP is capped. For 2024, the cap is $686 multiplied by the number of participants.
Comparison: The plan sponsor pays the lesser of the calculated UVB-based premium or the per-participant cap.
2023 vs. 2024 Rates
The PBGC rates are adjusted annually for inflation. Below are the parameters used in this calculator:
2024: $52 per $1,000 of UVB; Cap of $686 per participant.
2023: $52 per $1,000 of UVB; Cap of $652 per participant.
Example Calculation
Imagine a plan in 2024 with 100 participants, $1,000,000 in assets, and $2,000,000 in vested liabilities.
UVB: $1,000,000
Raw VRP: ($1,000,000 / 1,000) * $52 = $52,000
Cap: 100 * $686 = $68,600
Payable VRP: $52,000 (since it is lower than the cap).
function calculateVRP() {
var year = document.getElementById('premiumYear').value;
var assets = parseFloat(document.getElementById('assetValue').value);
var liabilities = parseFloat(document.getElementById('liabilityValue').value);
var participants = parseInt(document.getElementById('participantCount').value);
// Validation
if (isNaN(assets) || isNaN(liabilities) || isNaN(participants)) {
alert("Please enter valid numerical values for assets, liabilities, and participants.");
return;
}
// Set Rates based on year
var vrpRate = 52; // Currently same for 2023 and 2024
var capPerParticipant = (year === "2024") ? 686 : 652;
// Calculate UVB
var uvb = liabilities – assets;
if (uvb < 0) {
uvb = 0;
}
// Calculate Raw VRP (Rate is per $1,000 of UVB)
var rawVrp = (uvb / 1000) * vrpRate;
// Calculate Cap
var totalCap = participants * capPerParticipant;
// Determine Final VRP (Lesser of Raw or Cap)
var finalVrp = Math.min(rawVrp, totalCap);
// Display Results
document.getElementById('resUVB').innerText = "$" + uvb.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resRawVRP').innerText = "$" + rawVrp.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resCap').innerText = "$" + totalCap.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resFinalVRP').innerText = "$" + finalVrp.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('pbgcResult').style.display = 'block';
}