Companies sponsoring defined benefit pension plans have seen their premiums with the Pension Benefit Guaranty Corporation skyrocket in recent years — in some cases needlessly.

A recent analysis of Form 5500 filings with the Internal Revenue Service shows companies paid an average of $42 per participant in defined benefit plans in 2013, and that figure had jumped to $64 per participant by 2016. The analysis by October Three Consulting suggests premiums will reach $80 per participant by 2019. “This is a big deal for most pension plans, maybe the biggest obstacle plans are facing in terms of cost,” says Brian Donohue, a partner and actuary at October Three.

Companies have struggled with pension funding for several years, prompting many companies to freeze defined benefit plans and steer employees toward defined contribution plans, such as 401(k)s. Even frozen plans, however, are subject to PBGC premiums, the costs of which have risen in recent years due to the complicated economics around asset growth and statutory requirements.

Interest rates have been low, causing plan assets to grow at slower rates, necessitating higher liabilities and higher funding requirement, says Donohue. The PBGC, which is essentially a government-run insurance program for private pension plans, has not had to bail out a major pension plan for several years now, he says, but the insurer’s exposure is not getting any smaller.

Capitol Hill advocates for increased premiums to cover increased exposure, says Donohue, but “the reality might be more cynical.” To the extent Congress can raise revenue with increased PBGC premiums, that frees budgetary dollars for other funding, he says. “So maybe PBGC premiums are not being driven by economics but by budget calculations.” Premiums also have risen over the past several years as Congress has approved pension funding relief; lower funding naturally increases risk, which necessitates higher premiums.

Either way, the October Three analysis also shows companies are paying unnecessary premiums, Donohue says. The firm says plan sponsors paid $700 million more over the six years of the study than required, and $145 million more than necessary in 2015 alone. The study found 65 percent of eligible companies paying more than they were required under statute.

Companies could take small steps in the way they time and record contributions to pension plans and put a significant dent in their minimum PBGC premiums, says Donohue. “Small differences in habits can make a difference,” he says.

The study focused on the approximately 23,000 defined benefit plans in the United States that are sponsored by single employers, then made a cut to zero in on larger plans, or those with at least 250 members. That narrowed the population to about 5,000 plans, Donohue says.

Of those, a few thousand are well enough funded that PBGC premiums are not onerous, he says. “The remaining two-thirds or so are not optimizing a strategy in terms of the timing and recording of plan contributions,” he says. “That means they paid premiums they didn’t need to pay.”

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