PBGC rate reset cuts premium funding targets, raises late interest

PLANADVISER reports that the Pension Benefit Guaranty Corporation last week updated four interest-rate categories that single and multiemployer plans use for valuation and funding: the discount rates behind variable-rate premiums, the ERISA 4044 assumptions for termination and mass-withdrawal valuations, the interest charge on late premiums, and the federal mid-term rate used in missing-participant calculations. The reset cuts in opposite directions: higher spot segment rates shrink variable-rate premium bases for July 2026 plan years, while the late-payment charge climbs and now holds through the fourth quarter.

For plan years beginning in July 2026, the first three spot segment rates used for the standard premium funding target—unless a plan elects the alternative premium funding target—came in at 4.62%, 5.62% and 6.51%, up from 4.49%, 5.43% and 6.18% for June plan years. The long end moved faster: the third segment rose 33 basis points against 13 for the first, a modest steepening that, because these rates discount the present value of vested benefits, implies a lower premium funding target and a thinner base for variable-rate premiums. For underfunded plans, that is the figure that matters.

The ERISA 4044 assumptions, which value annuities in involuntary or distress terminations and multiemployer benefits after a mass withdrawal, also rose, with the yield curve running from 4.86% to 6.13% as of July 31 compared with June's 4.74% to 5.66% range, the top climbing 47 basis points against 12 at the bottom. Separately, the PBGC set the ERISA 4044 interest rate for late premium payments at 7% for the current quarter and the fourth quarter of 2026, up from 6% in the second quarter and holding the level set in the first.

The applicable federal mid-term rate feeds the missing-participant rules, where it accumulates back payments to missing participants, and also covers interest charges when the PBGC takes over a plan, including accumulating past benefits owed but unpaid. The IRS publishes the annual figure each month, and the PBGC converts it to the monthly equivalent used in its calculations.

For September, the applicable federal mid-term rate will be 4.49% on an annual compounding basis, a 0.3667% monthly equivalent, up from 4.35% in August. That gives the PBGC's missing-participant calculations their next input, and it leaves the late-payment charge at 7% through the fourth quarter.