The Bipartisan Budget Act of 2015 (BBA), passed by the House of Representatives on Tuesday, contains some eye-opening provisions, like suspending the national debt limit through 2017 and significantly raising federal spending caps imposed by the Budget Control Act of 2011.
In the consumer media, less attention is being directed at another aspect of the BBA, but it’s one that has employer groups hopping mad. That is, the act, if passed by the Senate and signed into law as expected, would raise the premiums that pension-plan sponsors pay to fund the Pension Benefit Guaranty Corp.
Until Tuesday, the bill had fixed-rate premiums for single-employer plans increasing from their current, inflation-indexed level of $64 per plan participant in 2016 to $68 in 2017, $72 in 2018, and $78 in 2019. Variable-rate premiums (the premiums that underfunded plans must pay to the PBGC based on the amount of unfunded vested benefits) were to be jacked up as well, by $2 over the indexed inflation rate in 2017, $3 in 2018, and $3 in 2019.
But Tuesday, after pro-agriculture legislators successfully lobbied to drop from the bill a proposed cap on the rate of return for federal crop insurance providers, the pension premiums were raised again. Under the amended bill, the single-employer, fixed-rate premium would be $69 in 2017, $74 in 2018, and $80 in 2019, while variable-rate premiums were raised by an additional dollar for all three years. (See chart, provided by the American Benefits Council.)
“The initial budget deal would have raised billions of dollars in pension premiums,” said James Klein, president of the American Benefits Council (ABC), which advocates in Washington on behalf of its nearly 400 member organizations. “[Tuesday] night, when leaders discovered the deal was a few billion dollars short, they went back and raised billions more.”
It’s at least ironic — some stronger words come to mind — that the same Congress and presidential administration that have taken numerous steps aimed at improving retirement savings now support an action that would only hasten the trend of pension plan sponsors freezing or closing their plans.
“If policymakers are serious about Americans’ retirement security, they need to stop using employer-sponsored plans as a piggy bank,” said Klein. “The irony is that by continually increasing premiums — including on fully-funded plans — Congress and the President are compelling more and more employers to exit the system, which shrinks the premium base on which the PBGC relies.”
Klein added, “The timing of this provision is particularly baffling, since the PBGC’s recent Fiscal Year 2014 Projections Report confirmed that the financial condition of the single-employer pension program has significantly improved and has ample assets to pay benefits well into the future.”
If the BBA becomes law, it would be the third time in four years that pension premiums have been hiked. The ABC commissioned a report last year in which Quantria Strategies, which analyzes legislative and public policy options, concluded that further PBGC premium increases pose the greatest threat to the pension system.
The kicker to this story is that while the purported purpose of the premium hikes is to help fund the federal spending increases authorized by the BBA, they don’t literally accomplish that purpose.
By law, the premiums that pension-plan sponsors pay to the PBGC cannot be used for anything but PBGC programs. Yet the Congressional Budget Office records the premium increases as general revenues. Put simply, it’s an accounting trick on the level of one that would get a publicly held corporation busted by the Securities and Exchange Commission. But there is no law or regulation that prevents the CBO from employing this practice.
“Policymakers use PBGC premium increases to justify unrelated federal spending, which perpetuates long-term deficit spending by, in effect, ‘double counting’ premium increases for revenue purposes,” Quantria noted in its report.