‘Off Budget’ PBGC Premiums Viewed As Essential By DB Industry

Reintroducing a piece of legislation that would take Pension Benefit Guaranty Corporation (PBGC) premiums “off budget,” meaning they would not be counted as an income stream going towards the federal government’s general revenue, Senator Mike Enzi (R-Wyoming) says the move is necessary to protect the stability of the federally mandated insurance system for defined benefit (DB) plan sponsors.

That’s the goal of the Pension and Budget Integrity Act of 2017, also referred to as Senate Bill 270. Senator Enzi says such a change is necessary because the current approach leaves a problematic incentive in place for lawmakers to look at increasing PBGC premiums—a fairly obscure part of the revenue code, it must be said—to effectively “pay for” cuts in other areas of the tax code that get more attention from the general public.

Simply put, the act would “ensure that PBGC premiums are no longer counted in general fund revenue, eliminating the incentive for legislators to raise premium costs to pay for unrelated initiatives and programs,” Enzi explains. “That change would help to stabilize single-employer pension plans and provides more certainty for America’s companies and their employees.”

As Enzi explains, the PBGC was established in 1974 to ensure adequate funds would be available for pension plans in the event an employer sponsoring a plan enters bankruptcy. In 1980, Section 406 of The Multiemployer Pension Plan Amendments Act allowed PBGC premiums to be calculated as general fund revenue for budget scoring, even though the premiums themselves are not used to pay for unrelated programs. For context, it should be observed that the flat-rate per participant PBGC coverage premium for 2017 stands at $64, up from $31 in 2006. When PBGC launched, the flat rate was $1 per participant.

“While the premiums are not used to pay for other programs the increases are counted for budget purposes as a revenue raiser, leaving sponsors of single-employer defined benefit plans to shoulder additional financial burdens,” Enzi observes.

As of the date of this article, the bill had been read twice and referred to the Committee on the Budget. Last week, Representative Jim Renacci (R-Ohio) introduced a 2017 house version, H.R. 761., which is also awaiting a full review. 

NEXT: Quick and positive industry response 

Similar to when previous versions of this bill have been introduced, retirement plan providers still seem very amiable to the idea; in fact a group of eight providers and industry associations reached out to PLANSPONSOR after Enzi reintroduced his bill, strongly praising the move. These included the ERISA Industry Committee (ERIC), the American Benefits Council, ASPPA College of Pension Actuaries (ACOPA), the Committee on Investment of Employee Benefit Assets Inc. (CIEBA), the National Association of Manufacturers, the Society for Human Resource Management, the U.S. Chamber of Commerce, and WorldatWork.

“It is critical for employers to have predictability with PBGC premiums,” suggests Annette Guarisco Fildes, president and CEO, The ERISA Industry Committee. “Right now there is nothing predictable about premiums, because Congress can raise them at any time to pay for other programs. This legislation is greatly needed to ensure that PBGC premiums are used solely to protect the pension system and not as a budget gimmick to pay for unrelated federal programs.”

Lynn Dudley, senior vice president, global retirement and compensation policy, at the American Benefits Council, agrees wholeheartedly. “Irresponsible PBGC premium hikes undermine retirement security by increasing the costs of plan sponsorship and pushing healthy employers out of the system,” she says. “This bill would eliminate the perverse incentive to raise premiums and help restore honesty and accountability to the budget process.”

Judy Miller, executive director of ACOPA, suggests that In past years, “PBGC premium increases for single-employer plans have been used as a budget gimmick. The thousands of responsible employers who sponsor defined benefit plans have been penalized simply because they choose to provide this benefit to employees. This legislation will put a stop to this unfair, and frankly deceptive, practice.”

Joining the chorus of support, National Association of Manufacturers Director of Tax Policy Christina Crooks concludes that “every additional dollar that manufacturers must pay to the PBGC is one less dollar that can be used to fund employee benefits, business investments and jobs … Manufacturers support the Pension and Budget Integrity Act to end the cycle of unnecessary PBGC premium increases that are effectively a tax on the employers that provide defined benefit pension plans.”

Full text of the proposed legislation is available here.