House of Representatives approves big PBGC premium hike
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Premiums employers pay the Pension Benefit Guaranty Corp. would sharply increase under budget legislation approved Thursday on a 332-94 vote by the House of Representatives.
The PBGC flat-rate premium, which is paid by all plan sponsors, would rise in 2015 to $57 per plan participant and to $64 in 2016. Currently, the premium is $42 per plan participant and is scheduled to increase in 2014 to $49.
In addition, the variable rate premium, which is paid by employers with underfunded plans, would increase to $24 per $1,000 of plan underfunding in 2015 and to $29 per $1,000 of plan underfunding in 2016. The current variable rate premium is $9 per $1,000 of plan underfunding and is scheduled to increase to $14 in 2014, according to provisions in a 2012 law.
An earlier legislative summary of the budget agreement notes that the PBGC now has a $36 billion deficit, “which may leave the corporation incapable of fulfilling its insurance obligations, resulting in cuts to benefits or a transfer from the general fund” of the U.S. Treasury Department.
But employer benefits lobbying groups say there is no justification for the increase, adding that it could prove counterproductive by encouraging more employers to shrink their pension plans through de-risking approaches such as selling the liabilities to insurers or offering participants the opportunity to convert their annuities to a lump sum cash benefit. With smaller plans, employers would pay less in PBGC premiums, reducing the agency's premium base and potentially leading to further premium hikes, experts say.
The Senate is expected to take up the measure next week.
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