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WASHINGTON—Employers will be able to slash defined benefit plan contributions by billions of dollars over the next several years, but will face sharply higher federal pension insurance premiums under legislation that won final congressional approval Friday.
The pension-related provisions approved Friday on rare bipartisan votes by both the House of Representatives and the Senate, are included as part of a broader transportation funding bill, H.R. 4348, which President Barack Obama is expected to sign shortly.
The pension funding provisions mirror those approved earlier by the Senate. Effectively, employers would be able to use higher interest rates to value plan liabilities, reducing the value of the liabilities and their required contributions to the plans.
However, the legislation also calls for steep increases in premiums employers pay the Pension Benefit Guaranty Corp., which currently has a $26 billion deficit in its insurance programs that guarantee most vested benefits to participants in plans that the agency takes over from financially troubled employers.
Currently, all employers with defined benefit plans pay an annual PBGC premium of $35 per plan participant. The legislation would boost the premium by an additional $6 per plan participant in 2013 and another $7 per participant in 2014.
In addition, the measure would increase what is known as the variable-rate premium that is assessed on employers with underfunded plans
Currently, that premium is $9 per $1,000 of plan underfunding. The transportation legislation would increase that assessment in 2014 to $13 per $1,000 of plan underfunding and $18 per $1,000 underfunding in 2018. Regardless of the amount of the underfunding, the maximum variable-rate premium could not exceed $400 per participant.
The American Benefits Council in Washington described the bill as a mixed bag for employers.
“As much as we appreciate the inclusion of pension funding stabilization, we strongly disagree with the decision to impose an additional $9 billion in pension plan premium hikes,” ABC President James Klein said in a statement.