Legislation would limit use of PBGC premium hikes
Posted On: Apr. 20, 2016 12:00 AM CSTA bipartisan group of lawmakers have responded to pension plan sponsors' longtime complaint that increasing premiums they have to pay to the Pension Benefit Guaranty Corp. are unnecessary and potentially counterproductive.
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Six congressmen — three Democrats and three Republicans — have introduced legislation that would end what many call an accounting gimmick that has led lawmakers to repeatedly boost premiums, even when the PBGC did not seek increases.
H.R. 4955, which was introduced in the U.S. House of Representatives last week, would repeal a provision in a 1980 law that allows PBGC premiums to be counted as federal revenue, even though the money is used exclusively to help it pay benefits in pension plans it has taken over.
That frequently described budget “gimmick” has been used by lawmakers for several years, including in 2015 when Congress passed legislation upping the base PBGC premium, which is to rise from the current $64 per participant to $80 per participant in 2019.
The bill's chief sponsor, Rep. Jim Renacci, R-Ohio, said it's time to end that approach through the Pension and Budget Integrity Act of 2016.
“We need to improve our country's fiscal health by balancing the federal budget, and it cannot be done with accounting gimmicks. In this case, the pension premiums are being raised in order to pay for our federal programs, but in reality that revenue will only be allotted to PBGC plans,” Rep. Renacci said in a statement.
Benefit experts concur that escalating PBGC premiums are counterproductive as they encourage employers to freeze or slim down their pension plans, such as by offering selected participants the option to convert their future annuity benefit to a cash lump sum. That reduces the size of their pension plans and the premiums employers pay the PBGC, which advocates say will damage the agency's long-term financial health.
“The sad ironic aspect of all of this is that premium hikes could shrink the PBGC's premium base, reducing premium income, hurting the PBGC's overall financial condition,” said Alan Glickstein, a senior retirement consultant at Willis Towers Watson P.L.C. in Dallas.
Still, the measure will need to gather a lot more congressional support to win passage.
“It is an uphill and difficult climb. There is a significant educational component,” said Lynn Dudley, senior vice president of global retirement and compensation policy at the American Benefits Council in Washington. Still, “When lawmakers have all the facts and are educated, this can be done,” Ms. Dudley added.
The PBGC referred a request for comment on the bill to the Office of Management and Budget, which did not respond.