Employers Urge House to Halt PBGC Premium Increases

May 14, 2014 (PLANSPONSOR.com) – A group of employers and business groups are asking the U.S. House of Representatives to oppose further efforts by the Pension Benefit Guaranty Corporation (PBGC) to increase premiums.

In the letter, employers such as General Motors and U.S. Steel, as well as industry groups such as the American Benefits Council and the American Society of Pension Professionals & Actuaries, say additional PBGC single-employer plan premium increases, when added to the multi-billion dollar increases enacted in 2006, 2012, and 2013 (see “PBGC Increases Some 2014 Premium Rates”), could divert additional resources from job creation and business investment.

The letter cites a new study by Inforum, “Increasing Pension Premiums: the Impacton Jobs and Economic Growth,” which suggests adding the Obama Administration’s budget proposal to the recent premium hikes equates to a potential loss of 42,000 jobs per year on average, peaking at 67,000 jobs in 2017, which would equate to a $51.4 billion hit to the U.S. economy over 11 years. “Companies must budget and plan in advance for cost increases, and in many cases, a PBGC tax hike means less money for other investments. Congress could save an average of 24,500 jobs per year by rejecting additional premium increases, such as the proposal to expand the PBGC’s authority to set premiums,” the letter says (see “Groups Reject PBGC’s Call to Set Premiums”).

The employers and groups contend that further increasing PBGC premiums is effectively a tax on plan sponsors. They note that in its 2013 annual report (see “PBGC Deficit Grows to $36B”), the PBGC stated: “PBGC still has very substantial assets, and the day when we run out of money is years away.” In other words, the letter says, “The PBGC is not in immediate crisis.”

The submitters of the letter argue that raising PBGC premiums amounts to a tax on employers that maintain defined benefit plans to boost workers’ retirement security. “Only the employers that voluntarily provide defined benefit pension plan benefits face this tax burden,” it says.

In a response to the study cited by the letter, PBGC Director Josh Gotbaum said, “It’s important to understand that this Administration and the previous one supported premium reforms. The President's proposal would allow PBGC’s Board to both raise and lower premiums in a way that is fair, affordable, and preserves pensions.

"Unlike the FDIC and other Federal insurance programs, Congress has continued to set PBGC premiums and has done so in ways that both underfunds PBGC and is convincing some companies they shouldn't offer pensions at all.”

The Obama Administration originally proposed giving PBGC’s Board the power to set premium rates based on the financial soundness of company sponsors in the 2012 budget (see “ERIC Pushes Back on PBGC Premium Proposal”).

The Government Accountability Office issued a report (see “GAO Looks at Risk-Aligned PBGC Premiums”) saying Congress should consider "revising PBGC's premium structure to better reflect the agency's risk from individual plans and sponsors."

The letter is here.