Budget Deal a Financial Sleight of Hand for Pensions
The details of a new budget deal
have been released and to use the late Yogi Berra’s famous malapropism, it’s déjà vu all over again (and again). Congress has once again (and again) gone to the defined benefit pension well to pay for a budget deal
, using gimmicks that further penalize responsible employers who choose to adopt and maintain these vital plans for their rank and file employees without actually gaining any general revenues for the federal Treasury. The consequence will be to accelerate the decline of the traditional DB plan relied upon by tens of millions of workers in the United States to secure their retirement.
The offending provision in the Bipartisan Budget Act of 2015 will increase (yet again) premium payments
to the Pension Benefit Guaranty Corporation (PBGC). These premiums go directly to the PBGC, not to the Treasury. In 1974, when Congress established the PBGC in ERISA to insure retirement benefits promised by private DB retirement plans, premiums were set at $1 per participant. Since then, Congress has periodically increased this basic “flat-rate” premium that applies to all pension plans — even if they are well funded and pose no risk to PBGC — and added an additional variable-rate charge for underfunded retirement plans.
It took nearly 35 years for that $1 premium to go up to $35. In the last few years, however, Congress has been treating PBGC premiums like its own personal piggy bank, and premiums are skyrocketing out of control as a result. When the Deficit Reduction Act of 2005 set the flat rate premium at $30 with cost of living increases going forward, it was inconceivable that in less than a decade, that premium would more than double.
In 2012, the Moving Ahead for Progress in the 21st Century Act (MAP-21) increased rates from $35 to $42. Then, the Murray-Ryan budget deal in 2013 raised premiums again to $57 per participant in 2015 and $64 per participant next year. Now, should the Bipartisan Budget Act become law, premiums will increase to $69 per participant in 2017, $74 per participant in 2018, and $80 per participant in 2019. Variable rates have more than doubled as well and will increase further under this bill.
These increases are unconscionable — drowning good actors trying to do right for their employees in unnecessary fees — so that Congress can take credit for fake revenue. To add insult to injury, the Bipartisan Budget Act includes an additional breathtaking provision that is nothing more than a pure budget gimmick. To grab even more fake revenue in the 10-year budget window, the legislation moves forward the due date for premium payments in 2025 from Oct. 15 to Sept. 15 so the premium payments in that year can be captured in the prior government fiscal year. I challenge anyone to argue that this provision has any policy justification other than to make it seem like Congress is passing legislation that is more fiscally responsible than it actually is.
Enough is enough. Good employers and pension plans essential to middle-income American retirement security — programs that pose no risk to the solvency of the PBGC are crying uncle but Congress continues to ignore their plight. We should stop this financial sleight of hand now before it puts more good plans at risk.
Judy Miller is the Director of Retirement Policy for the American Retirement Association.
This column appeared in The Hill on Oct. 29, 2015.
More information about the provisions of the budget bill relevant to retirement plans is available on ASPPA Net here.