<nobr>Oct 27, 2005</nobr>

House Education & Workforce Committee Increases Pension Premium Taxes & Chairman Boehner Defends Hybrid Plans

PBGC PREMIUMS: The House Education and Workforce Committee increased, October 26, premium taxes paid to the Pension Benefit Guaranty Corporation (PBGC) as part of its actions to meet Congressional budget targets. The Committee meets again, October 27, to consider other measures, primarily regarding education programs. The Committee's decisions will be combined with the work of other committees and taken to the House floor as part of a "budget reconciliation" bill. The House's actions would then be reconcilied with actions taken by the Senate and the resulting combined bill approved by both houses of Congress and signed into law. While Congress has not completed action on a budget reconciliation bill since the late 1990s, this year's efforts appear to be gaining momentum.

Regarding the PBGC premium taxes, the Committee voted to (1) increase the flat rate premium from $19 to $30 in 2006; (2) index the premium amounts for years 2007 and following; (3) allow the PBGC to recommend a premium increase of up to 20% that would go into effect in a given year unless Congress overruled the recommendation; and (4) impose a per-participant fee of $1250 for each of three years after a company emerges from bankruptcy if it terminates a pension plan while in bankruptcy. The provisions would raise approximately $6.2 billion over the next five years -- with approximately $1 billion coming from the bankruptcy exit fee and the remainder from the flat rate premium. No changes were made to the variable rate premium.

The premiums will revert to those outlined in comprehensive pension reform (H.R.2830) when that bill is enacted. That bill phased in the increase to $30 and included indexing of future premiums but not the optional 20% increase. H.R.2830 also imposed variable rate premium payments on far more companies than is the case under present law. While H.R.2830 does not include the "bankruptcy exit fee," ERIC staff believes it is likely that a similar provision will be included in any final version of pension funding reform.

HYBRID PLANS: In a letter to their colleagues, October 26, Rep. John Boehner (R-OH), chairman of the House Eduation and Workforce Committee and Rep. Bill Thomas (R-CA), chairman of the House Ways and Means Committee, forcefully defended hybrid pension plans. The letter is expected to be one of several in preparation for full House consideration of pension reform. Publication of the letter puts meat behind reports to ERIC that the Ways and Means Committee will consider pension reform legislation soon -- most likely in November -- and that the bill may be brought to the House floor before Thanksgiving.

H.R.2830 as approved by the House Education and Workforce Committee earlier this year validates that hybrid plan designs do not violate age discrimination rules -- but only on a prospective basis. ERIC's understanding from talking with key committee staff is that the House Ways and Means Committee action also is likely to include validation of hybrid plan designs only on a prospective basis. Thus the only opportunity at the present time to provide legal certainty for exiting hybrid plans appears to be to include such a provision in a conference agreement even though it will not be in either the House or Senate bill. ERIC will be communicating to you shortly in more detail regarding the current situation and options for employers.

For more information, contact:
Janice Gregory, Senior Vice President (jgregory@eric.org)
Mark Ugoretz, President (mugoretz@eric.org)

Text Files:

Chairman Boehner's Letter In Support of Cash Balance

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