The ERISA Industry Committee (ERIC) is deeply troubled by the Congressional budget agreement that includes an increase in premiums paid to the Pension Benefit Guaranty Corporation (PBGC) by companies that sponsor defined benefit pension plans.
“ERIC is adamantly opposed to the PBGC premium increase included in this budget agreement, particularly considering the latest round of increases enacted by Congress only two years ago has not even been fully implemented. There is no policy or financial justification whatsoever for this latest increase, and it quite clearly is just a means so that policymakers can say they offset their spending increases elsewhere,” said ERIC President Scott Macey.
Indeed, the latest round of flat-rate and variable-rate premium increases for single-employer pension plan sponsors that was enacted less than two years ago (in July 2012), as part of the Moving Ahead for Progress in the 21st Century Act (MAP-21) will not be fully implemented until 2015.
“This premium increase will only further accelerate the demise of the pension system, as plan sponsors become increasingly discouraged from voluntarily providing pensions. It only provides another reason for sponsors to exit the system, thus further harming retirement security and the participants the system is intended to help,” Macey said. Congress’ continued decision to penalize responsible pension plan sponsors counter-intuitively penalizes those companies that continue to maintain defined benefit plans.
“Moreover, this increase does not even consider that, even using the PBGC’s own numbers in its latest annual report, the agency’s so-called pension funding deficit for single employer plans actually went down this past year,” Macey added.
The PBGC over the past few years has argued for higher premiums to address its purported deficit, but ERIC and other organizations have continually pointed out that the PBGC’s so-called deficit is artificially high due to the low interest rates that are used to calculate the agency’s liabilities. The low interest rates are largely due to the Federal Reserve’s policy of maintaining these low rates to prop up the economy, which has had a perverse effect on pension policy. ERIC and others note that this low-interest rate policy is only temporary, and the long-term funding position of the PBGC is in much better shape than the agency implies. Moreover, ERIC continues to have concerns about how the PBGC actually calculates its liabilities and thus its deficit.
ERIC and 16 other business-trade organizations in a December 5th letter strongly urged the budget conferees to oppose a PBGC premium increase, saying that in addition to increasing taxes on companies that voluntarily sponsor pension plans, it would divert additional resources from job creation and business investment, and undercut retirement security.
“Every additional dollar that employers must pay to the PBGC is one less dollar that can be used to fund participant benefits, expand their businesses, create jobs, and grow the economy,” the group said in its letter.
Macey concluded by stating that this premium increase is not justified by the facts, by the current PBGC deficit trends, by any reasonable policy considerations, nor by its likely adverse effect on participants.