President Obama is once more proposing giving the Pension Benefit Guaranty Corp. the power to raise premiums on single and multiemployer defined benefit pension plans, a move that would raise $19 billion over the next decade.
Currently set by Congress, single-employer PBGC premiums are scheduled to increase to $57 per-participant this year and to $67 in 2016, nearly double the $35 rate in 2012.
Premium increases generated by the proposed new authority – contained in the spending plan unveiled by the Obama White House Monday – would be split between single-employer and multiemployer programs "in accordance with the size of each program's deficit," according to a Department of Labor fact sheet.
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The PBGC's 2014 annual report showed its single-plan deficit to be $19.3 billion, down from a previous estimate of $27.4 billion. The multiemployer plan deficit swelled to $42.4 billion, up considerably from the previous estimate of $8.3 billion.
All told, the multiemployer insurance plan holds less than $1.8 billion in assets, and stands a 90 percent chance of running out money by 2025, according to PBGC's annual report.
Those estimates were made before the Multiemployer Pension Reform Act of 2014 was enacted at the end of last year, which gives PBGC the authority to reduce payments to retirees covered in its multiemployer plan.
The reduced single-employer plan deficit resulted from an improved economy and an additional $869 million in premiums collected. The program has about $88 billion in assets. PBGC does not expect the single-employer plan to run out of money.
Previous efforts to grant PBGC the authority to assess premiums began in President Obama's first term and were rejected by Congress. Last year's budget included the same proposal, projecting $20 billion in new premium revenue.
Higher premiums have spurred some large plan sponsors to buy group annuities to off-load, or "de-risk," their pension liabilities, an option that both lowers potential beneficiaries protected by PBGC and the premiums it collects from sponsors.
"Premium increases," the president's proposed budget said, "would be carefully crafted to avoid worsening PBGC's financial condition and harming workers' retirement security by driving healthy plans that pose little risk of presenting a claim to PBGC out of the system."
The latest effort to further increase premiums is likely to fuel the acrimony between sponsors of the largest defined benefit plans and the agency charged with insuring them.
Annette Guarisco Fildes, president and CEO of the ERISA Industry Committee, said giving the PBGC authority to set premiums would "create a direct conflict of interest."
"This proposal continues to resurface each year, and policymakers appropriately have rejected it as an inappropriate and impractical expansion of government authority that would hurt plan participants and plan sponsors," she said.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
