Corporate defined benefit plan sponsors are feeling picked on by Congress.
In order to reach a two-year federal budget deal and avoid another government shutdown, House and Senate negotiators agreed earlier this month to offset spending increases by raising PBGC premiums, increasing some federal employee retirement contributions and trimming cost-of-living increases for military retirees.
While federal employees marshaled their millions of members to lessen the sting of contribution increases, the corporations that will see premiums to the Pension Benefit Guaranty Corp. jump 50% by 2016 had little say, for several reasons.
Not typically shy when dealing with Congress, some corporations are keeping their powder dry for a major tax reform debate expected next year. There also is the perception on Capitol Hill that defined benefit pension plans are a dying cause — and therefore affect fewer constituents — which gave even ardent supporters in Congress little clout in the fast-moving budget negotiations.
Then there was the question of how to sell the deal to members of the House and Senate and to the public.
“If you start this process by saying you can't raise taxes, you've got to go to a fee,” said Howard Gleckman, resident fellow at the Tax Policy Center in Washington, a joint venture of the Urban Institute and the Brookings Institution. Companies paying PBGC premiums “got a target on their back simply because of the label,” he added.
“It's the PBGC piggy bank,” said Deborah Forbes, executive director of the Committee on Investment of Employee Benefit Assets, which represents 120 of the largest U.S. corporate pension funds with more than $1.5 trillion in retirement plan assets. “We are very unhappy.”
Even PBGC officials, who did not request the increase, were unhappy with the budget compromise. “PBGC premiums have always been too low for PBGC to do its job,” said PBGC Director Josh Gotbaum. “But our most immediate challenge is with multiemployer plans, and Congress took no action on those.”
Plan sponsors thought they were done in 2012, when PBGC premium increases produced $9 billion in federal revenue — at least on paper — to pay for a highway funding bill known as MAP-21 and avoid a student loan cost increase. The new budget deal is projected to add $8 billion in revenue. “The (PBGC) per-participant charge is nothing but a fee to pay for other stuff,” said Mike Archer, senior consulting actuary with Towers Watson & Co. in Philadelphia. “This is in many regards an under-the-radar revenue raiser. It doesn't affect all companies and it doesn't affect individuals.”
Still, he said, “I didn't expect another one this quickly.”
As a result, PBGC premiums now loom as one of the largest costs of running a defined benefit plan, said Robert Collie, chief research strategist for Americas institutional at Russell Investments in Seattle. He calculates a plan with 2,000 members and a $10 million funding shortfall that paid $160,000 in 2012 will pay $280,000 in 2015 due to MAP-21. Under the budget deal, that jumps to $344,000 in 2015 and $408,000 in 2016.
Calculations by some CIEBA members show their own PBGC costs going from $8 million to $43 million in four years.