Here we go again. The insatiable Highway Trust Fund needs replenishing and, as CQ Roll Call’s David Harrison reported June 13, “House Republicans now are looking at another round of ‘pension smoothing’ combined with another increase in premiums to the Pension Benefit Guaranty Corporation, which guarantees the pensions of workers with defined benefit retirement plans.”
The pension smoothing/PBGC premium increase combo is nothing but revenue smoke and mirrors. Pension smoothing just shifts revenues into the budget window; the PBGC premiums go to PBGC, not general revenues. But it’s even worse than that. Every time Congress goes to the PBGC premium well to “pay for” anything, general revenues do not gain a single dime, and responsible employers get hit with a penalty for the offense of sponsoring a defined benefit pension plan for their employees.
When Congress established the PBGC in the Employee Retirement Income Security Act of 1974 to insure retirement benefits promised by private defined benefit 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. The Moving Ahead for Progress in the 21st Century Act increased premium rates from $35 to $42 per participant per year for 2013, and scheduled another increase to $49 per participant for 2018. In addition, the variable rate premium for plans with unfunded benefits was to double by 2015. Remember:The flat rate premium applies to all defined benefit plans — including those that have no unfunded benefits. So by 2018, responsible employers with no unfunded benefit promises were to be hit with an additional $14 per participant penalty (higher with indexing) so Congress could pretend that money would be available to pay for our highways.
MAP-21 was bad enough, but then the 2013 Budget Act raised premiums again. The flat rate premium is now scheduled to go up to $57 per participant in 2015 and $64 per participant in 2016, with indexing after that. (The variable rate premium is increasing again as well.) To get a budget deal, Congress chose to “raise” almost $8 billion dollars over 10 years on the backs of employers who are doing the right thing by sponsoring a defined benefit plan for their employees. The head tax these employers pay to PBGC for sponsoring a plan — even a very well-funded plan — will more than double between 2006 and 2016. It is unbelievable. It is wrong. And now we are told it is being considered again?
The pairing of “pension smoothing” with PBGC premium increases, as was done in 2012’s highway bill and is apparently being considered for the 2014 version, is particularly galling. Very few companies care if smoothing gets extended. Many companies and associations, including ASPPA, have been going to the Hill, telling Congress we would rather not have more smoothing than have more PBGC premium increases.
Sen. Jeff Flake, R-Ariz., takes a selfie with his cut-out head during the Hoops for Youth 16th annual charity basketball game held at George Washington University's Smith Center, September 8, 2014. The members of Congress team beat the lobbyist team 46-40. Buy photo here.