PBGC Premium Hikes Must Stop

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By Sean Forbes and Kristen Ricaurte Knebel

Feb. 5 — The U.S. Chamber of Commerce doesn't always see eye to eye with the Pension Benefit Guaranty Corporation and the Department of Labor, but on this point the three agree: Congress needs to stop hiking PBGC single-employer pension premiums as a revenue raiser.

Congress has raised single-employer premiums three times in the past 41/2 years, at least partly to add revenue to federal coffers to help pay for infrastructure funding.

“I have heard often from employers that ‘enough is enough,' ” W. Thomas Reeder, director of the PBGC, said Feb. 5 at a Chamber of Commerce symposium on retirement policy. “Everyone should know that PBGC premiums go straight to the PBGC. The PBGC doesn't take any federal money. And so when you raise premiums, it's difficult to justify intellectually building roads, or building missiles, or paying for other government spending, from retirement pension premiums.”

Members of Congress who work in the retirement arena seem “to have gotten the message” that single-employer plan sponsors can't handle additional premium hikes, he said.

Reeder's comments echo those that the Chamber made in a new report, “Private Retirement Benefits in the 21st Century: Achieving Retirement Security.” In the report, the Chamber said that as part of strengthening the current U.S. retirement system, Congress should look beyond the 10-year federal budget window when determining the costs of tax incentives for retirement savings.

The administration also appears to have heard the message, Reeder said, “and I think the budget that will come out next week will reflect that,” referring to President Barack Obama's fiscal year 2017 budget proposal, scheduled to be released Feb. 9.

On the other hand, multiemployer plan premiums do need to be increased, because the PBGC's depleted multiemployer fund won't remain viable without them, Reeder said.

The PBGC's multiemployer plan insurance fund shortfall hit a record high of $52.3 billion for fiscal year 2015 .

Phyllis C. Borzi, assistant labor secretary for the DOL's Employee Benefits Security Administration, also criticized Congress's use of single-employer premium hikes for non-retirement federal budget goals. “We're beginning to see the devastating impact on the willingness—particularly among larger corporate plans—to continue the plan,” she said.

Reeder and Borzi spoke in separate sessions at the symposium presenting their respective views of the report. Reeder said he couldn't point to anything in the report's proposals that he could “flatly disagree with,” but Borzi said that while she liked some of the ideas—such as no more single-employer premium increases—there were others that she didn't support.

One of the ideas that Borzi addressed was the Chamber's recommendation that state-sponsored retirement plans for private-sector workers shouldn't undermine the Employee Retirement Income Security Act and also shouldn't compete unfairly in the marketplace.

About half of the states are exploring how to establish retirement plans for their private-sector citizens who don't have coverage through the workplace, largely the result of a DOL proposal late last year to allow states to establish such programs .

The guidance has been prompted by the states themselves, which have “given up” waiting for federal legislation that would help them, Borzi said. There is the potential for problems, “but to the extent that the states have targeted employers who have never offered plans, as the target audience, I think there's some promise there. We'll see. We'll see.”

Iwry on Open MEPs

J. Mark Iwry, senior adviser to the Treasury secretary and deputy assistant secretary for retirement and health policy at the Treasury Department, also presented his views of the paper, focusing primarily on the concept of “open” multiple employer plans.

The Obama administration intends to address this in its fiscal year 2017 budget in part by relaxing the commonality requirement that is imposed on open MEPs, Iwry said.

Currently, employers can join open MEPs, but instead of being treated as participating in one large plan, each employer plan is treated individually under the law. The president's budget will propose to remove the requirement that employers have a commonality or nexus to participate in such a MEP, allowing them to reap the benefits of a single-employer plan, something that was announced on Jan. 25 by Labor Secretary Thomas E. Perez .

In the past, the DOL has expressed concerns about potential abuses by open MEPs. Various retirement policy specialists and plan service providers have called for a loosening of restrictions on open MEPs, saying an expansion would increase Americans' access to retirement plans. The Chamber report pushed for that action as well.

Iwry said that the administration will propose “appropriate conditions and safeguards” in its open MEP proposal as well. The budget also will propose that the DOL have “pilots or projects” that would help make retirement benefits more portable, Iwry said.

For its part, Treasury and the Internal Revenue Service are working on the “one bad apple rule” that states that if there is a single bad actor in a MEP, the entire plan is tainted, he said.

Treasury has been working on this issue “for some time,” but the process has taken a lot more time than anticipated, Iwry said. “There are administrative issues at IRS regarding how this could work and be done, enforcement issues and the like,” he said.

To contact the reporter on this story: Sean Forbes in Washington at sforbes@bna.com, and Kristen Ricaurte Knebel in Washington at kknebel@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com