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July 15 — A bill that would prohibit Congress from using PBGC premium increases as an accounting gimmick to help balance the federal budget was recently introduced in the Senate.
The Pension and Budget Integrity Act of 2016 ( S. 3240) was introduced July 14 by Sen. Michael B. Enzi (R-Wyo.). The bill seeks to amend the House and Senate budget rules to prohibit Pension Benefit Guaranty Corporation premiums from being counted as general revenue. In addition, the bill would ensure that any future single-employer pension plan premium increases are only used toward retiree payments from the PBGC.
Reps. James B. Renacci (R-Ohio) and Mark Pocan (D-Wis.) introduced a version of the bill by the same name (H.R. 4955) in the House in April. That bill seeks to remove congressional authority to include premiums as part of the budget. The House bill has received co-sponsorship from 18 additional representatives, nine from each party.
In the past, Congress has been criticized for using premium increases that plans must pay to the PBGC to be calculated as a revenue raiser through budget scoring. This is what Congress did in October when, as part of a previous budget deal, it raised flat-rate PBGC premiums for single-employer pension plans by 12 percent and the variable-rate premiums that underfunded plans pay by 25 percent.
Former PBGC Director Joshua Gotbaum, now a guest scholar with the Brookings Institution in Washington, told Bloomberg BNA at the time that it's “unfortunate that Congress pretends to balance the budget by punishing employers who offer pensions. Raising PBGC premiums doesn't add a dime to the U.S. Treasury, but it does give businesses another reason to stop providing pensions. In the end, neither taxpayers nor pensioners will be better off.”
Several industry groups, including the ERISA Industry Committee, the American Benefits Council, ASPPA College of Pension Actuaries, the Committee on Investment of Employee Benefit Assets, the National Association of Manufacturers, the Society for Human Resource Management and the U.S. Chamber of Commerce sent a letter to Enzi on July 14 thanking him for introducing the bill.
In the letter, the groups said that the legislation, if enacted, “would ensure that PBGC premiums are no longer counted in general fund revenue, thus eliminating the incentive for legislators to raise premium costs to pay for unrelated initiatives and programs. As premiums for single-employer plans have been increased to ‘pay' for unrelated programs, employers that sponsor defined benefit plans have felt the increased financial burden of providing pension benefits, which has, in many cases, jeopardized their ability to continue to offer defined benefit plans.”
Furthermore, the groups told Enzi that PBGC premiums are only used by the PBGC for their intended purpose. “The premiums cannot be used to pay for other programs, although the increases have been used to ‘pay for' other unrelated programs over the years. This double-counting of funds is simply an accounting gimmick and does nothing to address the deficits we face.”
Michael P. Kreps, a principal with Groom Law Group Chartered in Washington, told Bloomberg BNA in a July 15 e-mail that he thought “prospects for the legislation was good.”
“Some members of Congress have pushed to use premiums as a funding source for government spending because they think the increases are easy,” he said. However, they “don't necessarily understand the effect the increases have had on the pension system, and they were able to tuck the provisions deep into huge, must-pass legislation at the 11th hour.”
Kreps, who previously was senior pensions and employment counsel for the Senate Health, Education, Labor and Pensions Committee, said that both the Senate and House bills are a “clear statement that members still care about the pension system, and they don't want to see premiums raised willy-nilly because of a budget gimmick.” He said he expects congressional “leadership in both parties will care what their members think.”
Sens. Lamar Alexander Jr. (R-Tenn.) and Johnny Isakson (R-Ga) co-sponsored the Senate bill.
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