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Pension premiums for many plans covering unionized workers would rise significantly under President Donald J. Trump’s proposed budget.
The budget proposal, released May 23, would permit the Pension Benefit Guaranty Corporation to collect premiums from multiemployer plan sponsors to the tune of more than $16 billion in aggregate over 10 years. That number includes the introduction of a variable rate premium and an exit premium.
The variable rate premium, which is based on a percentage of a plan’s underfunding, is currently assessed only on single-employer plans. The proposal doesn’t request any increase to premiums for those plans.
The proposal would shore up for 20 years the PBGC’s multiemployer plan program “in ways that encourage better plan funding and continued employer participation,” PBGC Directer Thomas Reeder said May 23.
Others aren’t as optimistic about the proposal. The PBGC’s schedule of revised premium revenues “ignores the very real economic consequences to plans, employers and employees, industries, and the multiemployer system itself,” Michael Scott, executive director of the National Coordinating Committee for Multiemployer Plans, told Bloomberg BNA May 23. The NCCMP is a coalition of employers and unions that serve as plan trustees.
It’s “financial malpractice to allow premiums or other claims on plan assets to be implemented without understanding these impacts to determine the viability of such premiums,” he said.
Scott said he doesn’t support any premium hikes beyond the current level. That’s because the PBGC has failed in its mission given the impact on it of the looming insolvency of the 400,000-member Central States, Southeast and Southwest Areas Pension Fund, he said. That fund is projected to be insolvent by 2025.
According to the Trump Administration, there wasn’t any need to raise single-employer plan premiums because that program is projected to improve over the next 10 years. That was partly because Congress raised premiums in that program several times in recent years.
The multiemployer plan program, however, in 2016 carried a $58.8 billion deficit and is projected to run out of money by the end of 2025. If the program becomes insolvent, plans seeking financial assistance would see their benefits cut by as much as 90 percent. Premium rates for such plans remain much lower than what a private financial institution would charge for insuring the same risk and well below what is needed to ensure the PBGC’s solvency, the proposal said.
The Multiemployer Pension Reform Act of 2104 was expected to prevent financially distressed plans, such as Central States, from becoming insolvent. If the MPRA, also known as the Kline-Miller Act, had been faithfully implemented, “it would have had a significant impact on the net deficit of the PBGC by removing those plans that are included in the net deficit, and therefore on the premiums that the PBGC would mathematically seek,” Scott said. The NCCMP lobbied on behalf of that law.
-- Jasmine Ye Han contributed to this report
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Text of the budget proposal for the PBGC is at http://src.bna.com/o8u.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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