A less dire forecast of its financial health by the Pension Benefit Guaranty Corporation (PBGC) in its recently released projection report have strengthened calls for the Obama administration to reconsider seeking authority for the agency to raise premiums on its own.
Congress imposed $9 billion of new PBGC premiums on employers in the June 2012 transportation bill, and another $8 billion last December, and businesses have been girding for yet another hike this year. The PBGC’s report has provided them with ammunition.
“The business community has criticized the PBGC’s deficit calculations in the past for using false assumptions and historically low interest rates, driving their deficit projections way above the actual levels,” Christina Crooks, director of tax policy at the National Association of Manufacturers (NAM), wrote earlier this month on the trade group’s Shopfloor blog. “Therefore, the fact that the PBGC’s own report shows a diminishing deficit further validates that any more PBGC premium increases are not needed.”
Ms. Crooks said in an interview that NAM and other members of the Pension Coalition heard rumors early this year that a bill giving the PBGC the authority to raise pension premiums by an additional $20 billion over 10 years could be attached to Highway Trust Fund legislation as a revenue raiser. The House Ways and Means Committee has reported that legislation out of committee and the full House was anticipated to vote on it July 15. The Senate Finance Committee has also reported the legislation out of committee but no date has been set yet for a full Senate vote.
Neither bill contains language to give PBGC premium-increasing authority, a positive sign for opponents of such an increase, although it may appear in subsequent legislative stages. Both the House and Senate bills do contain language that would allow the interest-rate used to determine pension funding requirements to be the average over 25 years, instead of the current rate. The historically low rates over the last several years have required companies to compensate by increasing their payment obligations.
The US Chamber of Commerce decried the PBGC’s proposed new authority to raise the premium on its blog July 11. It estimates that a third increase would translate into a cumulative $51.4 billion hit to the US economy over 11 years and would cost an average of 42,000 jobs per year, peaking at 67,000 jobs in 2017. Furthermore, manufacturers would lose nearly 7,500 jobs in 2017 alone, while social services and nonprofits would see 4,700 jobs disappear that year.
The PBGC responded in mid-May to the Pension Coalition-sponsored study that generated many of those numbers, noting that both the Obama and Bush administrations supported premium reforms, and that the president’s proposal would allow the PBGC’s board to raise as well as lower premiums in a fair and affordable way that preserves pensions. The Obama Administration originally proposed giving PBGC’s Board the power to set premium rates based on the financial soundness of company sponsors in the 2012 budget.
“Unlike the FDIC and other federal insurance programs, Congress has continued to set PBGC premiums and has done so in ways that both underfunds PBGC and is convincing some companies they shouldn’t offer pensions at all,” said PBGC Director Josh Gotbaum in a statement.
Ms. Crooks noted that the PBGC’s projected deficit, justifying additional premium hikes, has “virtually disappeared, making any further premium hikes unnecessary.” She added that the deficit for single-employer pension plans will shrink by 360%, to $7.6 billion by 2023 from $27.4 billion today. However, the PBGC projects the deficit for multi-employer plans much higher, at $49.6 billion.
“While the single-employer program is still likely to remain in net deficit over the 10-year projection period, some improvement is likely due to improved economic conditions and other factors,” the PBGC’s projection report says. “In contrast, some multiemployer plans are deteriorating and PBGC’s multiemployer program is more likely than not to run out of money within the next eight years.”
The opponents of further increases view the agency’s projections as overly pessimistic. “The business community has criticized the PBGC’s deficit calculations in the past for using false assumptions and historically low interest rates, driving their deficit projections way above actual levels,” Ms. Crooks said in her blog.