Compliance

Senator Pushes for ‘Off Budget’ PBGC Premiums

The idea of taking PBGC premiums “off budget” is nothing new, but the project is supported by a laundry list of retirement plan providers and their trade group associations. 

By John Manganaro editors@strategic-i.com | February 02, 2017
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Reintroducing a piece of legislation that would take Pension Benefit Guaranty Corporation (PBGC) premiums “off budget,” meaning they would not be counted as an income stream going towards the federal government’s general revenue, Senator Mike Enzi (R-Wyoming) says the move is necessary to protect the stability of the federally mandated insurance system for defined benefit (DB) plan sponsors.

That’s the goal of the Pension and Budget Integrity Act of 2017, also referred to as Senate Bill 270. Senator Enzi says such a change is necessary because the current approach leaves a problematic incentive in place for lawmakers to look at increasing PBGC premiums—a fairly obscure part of the revenue code, it must be said—to effectively “pay for” cuts in other areas of the tax code that get more attention from the general public.

Simply put, the act would “ensure that PBGC premiums are no longer counted in general fund revenue, eliminating the incentive for legislators to raise premium costs to pay for unrelated initiatives and programs,” Enzi explains. “That change would help to stabilize single-employer pension plans and provides more certainty for America’s companies and their employees.”

As Enzi explains, the PBGC was established in 1974 to ensure adequate funds would be available for pension plans in the event an employer sponsoring a plan enters bankruptcy. In 1980, Section 406 of The Multiemployer Pension Plan Amendments Act allowed PBGC premiums to be calculated as general fund revenue for budget scoring, even though the premiums themselves are not used to pay for unrelated programs. For context, it should be observed that the flat-rate per participant PBGC coverage premium for 2017 stands at $64, up from $31 in 2006. When PBGC launched, the flat rate was $1 per participant.

“While the premiums are not used to pay for other programs the increases are counted for budget purposes as a revenue raiser, leaving sponsors of single-employer defined benefit plans to shoulder additional financial burdens,” Enzi observes.

As of the date of this article, the bill had been read twice and referred to the Committee on the Budget. Last week, Representative Jim Renacci (R-Ohio) introduced a 2017 house version, H.R. 761., which is also awaiting a full review. 

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