By Hazel Bradford, Crain News Service
WASHINGTON (Dec. 12, 2013) — A tentative federal budget agreement struck late Dec. 10 has groups representing retirement plan sponsors and federal workers gearing up for a fight over pension costs.
House and Senate budget negotiators reached a two-year budget deal that calls for offsetting spending increases in part by raising premiums paid to the Pension Benefit Guaranty Corp. (PBGC) and increasing federal employee retirement contributions. It also trims cost-of-living increases for military retirees.
The House, which goes into recess on Friday, could vote to approve the deal as early as Dec. 12, while the Senate has another week to act on it. The current federal spending measure expires Jan. 15.
Sponsors of defined benefit plans vow to fight the plan to raise PBGC premiums less than two years after passage of MAP-21, which increased premiums through 2014. “There is no policy or financial justification whatsoever for this latest (PBGC) increase,” said Scott Macey, president and CEO of the ERISA Industry Committee, in a statement. “It quite clearly is just a means so that policymakers can say they offset their spending increases elsewhere.”
The deal would increase PBGC premium levels 50 percent by 2016, despite PBGC estimates that its deficit in the single-employer program is shrinking.
“This is another significant increase on top of the MAP-21, and it’s going to hasten the decline of defined benefit,” said Deborah Forbes, executive director of the Committee on Investment of Employee Benefit Assets, which represents more than 100 of the largest U.S. corporate pension funds with more than $1.5 trillion in retirement plan assets.
The tactic could also hurt the PBGC, noted Lynn Dudley, senior vice president of policy for the American Benefits Council. “If this goes through, the PBGC’s base will shrink and the premium income will shrink from that. Budget decisions driving pension policies is always a bad idea.”
Unions representing federal employees said that while the proposed $6 billion increase in employee retirement contributions is better than an original administration plan that sought $20 billion, it is still unacceptable. Currently, newly hired federal employees contribute 3.1 percent of pay; under the budget deal, workers hired after Jan. 1 would contribute 4.4 percent of pay.
Ms. Dudley said in an interview that with all the “moving parts” in the bipartisan budget deal, “there are a lot of people they would have to convince” before House and Senate approval.
This report appeared in Pensions & Investments magazine, a Chicago-based sister publication of Tire Business.