Sen. Patty Murray (D-WA) and Rep. Paul Ryan (R-WI), budget conference committee co-chairs, announced an agreement Dec. 10 to fund the federal government through the fall of 2015. The deal sets federal government spending at $1.012 trillion through the rest of fiscal year 2014. For fiscal year 2015, spending will increase to $1.014 trillion. The deal provides $63 billion in sequester relief over those two years and $22 billion in deficit reduction, for a total of $85 billion, which is paid for in large part by forcing private businesses and federal employees to pay more for their DB retirement plans. The agreement easily passed the House; it is expected to be approved by by the Senate and signed by the president during the week of Dec. 16.
A provision in the budget deal raises insurance premiums paid to the Pension Benefit Guaranty Corporation (PBGC) by employers that sponsor DB plans. The provision would affect flat rate and variable-rate premiums as follows:
• Flat-rate premiums. Under current law, for plan years beginning in 2013, all single-employer pension plans pay a basic flat-rate premium of $42 per participant per year. This will increase to $49 per participant in 2014. Under the budget deal, the 2015 flat-rate premium rate will increase to $57; the 2016 flat-rate premium rate will go up even further, to $64.
• Variable-rate premiums. Under current law, underfunded single-employer pension plans currently pay an additional variable-rate charge of $9 per $1,000 of unfunded vested benefits. This will increase to $14 per $1,000 in 2014. Under the budget deal, the 2015 variable-rate charge will increase to $24 per $1,000 and will go up even further, to $29 per $1,000, in 2016. These variable-rate charges are subject to an increased cap of $500 per participant, up from the cap of $400 per participant under current law ($412 for 2014 with indexing).
Both flat and variable premiums will be indexed to wage increases after 2016.
These latest increases come on top of PBGC premium rates that have already been significantly increased in recent years, including an increase just last year in order to offset the cost of unrelated transportation legislation. In fact, ERISA originally set the premiums for the PBGC at $1 per participant. The fear is that the ever-escalating rise in PBCG premiums will create yet another incentive for businesses to terminate, freeze or “de-risk” their DB plans to offload these costs, putting the entire DB pension concept at risk.
Federal Employees to Contribute More
A separate provision in the budget deal forces federal employees hired after Dec. 31, 2013, to contribute more to their DB plan. Under current law, most federal employees pay 0.8% of their salary into the Basic Benefit Plan of the Federal Employees Retirement System (FERS). However, federal workers hired after Dec. 31, 2012, are required to contribute 3.1% of their salary to FERS. Under the budget deal, federal employee contributions to FERS for new hires would increase by an additional 1.3% for a total of 4.4% of salary.
Perversely, these policy changes have created a situation where the federal employees paying into the system the most have the least to gain from their contribution. This is because their retirement benefit is largely derived from length of service in addition to final average pay.
Andrew Remo is ASPPA’s Congressional Affairs Manager.
