For the second year in a row, President Trump’s fiscal year budget doesn’t cover much new ground on the retirement policy front.
Released by the White House’s Office of Management and Budget on Feb. 10, the President’s budget proposal, “A Budget for America’s Future,” calls for $4.8 trillion in outlays for fiscal year 2021, which begins Oct. 1, 2020. It also seeks more than $5 trillion in spending cuts over the period 2021-2030, but most, if not all, of that will likely be rejected in the House, where Democrats control the chamber.
PBGC Premiums and Multiemployer Solvency
In the retirement policy space, most of the budget details relate primarily to the Pension Benefit Guaranty Corporation (PBGC), the nation’s private pension insurer, and multiemployer solvency issues.
The budget estimates that the PBGC’s multiemployer plan (not to be confused with multiple employer plans, or MEPs) program, which insures the pension benefits of 10 million workers, is in “dire financial condition.” It notes that the program’s 2019 deficit was $65 billion, with only $2.9 billion in assets and $68 billion in liabilities. Accordingly, the PBGC projects the multiemployer program will be insolvent by the end of 2025, at which point participants in insolvent plans would see their guaranteed benefits cut by as much as 90%.
To alleviate this, the proposal calls for a new variable rate premium (VRP) based on plan underfunding, as exists in the single-employer program. In addition, the budget proposes an exit premium – equal to 10 times the variable-rate premium cap – to be assessed on employers that withdraw from a multiemployer plan to compensate the multiemployer program for the additional risk imposed on it when employers exit.
The budget shows that these proposals are estimated to raise an additional $26 billion in premium revenue over the period 2021-2030. The administration contends that PBGC premiums are currently far lower than what a private financial institution would charge for insuring the same risk, and at this level of premium receipts, the program is projected to remain solvent over the next 20 years.
In contrast, the budget proposal notes that the PBGC’s single-employer program reached a modest positive net position in 2019 for the second year in a row. As such, the budget proposes to freeze for three years premium rates for many single-employer plans and adjust the variable-rate premium cap to restore the incentive for employers to improve funding of promised pensions.
Other Changes
The FY 2021 budget further proposes a permanent extension of the individual income, estate and gift tax provisions of the 2017 Tax Cuts and Jobs Act, which are currently set to expire Dec. 31, 2025.
The budget proposal also includes clarifications in worker classification and information reporting requirements. It also would give Medicare beneficiaries with high-deductible health plans the option to make tax deductible contributions to health savings accounts or medical savings accounts.
Submittal of the president’s budget is generally considered the opening salvo in the annual budget policy debates between Congress and the president. Since this is an election year, it’s safe to assume that much of these debates will center around “messaging,” rather than actual policymaking.
