The US Senate’s passage of the budget bill on Friday put premium hikes for US corporate pensions well on their way to becoming law—despite criticism from groups including the Committee on Investment of Employee Benefit Assets (CIEBA).
CIEBA, the industry group representing corporate pensions, released a statement saying it “strongly opposes” the two-year budget deal, which includes a 22% increase in Pension Benefit Guaranty Corporation (PBGC) premiums for single-employer pension plans.
“Ironically, the Congressional proposal to increase premiums may be the greatest threat to the financial soundness of PBGC.”
“It is very short-sighted for Congress to try to balance its books on the backs of pension plans,” said Deborah Forbes, executive director of CIEBA. “CIEBA members are doing the right thing by providing high-quality pension plans to their workers, and now Congress is punishing them for it.”
The premium hikes, Forbes argued, make little financial sense, with higher rates hurting both the PBGC and pension plans.
“The truth is that the agency doesn’t even need the money,” Forbes said, noting that the financial condition of the PBGC single-employer program has steadily improved. “Raising premium rates will only hurt the agency by forcing more employers to consider exiting the system.”
PBGC premiums already account for more than 13% of total defined benefit (DB) plan expenses, according to CIEBA, with its members paying nearly $1 billion in PBGC premiums in 2014 alone—an 85% increase since 2011.
Further rate increases, CIEBA argued, “will only escalate the risk that healthy DB plan sponsors will leave the system.”
Russell Investments’ chief research strategist Bob Collie echoed this sentiment earlier this week, when he told CIO that premium hikes were a “vicious cycle.”
“It could do more harm to the PBGC revenue base than good,” Collie said.
CIEBA said it was already seeing the effects of the last round of increases, with sponsors paying premiums on 2.5 million fewer participants in 2014 than in 2011 as a result of de-risking to, in part, reduce the PBGC burden.
“Ironically, the Congressional proposal to increase premiums may be the greatest threat to the financial soundness of PBGC, as PBGC could end up with fewer healthy plans in their risk pool,” CIEBA concluded.
Related: The ‘Vicious Cycle’ of PBGC Hikes & PBGC Premium Increases and the Death of DB Plans