WASHINGTON (AP) — Employers that still offer workers traditional pension plans are in line for hefty insurance premium increases under the budget agreement struck in Congress, the second time in two years that lawmakers have turned to them to help finance spending deals.
The basic annual government-charged premium for pension insurance already was scheduled to rise from $42 for each covered worker in the private sector to $49 in 2014. The new budget agreement would raise that premium to $57 in 2015 and again to $64 the following year.
The U.S. Chamber of Commerce and National Association of Manufacturers support the overall deal, yet they and other business groups warn that the fees will have a negative impact.
“It only provides another reason for sponsors to exit the system, thus further harming retirement security and the participants the system is intended to help,” said Scott Macey, president of the ERISA Industry Committee, a group that represents large employers on benefits issues. ERISA is an acronym for Employee Retirement Income Security Act.
The House passed the bill last week and it is scheduled to get a final vote in the Senate on Wednesday.
The estimated $8 billion in new premiums over the next decade would go toward reducing deficits by the Pension Benefit Guaranty Corp., a government agency that covers pension payments to retirees when bankrupt companies can’t.
The PBGC has complained for years that operating in the red threatens the agency’s ability to act as a safety net in the future, as more default on their pension plans. The new increase follows a similar one of $9 billion passed by Congress last year.
Pensions used to be the most common type of retirement benefit, guaranteeing workers a specific monthly payment for life regardless of the ups and downs of the stock market. Fewer than 9 percent of private-sector employers still offer them, while 88 percent of employers opt instead to sponsor 401(k) retirement plans.
The number of pension plans the PBGC insures for individual employers has plunged from an all-time high of 112,208 in 1985 to about 23,000 this year. The number has continued to drop by about 1,000 per year since 2010, according to PBGC figures.
Macey’s group argues that the PBGC deficit is artificially high in part because interest rates have been unusually low, the result of temporary Federal Reserve policies aimed at bolstering the economy. With low interest rates, both pension sponsors and the PBGC get lower rate of return on their investments and have to set aside more cash to meet future obligations to retirees. Once interest rates rise, Macey says, the PBGC will be in better financial shape.
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