Not a Member? Get access to HR news and resources that you can trust.
Change can be scary, but deploying new HR software doesn't have to be.
Is your employee handbook ready for the New Year? With SHRM’s Employee Handbook Builder get peace of mind that your handbook is up-to-date.
Get the HR education you need without travel expenses or time out of the office.
We don’t just visit a city, we take it over. Join the HR community in NOLA -- June 18-21, 2017.
Just 7% of Fortune 100 offer a traditional pension to new hires, down from 89% in 1985
last updated 12/23/2013
“It is simply unacceptable that members of Congress of both parties … view pension plans as a piggy bank for other budget priorities, without regard for the real-life policy implications of their actions,” said American Benefits Council President James A. Klein in a media statement about the bipartisan budget agreement.
The agreement was announced Dec. 10, 2013, and within days the Ryan-Murray Bipartisan Budget Act was passed by Congress and President Obama pledged to sign it into law. The budget legislation
calls for $8 billion in Pension Benefit Guaranty Corp. (PBGC) premium hikes, to be paid by employers that sponsor defined benefit pension plans. This follows last year’s $9 billion increase in premiums.
an analysis by the Tax Policy Center, a project of the Urban League and the Brookings Institution:
The basic [PBGC] premium was already scheduled to rise from $42 per participating worker to $49 in 2014 and to climb with inflation after that. The budget plan would take it up to $57 in 2015 and $64 in 2016. Additional premiums for underfunded company plans and for discontinued plans would also increase."
“A simple examination of the math plainly refutes the notion that PBGC’s single-employer guarantee program needs more premium revenue,” Klein said. “To the extent this latest premium increase is based on reports of the agency’s ‘deficit,’ the facts do not support the contention. To the extent Congress and the president have agreed to increase premiums simply to offset other spending priorities, it lacks any public-policy basis whatsoever. Either way, it shrinks the universe of pension plans from which premiums are collected. That is a bad result for workers and for the PBGC itself.”
The ERISA Industry Committee (ERIC), another trade group for employee benefit plan sponsors, also is deeply troubled by the congressional budget agreement.
“This premium increase will only further accelerate the demise of the pension system, as plan sponsors become increasingly discouraged from voluntarily providing pensions,” said ERIC President Scott Macey in a statement. “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.”
The American Benefits Council, ERIC, the Society for Human Resource Management, and 14 other professional and trade organizations
signed a Dec. 5, 2013, letter that strongly urged the budget conferees to oppose a PBGC premium increase, saying that, along with increasing taxes on companies that voluntarily sponsor pension plans, it would divert additional resources from job creation and business investment and undercut retirement security.
“Every additional dollar that employers must pay to the PBGC is one less dollar that can be used to fund participant benefits, expand their businesses, create jobs, and grow the economy,” the letter said.
research by Towers Watson, in 2013 just 30 percent of large Fortune100 U.S. companies offered any defined benefit retirement plan (including
cash-balance "hybrid" plans) to newly hired salaried workers, down from 90 percent in 1985. Only 7 percent still offered a traditional defined benefit pension to new hires, down from 89 percent in 1985.
"Depending on a plan’s participant count and how well funded the plan is, plan sponsors could see an increase of 155 percent or more in total PBGC premiums" beginning with plan year 2015,
blogged Scott Ruba, director of defined benefit retirement plans at the Principal Financial Group.
While some are calling the premium hike a final "death knell" for employer-provided defined benefit plans, Ruba noted that "There are steps plan sponsors can take to reduce the impact of the increases and budget for them. Plan sponsors should work with their financial professional and actuary to begin planning now for the increases."
Other Revenue Raisers
The deal lays out a two-year frame work for funding the federal government that sets discretionary spending at $1.012 trillion for 2014 and $1.014 trillion for 2015 for all federal agencies. It will also provide some relief from the automatic sequestration cuts, and give the federal agencies an extra $63 billion over two years.
In addition to increasing premiums paid by pension sponsors to the PBGC, revenue is raised by:
Of the revenue-raising provisions in the bill, the most problematic, said employer groups, will be the increased premiums to be paid to the PBGC.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
You have successfully saved this page as a bookmark.
Please confirm that you want to proceed with deleting bookmark.
You have successfully removed bookmark.
Please log in as a SHRM member before saving bookmarks.
Your session has expired. Please log in again before saving bookmarks.
Please purchase a SHRM membership before saving bookmarks.
An error has occurred
Recommended for you
HR Education in a City Near You
SHRM’s HR Vendor Directory contains over 3,200 companies