compliance alert

January 7, 2014

No Increase in Multiemployer PBGC Premiums in Bipartisan Budget Act of 2013

On December 26, 2013, President Barack Obama signed into law the Bipartisan Budget Act of 2013 (Budget Act).1 As discussed in this Compliance Alert, while this two-year budget agreement includes a significant increase in the Pension Benefit Guaranty Corporation (PBGC) premiums for single-employer plans, the Budget Act does not include any increases in the multiemployer premium. However, increases in the multiemployer plan premium in the next few years are possible.

Background

Following the government shutdown in October of 2013, consensus developed in Congress to pass a budget bill that would provide respite from, if not an end to, the contentious deadline-driven budget process and also reduce the coming round of automatic across-the-board spending cuts (the sequester).2 In the current political climate, however, that legislation could not be passed unless the proposed spending cut reductions were offset by other spending cuts or increased revenues.

Because increasing premiums paid to the PBGC is viewed as increasing fees (not taxes), and because premium increases are treated as revenue, PBGC premium increases are an attractive option whenever Congress needs revenue. The Budget Act is the second time in as many years that Congress has looked to premium increases for offsetting revenue.

MAP-21 Increases

In 2012, the Moving Ahead for Progress in the 21st Century Act (MAP-21) significantly increased the multiemployer premium to $12 (from $9) for 2013 and provided that the premium would increase in future years by indexing for wage growth. For 2014, the indexed premium remains $12.3

The Budget Act does not change the multiemployer premium amount or calculation. The 2014 premium of $12 will be increased in the future by indexing to wage growth.4

Outlook for Future Legislation

In spite of the recent MAP-21 increase, it is possible that multiemployer premiums will be increased again by legislation in the next several years. The Administration continues to seek further premium increases for the PBGC, including giving the PBGC the ability to adjust premiums itself based on risk. In addition, PBGC deficits under both the multiemployer and the single-employer plan programs continue to be a concern of the Administration and Congress.

The funding rules put in place by the Pension Protection Act of 2006 (PPA’06) for multiemployer plans in financial difficulty are scheduled to expire, with certain exceptions, at the end of the 2014 plan year (PPA’06 sunset).5 Because of this deadline, Congress is likely to consider multiemployer plan legislation this year, which could provide a vehicle for additional premium increases. This could be particularly true for multiemployer plans both because they are the focus of the legislation and because their premiums were not increased in the Budget Act.

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As with all issues involving the interpretation or application of laws and regulations, trustees should rely on fund counsel for authoritative advice on the interpretation and application of the Bipartisan Budget Act of 2013. Segal Consulting can be retained to work with trustees and their counsel to discuss issues related to PBGC premiums and possible increases.

 

1 When the law is available online, it will be accessible from the Government Printing Office website. Until then, refer to H.J.RES.59. (Return to the Compliance Alert.)

2 The cuts were required under the Budget Control Act of 2011. (Return to the Compliance Alert.)

3 For more information on these MAP-21 provisions, and also the MAP-21 single-employer plan premium increases, see Segal’s August 2012 Bulletin, “New Law Authorizes Increase in Multiemployer PBGC Premiums.” (Return to the Compliance Alert.)

4 The 2014 single-employer plan premium and cap amounts are: $49 flat-rate, $14 per $1,000 of unfunded vested benefits variable rate, and $412 variable rate cap. Under the Budget Act, single-employer plan premiums will increase as follows: The flat-rate premium will increase to $57 for 2015 and to $64 for the 2016, with subsequent increases by indexing. The variable-rate premium will be increased for 2015 and 2016 by first indexing the prior year’s premium and then adding a set dollar amount of $10 for 2015 (to at least $24),and $5 for 2016 (to at least $29), with subsequent increases by indexing. The variable-rate premium cap will be increased only by indexing in 2015 and will then increase to $500 in 2016, with subsequent increases by indexing. (Return to the Compliance Alert.)

5 The text of the PPA’06 sunset provision can be found in PPA’06 §221(c). (Return to the Compliance Alert.)

 

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