{"id":706,"date":"2013-12-11T22:08:00","date_gmt":"2013-12-11T22:08:00","guid":{"rendered":"http:\/\/admin.patheos.com\/blogs\/janetheactuary\/2013\/12\/is-congress-trying-to-destroy-pensions-now.html"},"modified":"2013-12-11T22:08:00","modified_gmt":"2013-12-11T22:08:00","slug":"is-congress-trying-to-destroy-pensions-now","status":"publish","type":"post","link":"https:\/\/www.patheos.com\/blogs\/janetheactuary\/2013\/12\/is-congress-trying-to-destroy-pensions-now.html","title":{"rendered":"Is Congress *trying* to destroy pensions now?"},"content":{"rendered":"\n<\/head>

I haven\u2019t really read much about the late-breaking budget deal yet; here\u2019s a Bloomberg article on the deal<\/a>, though with scant details. But here\u2019s the key paragraph as far as pensions go: <\/p>\n

The main components of the deal include raising contributions that federal employees make to their retirement plans and increasing premiums for pensions backed by the Pension Benefit Guaranty Corp.<\/p><\/blockquote>\n

Not much there, eh? <\/p>\n

Kind of a throw-away statement. <\/p>\n

But it\u2019s actually a big deal \u2014 to use PBGC premiums not simply to fund the FDIC-like backstop for defined-benefit pensions in an actuarially-sound manner but as a revenue source that\u2019s appealing because it\u2019s obscure to most Americans, is troubling. And it\u2019s pretty stinkin\u2019 hypocritical for the same politicians who bemoan corporate America\u2019s abdication of its duty to provide pensions for workers, to play this game. <\/p>\n

As a colleague of mine said this morning (in the midst of the scramble that everyone\u2019s doing to let clients know about this): \u201cWait, the DB system is still moving. It\u2019s not quite dead yet. Let\u2019s shoot another bullet into it.\u201d <\/p>\n

UPDATE:
Some questions in the comments, from \u201cJim,\u201d and some answers: Q: \u201cCan you explain this a little bit further? I think I know what you\u2019re trying to say (Congress is increasing premiums for PBGC, but that money won\u2019t necessarily end up in PBGC, but could actually go into the federal government version of the general fund), but I am not positive.\u201d <\/p>\n

Yes and no. The answer that was sent around at work today is this (paraphrased): the premiums that corporations pay into the PBGC are deposited into the \u201cRevolving Fund,\u201d a fund which is used to pay benefits and other PBGC expenses, and which appears on the federal government\u2019s balance sheet. Hence, increases in premiums will have the effect of showing a decrease in the budget deficit. <\/p>\n

Now, to a certain degree, this is a rational move, since the PBGC is running deficits (see here for a quick<\/a> summary), so the more the government charges in premiums, the less it has to subsidize. But at the same time, it\u2019s not necessarily the PBGC\u2019s \u201cfault\u201d \u2014 whenever a high-profile firm goes bankrupt, there\u2019s an element of negotiation in whether plans are terminated and how much cash the company pays into the PBGC, and there\u2019s a fair amount of politics behind it (though I can\u2019t seem to find a good article on the topic tonight). What\u2019s more, the federal government is not actually paying any cash into the PBGC; it\u2019s just that the PBGC being in the red based on very conservative valuations of future liabilities. <\/p>\n

In any case, what the \u201cright\u201d level of PBGC premiums should be is open for debate \u2014 charge too little and the program isn\u2019t self-sustaining; charge too much, and the premium is that incremental increase in cost which prompts more of the financially healthy pension plans to follow the current trend of buying annuities or paying lump sums to their terminated vested and retired participants, creating a form of death spiral for the PBGC. <\/p>\n

However, when premiums are raised as part of a budget deal, as an explicit source of revenue, whether it directly goes to pay for Head Start programs, or just indirectly improves the budget numbers, it\u2019s still troubling. It could be worse, of course \u2014 in Ireland, at the peak of the financial crisis, the government imposed a 0.6% levy on assets in pension funds<\/a>, to fund some government job-creation programs. <\/p>\n

Q: \u201cAlso, how is the defined-benefit pension system not-quite-dead?\u201d
I\u2019m not sure about this question, whether Jim means that he thinks the defined benefit system is completely dead and is surprised to hear otherwise, or whether he thinks it\u2019s still alive-and-kicking. But I\u2019ll assume that he thinks it\u2019s completely dead. <\/p>\n

Which it\u2019s not \u2014 not yet, anyway. We work with large employers, and conduct an annual survey on benefits. According to this survey, as recently as the mid-90s, a good 80% of large employers offered defined-benefit pensions. Now it\u2019s about a quarter. There are employers who still believe it\u2019s the right thing for their employees; there are also a significant number of union plans still around. Is this stable in the long term? No \u2014 DB pensions will disappear, but that doesn\u2019t mean that the government shouldn\u2019t try to keep them around for as long as possible, at least until there\u2019s something to take their place that provides some greater degree of longevity protection and protection against investmentn risk than a simple 401(k).<\/p>\n<\/body><\/html>\n","protected":false},"excerpt":{"rendered":"

I haven\u2019t really read much about the late-breaking budget deal yet; here\u2019s a Bloomberg article on the deal, though with scant details. But here\u2019s the key paragraph as far as pensions go: The main components of the deal include raising contributions that federal employees make to their retirement plans and increasing premiums for pensions backed […]<\/p>\n","protected":false},"author":2209,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-706","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"yoast_head":"\nIs Congress *trying* to destroy pensions now?<\/title>\n<meta name=\"description\" content=\"I haven't really read much about the late-breaking budget deal yet; here's a Bloomberg article on the deal, though with scant details. 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