Shoring Up Pension Plans

About two-thirds of companies that sponsor defined-benefit plans plan to take steps this year to protect their bottom lines from expected rises in premiums from the Pension Benefit Guaranty Corp.

That’s according to a new survey from Aon Hewitt, which queried 183 DB plan sponsors about their current and future plans. Twenty-two percent said they’re “very likely” to offer terminated vested participants a lump-sum window this year, while 19 percent plan to increase cash contributions to their plans to reduce PBGC premiums in the year ahead and 21 percent will consider purchasing annuities for some of their plan participants.

“A growing number of plan sponsors anticipate increasing pension plan costs due to recent changes to the Society of Actuaries longevity models and rising PBGC premiums,” said Aon Hewitt’s Ari Jacobs, its global retirement solutions leader.

President Obama has once again proposed giving the PBGC the power to raise premiums on single and multiemployer DB plans, a strategy that would raise a projected $19 billion over the next decade (Congress rejected the President’s previous proposal). This move is staunchly opposed by many in the business community, however — including the ERISA Industry Committee —  who say it would “create a direct conflict of interest.”

“This proposal continues to resurface each year, and policymakers appropriately have rejected it as an inappropriate and impractical expansion of government authority that would hurt plan participants and plan sponsors,” ERIC CEO Annette Guarisco Fildes said in a statement.

Although the PBGC is now on sturdier financial footing than in previous years — thanks in part to an improving economy — the agency still faces considerable deficits in its single-plan and multiemployer insurance plans. The annual report estimates that the multiemployer plan has a 90-percent chance of running out of money by 2025.

Late last year Congress passed the Multiemployer Pension Reform Act, which makes it easier for sponsors of plans that are at serious financial risk to reduce payments to retirees, with the intent of reducing the risk that the PBGC will need to take over the plan.