The Building Tradesman Newspaper

Friday, February 26, 2016

Obama budget proposes tax hike on union pension insurance

By The Building Tradesman

WASHINGTON, D.C. - President Obama’s FY 2017 budget proposal contains a proposed increase in Pension Benefit Guaranty Corporation (PBGC) premiums, costing multiemployer pension funds like those in the building trades millions of dollars – a hike amounting to five times what they’re currently paying every year.

The building trades are not happy.

"The PBGC premium increase, if enacted, would result in a de-facto five-fold tax increase on American workers, while further endangering the continued viability of defined benefit multiemployer plans and placing hard-earned pension benefits at greater risk,” said North America Building Trades Union President Sean McGarvey. "Coupled with the 40 percent excise tax being pushed onto certain health care plans, including many building trades plans, it becomes difficult to escape the conclusion that this Administration is working to hasten the demise of private sector defined benefit pension and health care plans in this country.”

Laborers International Union President Terry O’Sullivan said his union “has been adamant in our opposition to past efforts to raise PBGC premiums - opposing efforts in 2014 to double premiums from $13 to $26. This misguided and egregious proposed increase will divert money to a failing entity - the PBGC, which appears to be doomed in any event.”

The much-maligned PBGC is supposed to be the governmental backstop for pensioners in failing pension plans. The federal agency's multiemployer program guarantees private pension benefits for about 10 million workers in about 1,400 multiemployer pension plans.

Last September, the agency reported that its financial condition is less dire than it was a few years ago, but it still projects to run out of money in 2025. That's better than the 2022 projection in 2014. Two raises in premiums in the past two years, plus better economic conditions, have somewhat improved the financial outlook of the PBGC.

The PBGC’s multiemployer program guarantees private pension benefits for about 10 million workers across 1,400 multiemployer pension plans. To date, the PBGC has provided financial assistance to more than 70 failed multiemployer plans, and that number is expected to continue to grow as employers move away from tradition pensions into self-funded plans like 401Ks.

Last December, workers in multiemployer plans scored a win in Congress as lawmakers decided to delay imposing the so-called “Cadillac tax” on high-value health care plans - like those held by building trades unions - for two more years, to 2020.

Obama put the Cadillac Tax into the Affordable Care Act in last-minute bargaining over the law in 2010, and over unions’ and workers’ heated objections. The tax would have taken effect in 2018, and it would be 40 percent on the value, above $10,200 yearly for an individual and $27,500 for a family, of each health care plan. Its revenues are supposed to help pay for expanding health care to low-income people.

"The continued financial solvency and long-term viability of multiemployer defined benefit plans is a policy priority for our unions," NcGarvey said. "And the best and only effective way to achieve this goal is to provide an incentive for employers to continue to participate in the system. We would like to think that the Obama Administration feels likewise."