S1783NOV18

TheWeekInCongress.com

Week Ending November 18, 2005

S.1783 A bill to amend the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986 to reform the pension funding rules, and for other purposes.

BRIEF

In the wake of several private sector pension funds reneging on distributing pension benefits to former employees or reducing those benefits, the Senate has produced this bill to address the problem, mainly, of federal pension fund solvency such that future pension benefit changes can be financially mitigated by the Federal Pension benefit Guarantee Corporation.

The Congressional Budget Office explained the bill this way: “S. 1783 would make changes to the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code that would affect the operations of private-pension plans. It would do so mostly by changing the funding requirements for tax-qualified, defined-benefit pension plans and the premiums paid to the Pension Benefit Guaranty Corporation (PBGC). The bill would also make changes to the Railroad Retirement program, Black Lung disability trusts, treatment of unemployment compensation, and retirement

benefits for judges of the United States Tax Court.

The budgetary effects of the bill would result from: Increased income to the PBGC from premiums paid by the sponsors of pension plans—totaling an estimated $2.5 billion over the next five years and $4.5 billion over the next 10 years; An initial increase in federal tax revenues followed by a loss of tax revenues, primarily because of changes in funding rules imposed on plans’ sponsors; JCT estimates that enacting S. 1783 would increase federal revenues by $3.7 billion over the 2006-2010 period and reduce federal revenues by $3.1 billion over the 2006-2015 period; Additional PBGC benefit payments—totaling an estimated $57 million over five years and $0.5 billion over 10 years—that the PBGC would have to make as a result of a number of changes made by the bill; Non-PBGC related provisions of the bill that would increase direct spending by $0.5 billion over 10 years and increase spending subject to appropriation by $13 million over 10 years.

The additional premium income to PBGC would have another effect: it would

increase the balances in the agency’s on-budget revolving fund, and therefore,

forestall the need for significant transfers to that revolving fund from the

PBGC’s non-budgetary trust fund in order to pay insured benefits. In CBO’s

current-law projections, the combination of rising benefit payments and level

premium income will cause the agency’s on-budget fund to be completely

exhausted in 2013. No precedent exists for how the PBGC would proceed if

its on-budget fund is depleted. However, CBO assumes that the agency would

cover its expenses by increasing the percentage of benefits and other expenses

being paid through transfers from its nonbudgetary trust fund, thus increasing

offsetting collections above what they would have been if the fund had

remained solvent.

CBO estimates the increases in premium receipts resulting from S. 1783 would

cause the on-budget fund to remain solvent until part-way through 2015.

Because the bill would improve the finances of the on-budget fund, the PBGC

would not need to increase the amounts transferred from the non-budgetary

fund in order to help cover benefit payments and other expenses during most

of the 10-year projection period. By allowing the on-budget fund to remain

solvent through most of the next decade, the bill would reduce those transfers

by $5.1 billion over the 2013-2015 period. Because this change would reduce

an offset to mandatory spending, it would result in a net increase in such

spending.

Pursuant to section 407 of H. Con. Res. 95 (the Concurrent Resolution on the

Budget, Fiscal Year 2006), CBO estimates that enacting S. 1783 would not

cause an increase in direct spending greater than $5 billion in any of the 10-

year periods between 2016 and 2055.”

Sponsor: Senator Chuck Grassley (R-IA)

Vote: Passed Senate by Unanimous Consent November 17, 2005

Cost to the taxpayers: CBO estimates that enacting S. 1783

would reduce direct spending by $2.2 billion over the 2006-2010 period, but

increase direct spending by $1.6 billion over the 2006-2015 period. CBO and

the Joint Committee on Taxation (JCT) estimate that enacting the bill would

increase federal revenues by $3.7 billion over the next five years, but would

decrease such revenues by $3.1 billion over the 10-year period. The bill would

also have a very small impact on discretionary spending.

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