President Trump’s fiscal year 2020 budget addresses the Administration’s high-priority items, such as increased spending for national security, but it doesn’t include much about retirement.
Released by the White House’s Office of Management and Budget on March 11, the proposal – dubbed “A Budget for a Better America: Promises Kept. Taxpayers First” – calls for $4.7 trillion in outlays for FY 2020, which begins Oct. 1, 2019. It also seeks $2.7 trillion in spending cuts over the period 2020-2029, but most, if not all, of that will likely be rejected in the House, where Democrats control the chamber.
PBGC Premiums and Multiemployer Solvency
In the retirement policy space, most of the budget details relate primarily to the Pension Benefit Guaranty Corporation (PBGC), the nation’s private pension insurer, and multiemployer solvency issues.
The budget estimates that the PBGC’s multiemployer (not to be confused with multiple employer plans, or MEPs), program, which insures the pension benefits of 10 million workers, is at risk of insolvency by 2025. To alleviate this, the proposal calls for a new variable rate premium (VRP) and an exit premium for those employers who seek to leave the multiemployer program, estimated to raise an additional $18 billion in premium revenue over the period 2020-2029.
A multiemployer VRP would require plans to pay additional premiums based on their level of underfunding, up to a cap, as is the case currently with the single-employer program, according to the proposal. An exit premium – equal to 10 times the variable-rate premium cap – would be assessed on employers that withdraw from a multiemployer plan to compensate the multiemployer program for the additional risk imposed on it when employers exit.
The PBGC would have limited authority to design waivers for some or all of the VRPs assessed to terminated plans or ongoing plans that are in critical status, if there is a substantial risk that the payment of premiums will accelerate plan insolvency. Aggregate waivers for a year would be limited to 20% of anticipated total multiemployer VRPs for all plans.
The Administration estimates that this level of additional premium revenue would be sufficient to fund the program for the next 20 years.
The FY 2020 budget also proposes to rebalance premiums in the single-employer program. Under this proposal, the Administration proposes to freeze for one year premium rates for well-funded plans, which have faced numerous premium increases since 2012, and shift the premium burden to underfunded plans that pose a greater solvency risk to PBGC.
Other Changes
As indicated earlier, the proposal does not include many details regarding specific retirement reforms, but it is possible additional details will be released in the coming days. The budget estimates show that it proposes to extend the individual tax provisions enacted as part of the Tax Cuts and Jobs Act, as well as improving and expanding access to health savings accounts (HSAs) at a cost of nearly $27 billion over the period 2020-2029.
Submittal of the President’s budget is the opening salvo in potentially contentious budget policy debates that may arise over the next few months.
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