Pension Premium Relief for Charities Left Out of Tax 2.0 Package

A provision that would’ve reduced the pension premiums paid by cooperatives and small employer charities such as the Girl Scouts of the USA and Boy Scouts of America didn’t make the cut in the U.S. House’s second round of tax reform.

Rep. Ron Kind (D-Wis.) proposed an amendment to reduce Pension Benefit Guaranty Corporation premiums for the charities and cooperatives to the Family Savings Act—the retirement portion of a three-bill Tax Reform 2.0 bundle (H.R. 6757). The amendment was voted down last week along party lines.

The rejection of the amendment highlights a likely partisan rift as lawmakers are picking apart a sweeping piece of bipartisan retirement legislation known as the Retirement Enhancement and Savings Act of 2018 (S. 2526; H.R. 5282). Several pieces of RESA made it in to H.R. 6757, but the provision that would have reduced PBGC premiums for cooperatives and small employer charities was left out.

Kind and Mike Kelly (R-Pa.) co-sponsor the House version of RESA.

The Girl Scouts of the USA and the Boy Scouts of America were among the groups that joined with the National Rural Electric Cooperative Association in a letter saying they didn’t support the retirement Tax 2.0 bill without the reduced premium.

“We are concerned that the bill does not include the one provision of RESA that would finally fix this for charities so we could spend our limited resources on our core mission,” Angela Olden, chief financial officer for the Girl Scouts said in a written statement.

A Third Bucket

Employers pay premiums to the PBGC to buy into the insurance the federal agency provides. There are currently two buckets for that insurance: single-employer, which includes pensions at large businesses and corporations, and multiemployer, which includes pensions that cover employees of employers that have bargaining agreements with unions.

The premium rate for charities and cooperatives currently pay to the PBGC are the same as the rate that single-employer plans pay, $74 per plan participant. But advocates for a reduced rate argue that because the plans pose a lower default risk to the PBGC than single-employer plans, they shouldn’t be penalized by paying a higher rate.

Kind’s proposal would’ve brought the the premium down to $19 per plan participant, a number that reflects an average 95 percent funded rate for the pensions cooperatives and charities, a Democratic aide told Bloomberg Law.

Congress in 2014 passed the Small Employer Charity Pension Flexibility Act (P.L. 113-97), which applied different rules to charities and cooperative pensions than that of other types of pensions. Since then, organizations such as the Girl Scouts, Boy Scouts, and others have been lobbying for that change to be reflected in their PBGC premiums.

NRECA in a April 2017 posting on its website said PBGC’s data indicate that it would make a 3,000 percent return on cooperative and small employer charities between 2014 and 2018.

Premium Prospects

Ways and Means Committee Chairman Kevin Brady (R-Texas) told committee members at the Sept. 13 markup that he didn’t want to guess at the premium rate because it’s too important.

The Family Savings Act, while it doesn’t include a reduced rate, includes a provision for a premium level study to be conducted.

“Chairman Brady believes PBGC premium levels should be managed based on characteristics of different categories of plans because premiums that are higher than necessary impose an inappropriate burden on pension plans and on the employees that participate in them,” a committee spokesman old Bloomberg Law in an email Sept. 17, adding Brady intends to work across the aisle to find a solution.

Brady also suggested during the markup that the PBGC might have an idea for a reduced premium rate for the organizations.

A spokesman for PBGC told Bloomberg Law it doesn’t have a recommendation for cooperative and small business charity premiums.