The budget approved by Congress on Wednesday raises premiums companies must pay to the Pension Benefits Guaranty Corp., a point that might cause many employers to settle their retirement plan liabilities through lump sum payments or by buying annuities.
The effect of the premium hikes, according to Aon Hewitt, could increase the carrying costs of unfunded pension liabilities by more than 3 percent. That would cause companies to consider derisking their pension plans.
In addition, the budget bill, which now only awaits the president’s signature, changes the link between investment strategy and premiums. Now, the level of variable premiums a company is chained to how long a plan remains underfunded.
Now, the level of variable premiums a company will pay is chained to how long a plan remains underfunded.