House Passes Legislation to Modify Tax Policy, Pension Premiums for Electric Co-ops

ARLINGTON, Va. – Several provisions to modify tax policy and protect electric rates for the nation’s electric cooperatives were included in FY2020 spending legislation passed today by the U.S. House of Representatives.

The package includes:

  • The bipartisan RURAL Act, which ensures that co-ops that accept government grants for storm restoration or broadband are not at risk of losing their tax-exempt status.  
  • The SECURE Act, which will lower the premiums that electric co-ops pay to the Pension Benefit Guaranty Corporation (PBGC) for low-risk defined benefit pension plans.
  • Repeal of the “parking lot tax,” which would have assessed taxes on roughly one-third of electric co-ops across the nation. 

“We’re thrilled and thankful that Congress recognizes the importance of addressing the taxing problems that could handcuff electric co-ops and America’s rural communities,” said National Rural Electric Cooperative Association (NRECA) CEO Jim Matheson. “This package preserves the fundamental nature of the electric cooperative business model and will save electric co-ops tens of millions of dollars each year. Moreover, it protects co-op members from unfair increases in their electric rates and provides certainty to co-ops that leverage federal and state grants for economic development, storm recovery and rural broadband deployment. We’re grateful to Sens. Rob Portman and Tina Smith along with Reps. Terri Sewell and Adrian Smith for shepherding this bill through Congress.”

To maintain their tax-exempt status, co-ops may receive no more than 15 percent of their income from non-member sources. Historically, government grants were considered contributions to capital, not income. But a glitch in the 2017 tax law inadvertently categorized grants as non-member revenue, threatening to push co-ops beyond the 15 percent threshold. The RURAL Act makes it clear that government grants will not threaten a co-op’s tax-exempt status.

The SECURE Act has been another major priority for electric co-ops this year.

“Electric co-op pension plans pose nominal risk of default, yet co-ops continue to pay PBGC premiums as if they were Fortune 500 companies with higher risk profiles,” said Matheson. “I applaud the House for recognizing these important differences and passing this bill to save electric co-ops more than $30 million annually.”

NRECA offers retirement and health insurance benefits to co-op employees, including a defined benefit pension plan. More than 880 electric co-ops participate in the plan, which covers more than 56,000 employees in 48 states.

The National Rural Electric Cooperative Association is the national trade association representing more than 900 local electric cooperatives. From growing suburbs to remote farming communities, electric co-ops serve as engines of economic development for 42 million Americans across 56 percent of the nation’s landscape. As local businesses built by the consumers they serve, electric cooperatives have meaningful ties to rural America and invest $12 billion annually in their communities.