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Administration Renews Call for PBGC to Set Pension Premium Rates

By Stephen Miller, CEBS  4/11/2013
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The Obama administration has again proposed giving the federal Pension Benefit Guaranty Corp. (PBGC) power to set premium rates for private pension plans based on the financial soundness of company sponsors. The administration reintroduced the effort to tie premiums to company risk in its 2014 budget, released on April 10. The idea was originally proposed in the 2012 budget.

The PBGC insures defined benefit pension plans offered by private employers. The agency is funded by insurance premiums that Congress sets and by assets and recoveries of failed plans. On Nov. 16, 2012, the agency said its deficit increased to $34 billion, the largest in the PBGC’s 38-year history.

"Without premium increases, PBGC will be faced with requesting a taxpayer bailout or shutting down," said agency Director Josh Gotbaum, in a media statement. "The current system punishes responsible companies by making them pay for the mistakes of others and punishes plans by raising rates just when companies can least afford it."

Under the current proposal, the agency’s board, composed of the secretaries of Labor (the board chair), Commerce and Treasury, would not have the authority to set rates until 2015. The budget requires the board to perform a one-year study, with a public comment period. Additionally, premium increases would be gradually phased in, to give company sponsors time to prepare for the new rates.

The proposal, however, was called "misguided" by Scott Macey, president and CEO of the ERISA Industry Committee, an employers group. "Allowing the PBGC to set premiums based on a company’s so-called risk will only further push plan sponsors to exit the system," he warned.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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