Insurance News

80 employers, groups object to proposed PBGC premium hike

Posted on: November 4, 2011

WASHINGTON—Raising premiums that employers with defined benefit plans pay the Pension Benefit Guaranty Corp. would cost jobs and be counterproductive in the long run, more than 80 major employers, consultants and trade associations said in a letter to federal lawmakers.

Hiking premiums “is targeted at those employers suffering the most in the current economic downturn and it would divert business resources—tens of millions of dollars annually in some cases—away from job retention and creation,” according to the letter sent Wednesday.

In addition, boosting premiums would accelerate the move away from defined benefit plans, the business groups said. “In the long run, this new tax would trigger the demise of the pension system and thereby undercut the PBGC’s revenue source by encouraging premium paying companies to exit the system,” according to the letter, which was sent to all members of the Senate and the House.

Obama administration proposal

The letter was triggered by an Obama administration proposal to raise the flat-rate premium paid by all employers and the variable-rate premium paid by employers with underfunded plans.

The annual flat-rate premium, which is $35 per plan participant and generated $1.2 billion in revenue in 2010, gradually would be increased to raise $4 billion in additional revenue by 2021.

In addition, the PBGC Board of Directors—made up of the secretaries of the Labor, Treasury and Commerce departments—would be given the authority to raise the variable-rate premium, which now is $9 per $1,000 of plan underfunding.

The board would have the discretion to increase the variable-rate premium to generate an additional $12 billion in revenue by 2021. Last year, the PBGC collected just more than $1 billion in variable rate premiums.

Under the proposal, the amount of the variable-rate premium paid by an individual employer no longer would depend just on plan underfunding, but on other factors as well, including a plan’s risk of losses to the PBGC and “other factors the board’s directors determine appropriate.”

Letter not surprising

Responding to the letter, PBGC Director Josh Gotbaum said it isn’t a surprise that the business community doesn’t want to pay higher premiums.

While premium increases are inevitable, what the administration is proposing is different than prior premium hikes, he said.

The PBGC wants to “make premiums fairer and cheaper for the vast majority of our customers. Putting pension insurance premiums on a businesslike basis—like all private insurers and other government insurers do—is an important step toward preserving the DB system and keeping PBGC away from insolvency,” Mr. Gotbaum said in an email.

Those signing the letter include the American Benefits Council, Buck Consultants L.L.C., Deere & Co., The ERISA Industry Committee, General Motors Co., IBM Corp., Towers Watson & Co. and U.S. Steel Corp.

Copyright © 2011. Crain Communications, Inc.

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