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Setting PBGC Premiums Fairly

The Pension Benefit Guaranty Corporation (PBGC) protects the pensions of people whose companies fail. PBGC has done so for 36 years. More than 1.5 million Americans look to PBGC for their pensions and more than 40 million others are in PBGC-protected plans.

PBGC benefit payments are funded by premiums paid by pension plans, as well as recoveries from failed plans and their sponsors. PBGC receives no taxpayer funds and never has. To keep it that way, PBGC’s premiums have repeatedly been raised. Recent increases in PBGC’s deficit have led to new calls for higher premiums.

Unlike most other Federal insurance, PBGC’s premiums have traditionally been set and raised by Congress. 

  • Congressional premium increases are not phased in
  • They treat all company plan sponsors alike: companies that are financially sound and whose plans are unlikely ever to need PBGC pay the same rates as those that are not. As a result, financially sound companies are forced to subsidize those that are not.
  • Some premiums were designed so that they increase rapidly just when the economy is at its worst and companies can least afford to pay them.
  • financially sound companies are forced to subsidize those that are not.
 
         Financially sound companies are forced to subsidize those that are not.

The Administration, in the President’s FY2012 Budget, proposed a better, fairer way to set premiums. Based on the approach of the Federal Deposit Insurance Corporation (FDIC), other pension insurance programs, and private insurers, it would direct PBGC to set its own premiums in ways that

  • take the retirement security of each plan and sponsor into account, 
  • are phased in, and 
  • avoid raising premiums most when economic conditions are poorest

The new approach would both encourage companies to preserve pension plans and ensure that PBGC remains able to pay benefits for plans that fail. 

To protect plans and plan sponsors, PBGC would be permitted to implement any changes only after several years of careful study, extensive consultation with stakeholders, and a full public hearing and consultation process.

Last Updated: April 27, 2017