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President's Budget Strengthens Pensions by Giving PBGC New Premium Authority

President's Budget Strengthens Pensions by Giving PBGC New Premium Authority
February 15, 2011

WASHINGTON—President Obama's proposal, which for the first time would allow the Pension Benefit Guaranty Corporation to set its own premiums, will help strengthen the pension safety net, said PBGC Director Josh Gotbaum.

The proposal, contained in the President's FY2012 budget, would allow the PBGC to set its own premiums based on the financial health of the premium payer and the circumstances of the individual plan. Historically, Congress has raised PBGC premiums by legislation, but has generally not taken the individual circumstances of different company sponsors into account. As a result, financially sound companies are forced to subsidize those that are not.

The new pension insurance proposal was modeled on the deposit insurance system operated by the Federal Deposit Insurance Corporation (FDIC). The FDIC has, for two decades, set its own premiums based on the circumstances and risks of individual banks. It implemented its most recent premium structure only after several years of careful study, and consultation with the business community, labor, and other stakeholders. The PBGC would be required to undertake a similar process prior to implementing any changes.

Furthermore, any changes would be required to be phased in over a period of years. In addition, the PBGC would be directed to set premiums to avoid increases when the economy is weak.

The PBGC has never received taxpayer funds. To help the agency meet its obligations, Congress has repeatedly raised premiums. At least two bipartisan budget review groups, the Simpson-Bowles Commission, and the Domenici-Rivlin Commission, have recommended that the PBGC's premiums be raised again. The President's proposal was designed to allow premium increases that are fairer to the business community and encourage preservation of pension plans.

"The question is not if or when premiums will be increased, but how it is done," said Gotbaum. "What the President proposes is a better and fairer approach than raising premiums across the board and forcing responsible companies to subsidize those that are not."

In addition to the two bipartisan commissions, the U.S. Government Accountability Office, and the Congressional Budget Office have all recognized that the premiums and premium structure under current law are seriously flawed. The Debt Reduction Task Force of the Bipartisan Policy Center suggested that the PBGC be given the same authority to adjust premiums as exercised by the FDIC and by governmental pension insurers in the United Kingdom, Germany and Japan.

About the PBGC

The PBGC is a federal corporation that guarantees payment of basic pension benefits earned by 44 million American workers and retirees participating in over 27,500 private-sector defined benefit pension plans. The agency receives no funds from general tax revenues and never has. Operations are financed entirely by insurance premiums paid by companies that sponsor pension plans and from the assets and recoveries on behalf of plans that have been assumed by PBGC.

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