WASHINGTON — The Obama Administration has again proposed giving the Pension Benefit Guaranty Corporation's board the power to set premium rates based on the financial soundness of company sponsors in an effort to shore up the agency's finances.
PBGC, which insures traditional pensions offered by companies, doesn't receive taxpayer dollars. The agency is funded by insurance premiums and from assets and recoveries of failed plans. Premiums, set by Congress, have historically been too low to meet the agency's needs. On November 16, 2012, the agency said its deficit increased to $34 billion, the largest in PBGC's 38-year history.
"Without premium increases PBGC will be faced with requesting a taxpayer bailout or shutting down," said PBGC Director Josh Gotbaum. "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. That's why administrations of both parties, and recently GAO, have supported giving PBGC what the FDIC has long had - the ability to set its own rates and to set them in ways that are fair."
The Administration reintroduced the effort that ties premiums to company risk in its 2014 budget. The idea was originally proposed in the 2012 budget. Under the current proposal, the agency's board, which consists of Secretaries of Labor, Commerce, and Treasury, with the Secretary of Labor as chair, wouldn't get 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.
When the premium proposal was first introduced, it was supported by the editorial boards of The Washington Post, The Boston Globe and Business Insurance. Since then, the Government Accountability Office issued a report saying Congress should consider "revising PBGC's premium structure to better reflect the agency's risk from individual plans and sponsors."
PBGC protects more than 40 million Americans in private-sector pension plans by paying benefits when companies cannot. PBGC receives no taxpayer dollars and never has. Its operations are financed by insurance premiums and with assets and recoveries from failed plans. For more information, visit PBGC.gov.