ERIC Pushes Back on PBGC Premium Proposal

September 23, 2011 (PLANSPONSOR.com) – An employer industry trade group has pushed back on a proposal that could result in higher pension premiums for employers.

 

In a letter to members of the Joint Deficit Reduction Committee – the new congressional committee responsible for deficit reduction legislation – the ERISA Industry Committee (ERIC) urged rejection of the Administration’s proposal (see Obama Proposes PBGC Premium Hikes) to allow the Pension Benefit Guaranty Corporation (PBGC) to determine the variable rate premiums paid by private sector sponsors of pension plans as well as the authority to determine the creditworthiness of the companies that voluntarily offer pension plans to their workers.

According to an announcement, ERIC charged that the increase in premiums is in fact a 100% tax increase on many companies that voluntarily offer their workers defined benefit pension plans, and that the proposed premium increases are unnecessary. 

“We’re experiencing one of the most dangerous economic disorders in history; now is not the time to add new and unnecessary burdens on companies that voluntarily provide pension plans for their workers,” added Mark Ugoretz, President and CEO of ERIC in a press release.

Ugoretz said that even as a revenue measure, this proposal fails, since it will drive more companies out of the pension system, eliminating the PBGC’s “customer base and their premiums.”

ERIC particularly opposes the authority of the PBGC to determine its own premium especially based on its own determination of the credit worthiness of its premium payers.  “It’s a direct conflict of interest,”  Ugoretz said.  ERIC said that in the private sector, a company can choose among insurers or even whether to insure, but when it comes to pensions, the law requires that plan sponsors insure their plans with the PBGC and the PBGC needs oversight.  Currently, Congress ultimately oversees the PBGC and determines its premium; ERIC urged that congressional oversight should continue.   

ERIC cautioned that, under the proposal, companies that voluntarily sponsor pension plans would be subject to the PBGC effectively making a determination of the company’s credit-worthiness that would affect investor decisions, while the plan sponsor’s similarly situated competitors would not be subject to the PBGC’s determinations.  If enacted, the proposal would pose yet another reason to abandon pensions, according to ERIC.

ERIC warned that “increasing the cost and unpredictability associated with providing pensions to workers will force companies to exit the system, further eroding the system.”  Ugoretz said that “the private pension system is already under stress, suffering from another perfect storm of low interest rates, volatile equity markets, and pension funding rules that require unpredictable and often huge contributions.  This is the wrong solution to the wrong problem at the wrong time.”

 

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