Compliance November 19, 2012

Groups Reject PBGC’s Call to Set Premiums

November 19, 2012 (PLANSPONSOR.com) – Industry groups say the Pension Benefit Guaranty Corporation’s (PBGC’s) reported deficit is misleading.

Reported by

Rebecca Moore

The American Benefits Council said the reported $34 billion deficit is “terribly misleading.” Additionally, Kathryn Ricard, senior vice president for Retirement Policy at the ERISA Industry Committee (ERIC) said in a statement: “The PBGC’s annual report showing an increased deficit once again is based on artificially low interest rates that obscure the real value of the PBGC’s obligations and is simply not realistic.”

Both groups said the number should not be used to justify allowing the PBGC board to set its own premiums. When reporting the deficit, PBGC Director Josh Gotbaum noted that the administration, similar to previous administrations, proposed that Congress give the PBGC board the ability to set premiums (see “PBGC Reports Record Deficit for 2012”).

The American Benefits Council said the PBGC’smethodology to calculate its deficit is seriously flawed and noted it has never been fully examined by Congress. “Before we can determine PBGC’s true financial position, the assumptions and models used by the agency to calculate its deficit must be scrutinized, especially if PBGC is using them to charge its customers higher premiums,” said the council’s president James A. Klein.

“Policymakers should not rush to judgment regarding the increase in the PBGC’s deficit because the report does not reflect the fact that premiums paid to the PBGC were just increased under the MAP 21 [Moving Ahead for Progress in the 21st Century Act] legislation. Significant increases in PBGC premiums will be phased in over the next two years,” Ricard pointed out.

“Policymakers also should reject any efforts to permit the PBGC to set risk-based premiums based on the credit worthiness of a plan sponsor. The risk of being assessed unpredictable premiums based on a governmental agency’s assessment of credit worthiness would accelerate the flight from the defined benefit system, harming the very participants who benefit from such plans, as well as the PBGC itself,” she added.

The American Benefits Council offers two reports to support its position: “PBGC Deficit: A Non-Event on the Horizon,” and “Ten Reasons to Doubt PBGC’s Reported Deficit.”