Obama Proposes PBGC Premium Hikes

September 20, 2011 (PLANSPONSOR.com) – As part of its deficit reduction package, the Obama administration has proposed hikes in the insurance premiums employers with defined benefit plans pay the Pension Benefit Guaranty Corporation (PBGC).

Business Insurance reports that under the proposal, the annual flat-rate premium, which is $35 per plan participant and generated $1.2 billion in revenue in 2010, gradually would be increased to raise $4 billion in additional revenue by 2021.  

In addition, the PBGC Board of Directors – made up of the secretaries of the Labor, Treasury and Commerce departments – would be given authority to raise the variable-rate premium, which now is $9 per $1,000 of plan underfunding. The board would have the discretion to increase the variable-rate premium to generate an additional $12 billion in revenue by 2021, Business Insurance said. Last year, the PBGC collected just over $1 billion in variable rate premiums.   

The amount of variable-rate premium paid by an individual employer no longer would depend just on plan underfunding, but also on other factors, including a plan’s risk of losses to the PBGC and “other factors the board’s directors determine appropriate,” according to the news report.  

The administration said the proposal would give employers incentive to improve plan funding and that without it, “the PBGC’s deficit will increase and we may face, for the first time, the need for infusion of taxpayer funds to keep PBGC solvent.”