In an analysis of the US economy that accompanied its budget proposal, the White House said Monday that the Pension Benefit Guaranty Corp. (PBGC) faces “serious financial challenges” because of a weak economy and flaws in the program structure, Reuters reported.
Legislative changes, the administration said, should require employers to make up funding shortfalls over a “reasonable” period and give them flexibility to contribute more in better economic times. Other changes should require funding be based on a more accurate measure of liabilities and require employers to forego benefit increases if the sponsor is financially weak or has a significantly underfunded pension plan, the White House said.
The budget noted that Bush administration proposals for shoring up traditional pensions included an increase in the insurance premiums the PBGC charges companies — and that this would bring more money into the program’s coffers. In 2006 these changes would result in an additional $2.2 billion in premium income, the budget document said. The PBGC currently charges companies $19 per year for each participant in a pension plan; under the administration’s proposal this number would rise to $30 immediately and future increases would be indexed to wage growth.
Also in the budget, Bush once again proposed a plan to overhaul Individual Retirement Accounts. The plan would create two new tax-deferred savings accounts, Retirement Savings Accounts and Lifetime Savings Accounts, that let taxpayers contribute after-tax dollars yet let funds to grow tax-free and be withdrawn without taxes (See They’re Back: Bush Reintroduces ERSAs, RSAs, and LSAs ). Annual contribution limit for lifetime savings accounts is $5,000, the same as last year’s proposal. The accounts would raise $1.5 billion over 10 years as the Treasury counts on investors paying income taxes to convert existing IRAs into the new accounts.
US Department of Labor Secretary Elaine Chao first revealed the Administration’s reform proposal in a speech (See Chao Releases Administration DB Reform Proposal )..