Obama Proposes Upping PBGC Insurance Costs With Risk-Based Pensions

(February 15, 2011) — The Obama administration has proposed that the Pension Benefit Guaranty Corp. (PBGC), an insurer for private-sector defined benefit plans, be granted the ability to set employer premiums based on risk.

Under President Barack Obama’s fiscal year 2012 federal budget proposal, the new authority granted to the PBGC would save the agency an estimated $16 billion over the next 10 years, Business Insurance reported. The administration has suggested that the change to employer premiums not be put into practice until after two years of study and public comment.

The plan, which would create a model similar to the one used by the Federal Deposit Insurance Corp., would give the PBGC the ability to increase premiums that private sector employers with defined benefit pension plans must pay the agency, setting premiums that better reflect risk. The authority would provide a means for the agency to urge companies to fully fund their pension benefits, ensuring better financial health for the PBGC.

“This proposal is both good government and better for business,” PBGC Director Joshua Gotbaum told the Wall Street Journal. “It protects retirement security while encouraging and rewarding responsible business behavior.”

Last year, the PBGC said that its total deficit has increased 4.5% to $23 billion in the year to September 30, up from $22 billion the previous year. The federal agency, which assumes the pension liabilities of companies in bankruptcy, had seen its funding level pummeled in recent years by the economic downturn which resulted in more corporate bankrupts and pension failures.

“This financial position is the result of inadequate plan funding and misfortunes that have befallen plan sponsors. In part, it is a result of the fact that the premiums PBGC charges are insufficient to pay for all the benefits that PBGC insures, and other factors,” the pension insurer said. The PBGC said its total obligations increased by $11.5 billion to $102.5 billion. Yet, the agency has $79.5 billion in assets to pay those obligations. “The deficit — the difference between our assets and liabilities — is not an immediate cash crunch, since we have the assets to pay for the foreseeable future,” PBGC spokesman Jeffrey Speicher told aiCIO following the release of the agency’s annual report in November.