WASHINGTON — Corporate defined benefit plans will be footing the bill for reducing the PBGC deficit, and many might not be around to pay up, some industry executives predict.
At issue are proposals to raise the per-participant premium companies pay to the Pension Benefit Guaranty Corp. The House Committee on Education and the Workforce on Oct. 26 approved increasing the premium to $30 per year — a 58% increase from the current $19. That proposal, which will go to the House Ways and Means Committee to be included in a deficit-reduction bill, also gives the PBGC the discretion to increase premiums up to 20% over five years. The Senate on Oct. 27 passed a budget reconciliation bill that included raising the premiums paid to the PBGC to $46.75 per plan participant — a whopping 146% increase.
"I don't think Congress intends to kill off DB plans, but they don't really understand the impact" of these measures, said David Godofsky, partner with the Washington-based law firm of Alston & Bird, LLP. "You could put it in the larger context of the deficit. Some people are very concerned about the deficit, so what you have here is friendly fire. They think they're doing it right, but they don't understand what's going on in the real world."
James Klein, president of the American Benefits Council, Washington, said premiums shouldn't be increased "to meet some arbitrary federal budget target. If these proposals move forward, that's what's happening."
Another issue: The proposed PBGC premium increases will prompt many companies to terminate their defined benefit plans, several insiders say.