Congress likely to kill PBGC bailout — again

WASHINGTON — President Bush's proposed bailout legislation for the Pension Benefit Guaranty Corp. is likely to sink in Congress, industry lobbyists said.

The proposal, included in the president's fiscal 2008 budget, is aimed at helping the government agency that insures the nation's corporate pension plans close a $19 billion budget deficit by allowing it to increase premiums it charges underfunded pension plans. A PBGC official who asked not to be identified said the proposal would authorize the PBGC's board — consisting of the secretaries of Labor, Treasury and Commerce — to adjust the variable-rate premiums assessed to underfunded plans.

The variable-rate premium is currently set by law at $9 for every $1,000 in plan underfunding, and the PBGC collected $550 million in variable-rate premiums in fiscal 2006, the official said.

Under the president's proposal, according to the PBGC official, variable-rate premiums would also be extended to cover a pension plan's non-vested liabilities. The premiums now cover only a plan's vested liabilities.

Also in his budget, Mr. Bush resurrected a proposal that would allow workers to invest part of their Social Security payroll tax. He also revived several proposals to create new retirement and savings accounts, and proposed $147 million for the Employee Benefits Security Administration, up from the $134 million for fiscal 2007.

The Bush administration originally advanced the PBGC proposal in 2005 as part of its comprehensive pension reform plan, the PBGC official said, but the proposal was not included in the Pension Protection Act of 2006, which the president signed Aug. 17.

"PBGC premiums are currently far lower than what a private financial institution would charge for insuring the same risk," the budget said. "These reforms would improve PBGC's financial condition and safeguard the future benefits of American workers."

Kyle Brown, retirement counsel for Watson Wyatt Worldwide, Arlington, Va., said a key reason lawmakers originally ejected the PBGC proposal is because it would essentially cede legislative authority to set premiums to administration agencies. "There's no chance that Congress will take that up," Mr. Brown said.

Jan Jacobson, director of the retirement policy for the American Benefits Council, Washington, said the resulting premium hike could add even more pain to defined benefit plans already hurting from the increase in PBGC premiums included in the PPA.

"The administration and Congress just last year passed legislation that will further accelerate the decline of the defined benefit plan system, including a significant increase in PBGC premiums," Ms. Jacobson said.

The flat premium paid by all plans went up to $30 a year per participant, from $19, under the pension act, according to Ms. Jacobson.

Also in his budget, Mr. Bush included a series of proposals intended to simplify the rules applied to a variety of defined contribution and other savings plans. The proposals have been included in Mr. Bush's budgets for several years but always failed to win congressional approval.

One proposal would consolidate 401(k), SIMPLE 401(k), SARSEPS (salary reduction simplified employee pensions), thrift plans, 403(b) and governmental 457(b) plans into a new Employer Retirement Savings Account. The account would be subject to the same regulations that generally apply to 401(k) plans.

Another proposal would roll traditional, non-deductible and Roth individual retirement accounts into a single new Retirement Savings Account, allowing individuals to contribute $5,000 after taxes a year into the account, which would include penalties for early withdrawals.

But at the same time, the president has proposed to create a new Lifetime Savings Account, or LSA, that would permit individuals to save after-tax contributions of up $2,000 a year for whatever purpose they want without withdrawal penalties.

The LSA and RSA, in particular, are unlikely to win approval from a Democratic-controlled Congress because the accounts would be available to all, no matter how much they make, and earnings on the contributions are tax-free — and thus can be viewed as favoring the more affluent members of society, according to industry attorneys and consultants.

"The proposals have never really had any traction," said Frank McArdle, a principal and manager of the Washington office of consultant Hewitt Associates LLC.

Added Mark Iwry, non-resident senior fellow at the Brookings Institution, Washington: "Many in Congress have been deeply concerned that the LSA and RSA proposals could threaten the employer plan system by giving small businesses incentive to drop or not adopt an employer plan."

The new budget also includes a proposal to allow individuals to use part of the Social Security payroll tax to fund "voluntary personal retirement accounts." That's another proposal the president promoted heavily in 2005. Key Democrats charged at the time that it could undermine the security of the entitlement program.

"The president made his case, there was a lively debate, but Congress ultimately did not buy it, nor apparently did the public," said Mr. Iwry.