The Pension Benefit Guaranty Corp. would be given new authority to increase premiums on the retirement plans it insures, saving the agency an estimated $16 billion over the next decade, under President Barack Obama’s fiscal year 2012 federal budget proposal released Monday.
The PBGC’s pension insurance system is underfunded by about $23 billion, with about $80 billion in assets and $103 billion in liabilities, but is currently unable to adjust premiums to reflect a company’s financial condition or risk to its retirement plans, PBGC spokesman Jeffrey Speicher said in a telephone interview.
“This will both encourage companies to fully fund their pension benefits and ensure the continued financial soundness of PBGC,” according to the budget proposal for the fiscal year beginning Oct. 1.
PBGC Director Joshua Gotbaum said in a telephone interview that, previously, Congress has raised the premiums across the board, regardless of the financial stability of a company or its retirement plan. (Congress most recently raised the premium in 2005 to $30 a year per employee and indexed it to inflation bringing the current premium to about $35 a year per employee.)
Under the proposal, the increases would be at the discretion of the PBGC, similar to the model used by the Federal Deposit Insurance Corp.
Mr. Gotbaum said the proposal also aims to phase in the increases, so companies are not hit all at once. The phase-in would “avoid hitting pension plans hardest when the economy is at its worst,” he said.
Mr. Gotbaum noted the proposed change in giving the PBGC authority would take at least two years to study the PBGC before it could be implemented.
The budget also resurrects two proposals from the fiscal year 2011 budget that were not adopted. One establishes mandatory automatic workplace pensions and another would double the tax credits available to small companies for establishing or administering a new retirement plan.
The automatic workplace pension proposal would require employers that do not offer a retirement plan to automatically enroll employees in a direct-deposit IRA account. Employees would be allowed to opt out of the plan.
The tax credit proposal for establishing a retirement plan would double the credit up to a maximum of $1,000 a year from $500 for three years for the startup expense of establishing or administering a new retirement plan. The proposal aims to “make it easier for small employers to offer pensions to their workers in connection with the automatic IRA proposal,” according to the budget proposal.
The budget reduces spending at the Department of Labor by 5% from 2010 spending levels to $12.8 billion. The Labor Department’s Employee Benefits Security Administration’s budget would be $198 million in fiscal year 2012, up 22% from fiscal year 2011 and up 28% from fiscal year 2010.