Mark J. Warshawsky, Arlington, Va.-based director of retirement research at Towers Watson & Co., similarly noted that few details have been disclosed.
He questioned whether the goal of the proposal is to help strengthen retirement plans or to shore up the PBGC.
“If the point is just (to raise) revenue, that's one thing; but if the point is to improve the funding of the defined benefit plans, there may be other ideas out there that would do as good if not a better job,” he said.
Mr. Warshawsky also questioned the basis for the $16 billion in savings cited in the budget and whether that savings — which is projected to take place over the course of a decade — begins two years from now, when the plan is implemented. PBGC spokesman Jeffrey Speicher said in an e-mailed response to questions that the savings would be realized over the subsequent eight years. The PBGC, however, did not detail how the proposal would raise $16 billion, attributing the number to the Office of Management and Budget.
Mr. Gotbaum said Congress now raises premiums across the board, regardless of the financial stability of a company or its retirement plan. Congress last raised the fixed-rate premium in 2005 to $30 a year per employee and indexed it to inflation, bringing the current premium to about $35 per employee annually. Companies also pay a variable-rate premium of $9 for every $1,000 of underfunding in their pension plans, with some exemptions for smaller plans.
Under the proposal, increases would be at the discretion of the PBGC, similar to the model used by the Federal Deposit Insurance Corp. in determining premiums paid by the banks it oversees.
Mr. Kra said the FDIC already audits banks for financial solvency and questioned what kinds of financial reviews would used for pension plans and who would pay for them.
“Not every corporate plan sponsor has those (kinds of) financial reviews,” Mr. Kra said. “Is Mr. Gotbaum going to pay for those reviews? Who's going to pay for them?”
Mr. Kra also noted a concern among plan executives about companies supplying the PBGC with “substantial financial information” and the organization's ability to keep that information confidential.
While details in the budget proposal are few, plan executives could take some hints from similar proposals released in recent months. Mr. Speicher, the PBGC spokesman, said the budget proposal draws from reports by President Obama's National Commission on Fiscal Responsibility and Reform, and the Bipartisan Policy Center, a Washington think tank. Both were released in November.
The national commission report noted that “according to the (Congressional Budget Office) and others, (PBGC) premiums are much lower than what a private financial institution would charge for insuring the same risk,” and the PBGC's inability to adjust premiums has led to the agency's deficit. The report recommends that allowing the PBGC to set premiums would raise $2 billion in 2015 and $16 billion through 2020, adding it would “sharply reduce the likelihood of a government rescue in the future.” The Bipartisan Policy Center's report, “Restoring America's Future,” recommended increasing the fixed-rate premium by 15% and increasing the variable-rate premium to $12 per $1,000 of underfunding. Separately, the federal 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 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 from $500 for three years to cover startup expenses of establishing or administering a new 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.