Proposed Changes to PBGC Premiums

The proposed 2012 federal budget contains an interesting provision which could dramatically change how PBGC premiums are determined. Here are the main aspects of the proposal:

– Gives the PBGC authority to set and adjust premium rates as it sees fit. Currently the PBGC does not have this power, so the change would give the PBGC more flexibility in responding to the need for premium rate adjustments.

– Directs the PBGC to consider individual plan sponsor risk (to their retirees and to the PBGC) when determining premium rates. Currently all plan sponsors pay a flat headcount-based premium along with a variable rate premium (VRP) based on their unfunded liabilities. One possibility is that consideration of a plan sponsor’s financial stability would involve a third premium component or an adjustment to the VRP.

– States that any changes to the PBGC rate structure would be subject to two years of study followed by a gradual phase-in of increases.

It’s unclear whether any of these changes will gain traction, but they are clearly being proposed to help close the PBGC’s current funding deficit. The proposed budget estimates that these premium adjustments could “save $16 billion over the next decade.” Another way to read this is that the premium changes are estimated to bring in an additional $16 billion in premium revenue to the PBGC over that time period.

One thought on “Proposed Changes to PBGC Premiums

  1. It is hard to see how premiums which aim to price the CURRENT risk for plans – which means the combination of the probability that they will enter the PBGC and the level of underfunding if they do – can do anything but mean that FUTURE claims will be met by future premiums (assuming that they get the measurements right). It does not of itself make any difference to the deficit.

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