US - The US Administration has called for a risk-based premium that reflects the true costs and risks plans' pose to the PBGC.
In addition, the Department of Labor (DoL) said “all underfunding” should be subject to the variable rate premium.
The DoL told Globalpensions.com: “The Administration strongly believes that a risk-based premium... is necessary. Risk-based premiums provide an incentive to maintain plan funding, and help protect the insurance system from loss.”
“While we are pleased with Congress’ support in increasing the flat rate premium, we need to address the risk-based premium as well by ensuring that all underfunding is subject to the variable rate premium.”
The PBGC’s premium system does not at present consider factors that would affect the risk a scheme posed to the PBGC, such as asset allocation or the creditworthiness of the sponsoring employer.
At present, the PBGC has a variable-rate premium of $9 per $1000 of unfunded vested benefits, but that is only applicable to single-employer plans. The flat-rate premium was increased from $19 to $30 under the recently passed Deficit Reduction Act.
“Because the pension insurance system is funded by premiums paid by all plans, a system allowing systematic underfunding by some plans creates a moral hazard, driving responsible and well-funded plans out of the system,” the DoL added.
In the UK, the Pension Protection Fund’s (PPF) decision to introduce a risk-based levy was based on the PBGC’s experience, said PPF director of investment and finance Partha Dasgupta.
“What we did was try to understand the PBGC system, the positives and the negatives, and one of the things that came across clearly was that in order for the PPF to be sustainable in the long term, we needed to charge a premium that reflected the risk.”
Dasgupta also confirmed the PBGC had been in contact with the PPF, but said the discussions did not relate solely to the implementation of the risk-based levy.
“Of course the PBGC has been interested in our development over time, as they provided helpful background,” he said. “As such, we have had discussion with our colleagues overseas as you would expect with similar organisations. The PBGC has been very interested in the developments around the risk-based levy, and has been monitoring those developments, trying to understand the way we approached it, and the reasons behind what we have done.”
By Damian Clarkson
Johnson Controls International has appointed XPS Pensions as investment and actuarial adviser for two of its schemes, following a competitive tender process.
Merseyside Pension Fund has allocated an initial £400m of assets to a smart sustainability fund managed by State Street Global Advisors (SSGA).
This week's top stories included exclusive coverage of The Pensions Regulator's plans to require schemes to use professional trustees.
Buck has launched a solution to help pension schemes equalise guaranteed minimum pensions (GMPs) in a cost effective way with minimum hassle.