US - The Pension Benefit Guaranty Corporation will be allowed to set its own premiums under new proposals put forward in President Barack Obama's 2012 Budget.
The move would for the first time allow the PBGC to set its premiums based on the financial health of the sponsoring company and the circumstances of the individual plan.
Historically, Congress has raised PBGC premiums by legislation, but has not taken the individual circumstances of different company sponsors into account. As a result, financially sound companies are forced to subsidise those that are not.
The proposal has been modelled on the deposit insurance system operated by the Federal Deposit Insurance Corporation (FDIC). For the past two decades the FDIC has set its own premiums based on the circumstances and risks of individual banks. It implemented its most recent premium structure only after several years of study and consultation - something the PBGC would be required to undertake before it implements any changes.
Furthermore, those changes would have to be phased in over a period of years, while the PBGC would be directed to set premiums to avoid increases when the economy is weak.
The PBGC has never received taxpayer funds and to help the agency meet its obligations, Congress has repeatedly raised premiums. At least two bipartisan budget review groups, the Simpson-Bowles Commission and the Domenici-Rivlin Commission, have recommended that the PBGC's premiums be raised again. The proposal has been designed to allow premium increases that are fairer to the business community and encourage preservation of pension plans.
"The question is not if or when premiums will be increased, but how it is done," said PBGC director Josh Gotbaum. "What the President proposes is a better and fairer approach than raising premiums across the board and forcing responsible companies to subsidise those that are not."
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