US - Plans by the Benefit Guaranty Corporation (PBGC) to increase premiums would undermine the private sector defined benefit pension system, businesses have warned.
In a letter signed by 11 employer groups, DB scheme sponsors expressed their "serious concern" with the proposals, which are being considered as part of the PBGC's budget discussions.
Signatories including the American Benefits Council, ASPPA College of Pension Actuaries and the US Chamber of Commerce, claim raising the premiums without making contextual reforms to the agency or the DB system, "amounts to a tax on employers who have voluntarily decided to maintain defined benefit plans".
They also believe the proposals, which aim to raise an additional $16bn in additional PBGC premiums, are flawed, and even if they were feasible, would result in an increase in PBGC premiums of almost 100%.
"Even less draconian PBGC premium increases, when added to the multi-billion dollar increases enacted in 2006, would divert critical resources from job creation and business investment," the letter continued.
"For companies already facing financial difficulties, massive premium increases could force employers to discontinue providing retirement benefits altogether. We have long held that the best way to strengthen the PBGC is to keep more employers in the system, not to tax them out of the system."
The authors also claim the proposed creditworthiness test would give the PBGC the ability to make formal pronouncements about the financial status of American businesses." This role for a government agency would be inappropriate, especially for private companies and non-profit entities", they warn.
Even modest year-to-year changes in those government credit ratings could have implications well beyond PBGC premiums, potentially affecting stock prices or the company's access to other credit sources, the letter adds.
It continues: "There is no demonstrated basis for the drastic measures being considered. Premium levels should be carefully crafted and justified. If they are not, then they are really little more than a tax increase. The PBGC states in its 2010 annual report that "since our obligations are paid out over decades, we have more than sufficient funds to pay benefits for the foreseeable future."
"Since there is no immediate crisis, Congress should not relinquish its authority to establish appropriate premium requirements. Instead, Congress should take the time required to examine the PBGC's financial situation more carefully, including an in-depth review of the actual nature of PBGC's deficit, which has been questioned repeatedly.
"We understand the pressures Congress is facing to address the budget deficits, but massive increases in PBGC premiums are not the solution."
The PBGC was not immediately available for comment.
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