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Deficit reduction package includes Pension Benefit Guaranty Corp. premium hikes

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WASHINGTON—The Obama administration Monday proposed steep hikes in the insurance premiums employers with defined benefit plans pay the Pension Benefit Guaranty Corp. as part of a broader deficit reduction package.

Under the proposal, which would require congressional approval, the flat-rate premium paid by all employers and the variable-rate premium paid by employers with underfunded plans both would be raised.

The annual flat-rate premium, which is $35 per plan participant and generated $1.2 billion in revenue in 2010, gradually would be increased to raise $4 billion in additional revenue by 2021.

In addition, the PBGC Board of Directors—made up of the secretaries of the Labor, Treasury and Commerce departments—would be given authority to raise the variable-rate premium, which now is $9 per $1,000 of plan underfunding.

The board would have the discretion to increase the variable-rate premium to generate an additional $12 billion in revenue by 2021. Last year, the PBGC collected just over $1 billion in variable rate premiums.

Under the proposal, the amount of variable-rate premium paid by an individual employer no longer would depend just on plan underfunding, but also on other factors, including a plan's risk of losses to the PBGC and “other factors the board's directors determine appropriate.”

The proposal, the administration said, would give employers incentives to improve plan funding.

“Without action, the PBGC’s deficit will increase and we may face, for the first time, the need for infusion of taxpayer funds to keep PBGC solvent,” the administration warned.

Others, though, think adoption of such a proposal could erode the PBGC’s premium base as employers, concerned by big hikes in PBGC premiums, decide to phase out their plans.

“This could create another incentive for employers to exit the defined benefit plan system,” said Alan Glickstein, a senior retirement consultant in Dallas with Towers Watson & Co.

The likelihood of Congress’ ceding its authority to set PBGC premiums is low, benefit lobbyists say.

“There is not the appetite in Congress to do that,” said Kathryn Ricard, senior vp-retirement policy with the ERISA Industry Committee in Washington.

In fiscal 2010, the PBGC reported a near-record $23 billion deficit in its insurance programs that pay benefits to participants in plans the agency has taken over.

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