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Benefits council head urges lawmakers to rethink PBGC premium hike

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The president of the American Benefits Council has sent a letter to lawmakers objecting to recent budget legislation to increase insurance premiums employers pay to the Pension Benefit Guaranty Corp.

In a Friday letter to congressional leaders, council President James A. Klein said PBGC premium hikes were enacted without any evidence that they were needed, and without regard to the effects such hikes would have on the defined benefit pension system.

“There is no procedural or evidentiary basis for increasing single-employer plan PBGC premiums,” Mr. Klein said in a letter sent Friday to Senate Majority Leader Mitch McConnell, R-Ky., Senate Minority Leader Harry Reid, D-Nev., House Speaker Paul Ryan, R-Wis., and House Minority Leader Nancy Pelosi, D-Calif.

“Premium increases were not justified by any review of whether they were needed, nor whether enacting them would help or hurt PBGC's termination insurance program,” the letter continued.

Under the Bipartisan Budget Act of 2015, the PBGC flat-rate premium paid by all defined benefit plan sponsors will rise to $69 per plan participant in 2017, $74 in 2018 and $80 in 2019.

The PBGC flat-rate premium is currently $57 per plan participant and set to rise to $64 in 2016 under a prior law.

Also, the variable rate premium paid by employers with underfunded plans, set to rise next year to $30 per $1,000 of unfunded benefits from the current $24 rate, will jump over a three-year period starting in 2017, until it hits $41 in 2019.

Raising the premiums, Mr. Klein said, drives employers away from the defined benefit pension system, “leaving a smaller and smaller number remaining to support the agency.”

Mr. Klein also said premium increases are “based on faulty economic assumptions.”

“PBGC premiums are paid to the PBGC and, by law, may only be used by the PBGC to support pension plan participants,” he said. “But repeatedly over the years, and again in BBA 2015, Congress has used PBGC premium increases to support spending by other parts of the federal government; despite the fact that it would be illegal to use the premiums for such other spending.”

Mr. Klein also criticized the process used to enact the premium hikes, as there were no hearings or consideration of relevant committees with expertise over the issue, he said.