WASHINGTON—It would be counterproductive to boost insurance premiums that employers with defined benefit plans pay to the Pension Benefit Guaranty Corp. and the PBGC should not have the authority to set premiums, an employer benefits lobbying group says.

The Obama administration proposal would drive more companies out of the defined benefit plan system, eroding the PBGC's “customer base and their premiums,” ERISA Industry Committee President Mark Ugoretz wrote in a letter sent Friday to the Joint Deficit Reduction Committee, the congressional panel charged with coming up with ways to reduce the federal deficit.

Mr. Ugoretz said the business group especially opposes part of the proposal, which would require congressional approval, that would give the agency the authority to set premiums based on plan sponsors' creditworthiness.

“It's a direct conflict of interest,” Mr. Ugoretz said of the proposal, adding that this is not the time to add “new and unnecessary burdens” on plan sponsors.

Obama administration proposal"

Last week, the Obama administration proposed raising the flat-rate premium paid by all employers and the variable-rate premium paid by employers with underfunded plans.

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 the 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.

Factors affecting 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.”

Reacting to the ERISA Industry Committee’s stance, PBGC Director Joshua Gotbaum said in a statement that the administration’s proposal “is a change in the way PBGC sets its premiums that will both protect pensions and help PBGC do its job.

“We think this is the best way to reward companies for offering sound pension plans. We would like to see the president’s proposal carried out in the same careful consultative way that Congress enacted changes to the FDIC’s premiums more than a decade ago,” Mr. Gotbaum said in the statement.