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Member, Beacon International Group, Ltd.
IF THERE is logic in the way premiums are set for the Pension Benefit Guaranty Corp.'s insurance program that protects employees' and retirees' pension benefits, it escapes us.
All employers, regardless or their financial condition or how well-funded their pension plans are, pay the same base premium, $35 per plan participant per year.
The premium rate$9 per $1,000 of plan underfundingfor employers with underfunded plans also is not adjusted to take into account the financial strength of a plan sponsor or how plan assets are invested.
The PBGC's program is insurance in name only. Risk, which is the basis for how premiums are set for just about any insurance program, is absent here.
To its credit, the Obama administration is looking into how the program, which is well over $20 billion short of the amount needed to pay benefits in plans the agency has taken over, can be overhauled to make it a true insurance program where employer premiums have some correlation to the risks their plans pose to the PBGC.
As we report on page 3, the proposal would allow the PBGC to set premiums based on the employer's financial health and the pension plan's circumstances.
Business groups are raising legitimate issues, such as how to measure the financial health of employers with no debt and no credit rating. As yet, there is no answer to that and many other questions.
But the PBGC has pledged a careful and open-door process as it assembles the proposal, while any changes would be phased in.
Given the deficit, premiums have to increase. We agree with PBGC Director Josh Gotbaum that the approach proposed by the administration is fairer than an across-the-board increase.