WASHINGTON—A proposal being drafted by the Pension Benefit Guaranty Corp. would transfer the authority to set premiums based on the risk posed by employers and their pension plans from Congress to the PBGC.

While very much a work in progress, the proposal, outlined last week as part of the Obama administration's 2012 federal budget plan, would be a dramatic change in the way employers are assessed premiums, if approved by Congress. The premiums are used to help fund the PBGC's insurance program, which guarantees participants' vested benefits when companies run into financial difficulty and the agency takes over their underfunded plans.

Under the current, decades-old premium structure, employers pay an annual base, flat-rate premium regardless of their financial strength. The premium is $35 per plan participant this year.

In addition, employers with underfunded plans pay what is called a variable-rate premium of $9 per $1,000 of plan underfunding. The premium rate is not adjusted to reflect the quality or type of assets held in an employer's pension plan.

The insurance program's huge deficit is the catalyst for the overhaul, fueled in recent years by the PBGC's takeover of pension plans—underfunded by billions of dollars—sponsored by companies including United Airlines and auto parts manufacturer Delphi Corp. when they slid into bankruptcy reorganization.

The single-employer program is more than $20 billion shy of the amount needed to pay the benefits guaranteed to participants in the failed plans it has taken over.

While the PBGC is in no immediate danger of running out of money because the promised benefits will be paid out over many years, eventually it will unless revenue is increased.

Instead of seeking yet another increase in its base premium rates, PBGC Director Joshua Gotbaum says there is a better and a fairer approach.

“The question is not of when premiums will be increased, but how it is done,” he said in a statement, adding that basing premiums on individual employer risk is a better and more equitable approach than an across-the-board premium hike.

While many details still are being worked out, the thinking is the premium paid by an employer would be based in part on its credit rating. Mr. Gotbaum noted, for example, that a pension plan sponsored by a company with a top credit rating doesn't present the same level of risk as one with a subpar rating.

Benefit experts, though, have numerous concerns about such a methodology. For example, it isn't clear how premiums would be calculated for privately held companies that have no debt and no credit rating.

“How do you determine creditworthiness in every case?” asked Cindy Fraterrigo, a principal with PricewaterhouseCoopers L.L.P. in Chicago.

Others question the logic of such an approach.

“A company may not be so financially healthy, but its pension plan is fully funded. What is the risk to the PBGC?” asked Aliya Wong, executive director of retirement policy at the U.S. Chamber of Commerce in Washington.

Benefit lobbyists are troubled not only by the approach, but also by the idea of giving the PBGC authority to set premiums.

“It is a conflict of interest. The PBGC has a strong interest in increasing premiums, but there would be no representation of employers on the PBGC's board,” said Mark Ugoretz, president of the ERISA Industry Committee in Washington.

Others said there are far better approaches that lawmakers could take to improve pension plan funding and reduce the PBGC's exposures. For example, if Congress eliminated or reduced the federal excise tax, which can be as high as 50%, on reversions when companies terminate overfunded plans, it would give employers a strong financial incentive to make more than the required minimum contributions to their plans, some said.

“If you knew the contributions would not be locked up, employers would be more wiling to put in additional contributions,” said Mark Warshawsky, director of retirement research with Towers Watson & Co. in Arlington, Va.

“If you want to induce companies to better fund, take away that confiscatory” reversion tax, said Ethan Kra, chief actuary for Mercer L.L.C. in New York.

In the absence of a developed legislative proposal, though, some said it is too soon to pass judgment.

“It is our nature to be open-minded, but we will withhold judgment until we see more of the specifics,” said James Klein, president of the American Benefits Council in Washington.

And Mr. Ugoretz applauded Mr. Gotbaum's open-door approach. “He wants input. We had a frank discussion with him and appreciate his willingness to discuss ideas,” Mr. Ugoretz said.

Mr. Gotbaum said the PBGC will continue to refine its proposal and that ultimately it will be up to Congress to decide if the plan is a better approach compared with current law.

It isn't known yet how receptive Congress would be in turning over premium-setting power to the PBGC, though there are legislators who would be interested in discussing the approach, the Chamber's Ms. Wong said.