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Higher PBGC premiums would help fund student loan interest rate freeze


WASHINGTON—Senate Republican and Democratic leaders are nearing an agreement in which premiums employers pay to the Pension Benefit Guaranty Corp. would increase and pension funding rules would be modified to cover the cost of a one-year freeze of the interest rate students pay on government-subsidized loans, sources say.

The changes, which were being discussed Wednesday with House Republican and Democratic leaders, would be part of a measure to reauthorize a transportation funding law that is due to expire later this week. All employers with defined benefit plans now pay a premium of $35 per participant to the PBGC, which has a $26 billion deficit. In addition, employers with underfunded plans pay an additional premium of $9 per $1,000 of plan underfunding.

While the details could change, sources say that under the tentative agreement, the flat-rate premium would rise to $40 per plan participant in 2013 and $41 in 2014. The variable-rate premium would rise to $12 per $1,000 of plan underfunding in 2013, $14 in 2015 and around $18 in 2015.

Benefit lobbyists say they are concerned about a hike in PBGC premiums.

“Throwing money at the agency is not a solution that will be encouraging to employers that maintain defined benefit plans,” said Lynn Dudley, senior vp for policy at the American Benefits Council in Washington.

The pension funding proposal, which employers favor, would be along the lines of provisions that were included as part of a broader transportation funding bill the Senate passed in March.

That measure effectively would allow employers to use higher interest rates in valuing pension plan liabilities, reducing the amount of their tax-deductible contributions.