A new proposal on how the Pension Benefit Guaranty Corp. premiums are set may affect plan sponsors who offer defined benefit options.

The PBGC is an independent federal agency created by ERISA that guarantees basic pension payments. It does not receive taxpayer funds; the money to fund it comes from insurance premiums paid by sponsors of defined benefit pension plans; assets held by the pension plans it takes over; recoveries of unfunded pension liabilities from plan sponsors' bankruptcy estates; and investment income. In the past, Congree has set the premiums for the fund.

But the president's 2012 budget proposal may change all that. In the proposal, the power to set premiums shifts away from Congress to the PBGC, allowing the corporation to set premiums based on the individual health of the company and considerations of the individual plan. Additionally, changes must be phased in over a series of years, and the PBGC has been directed to avoid premium increases when the economy is weak.

The current structure requires financially strong companies to support those that are not, the assumption being that the PBGC would provide discounted premiums to financially sound companies, and weaker companies have to pay higher premiums.

The new premium structure is based on the structure used by the Federal Deposit Insurance Corporation, and will be required to undertake comprehensive study before it is implemented.

Instant Insights /

2012 budget will affect Pension Benefit Guaranty Corp.

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