S ETTING PBGC P REMIUMS O UR G OAL : P RESERVE P ENSION P LANS 40 - - PowerPoint PPT Presentation

SETTING PBGC PREMIUMS

OUR GOAL:

PRESERVE PENSION PLANS

10 20 30 40

1980 1990 2000 2008 Participants

(in millions)

Active Deferred Vested Retired

Includes both single-employer and multiemployer PBGC-insured plans.

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PREMIUMS HAVE ALWAYS BEEN RAISED TO

ENSURE PBGC CAN PAY BENEFITS WITHOUT A TAXPAYER BAILOUT

($15,000) ($10,000) ($5,000) $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 1975 1980 1985 1990 1995 2000 2005 2010 Fiscal Year

PBGC net deficit

Flat premium increases from $2.60 to $8.50 Flat premium increases from $8.50 to $16.00. VRP introduced’ Multi premium increased to $2.60 FFL exemption to VRP introduced Flat rate premium increases from $16 to $19. VRP rate increases from $6to $9 w/cap increasing form $34 to $53. VRP cap eliminated Flat premium increases from $19 to $30 w/automatic indexing. Multi increased to $8 w/indexing PPA - basis for VRP changed & FFL exemption eliminated Flat premium increases from $1 to $2.80

Multi premium increases from $0.50 to $2.60

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IF PREMIUMS WEREN’T RAISED, PBGC WOULD HAVE BEEN BANKRUPT TWENTY YEARS AGO

$20,000 $10,000 $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $90,000

1975 1980 1985 1990 1995 2000 2005 2010 Actual Had Congress never increased rates

PBGC Assets*

(Millions $)

* Includes both single-employer and multiemployer programs.

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RECENT RECOMMENDATIONS TO RAISE PBGC PREMIUMS

2012-21 $

Simpson – Bowles $16 Billion Domenici – Rivlin $6 Billion President’s Budget FY2012 $8 -16 Billion*

* Administration estimate $16 billion

CBO estimate $8 billion

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ISSUES

• Can companies afford higher premiums?
• Should PBGC premiums be set like other

insurance premiums?

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Can companies afford higher premiums? Yes

$1 $1.07 $7 $7 $20 $20 $0 $5 $10 $15 $20 $25 $30 Current If Rates Tripled

Pension Cost Health & Other Benefits Pay

Source – Bureau of Labor Statistics Private Industry Average December 8, 2010 News Release USDL-10-1687

PBGC premiums are a tiny portion of labor costs

Average Private Sector Labor Costs ~$28 / Hour

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Total Pensions Costs $1/ Hour

PBGC Premiums ~3¢ /Hour

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Should PBGC premiums be set like other insurance premiums?

RAISING PBGC PREMIUMS THE OLD FASHIONED WAY

X Happens all at once – even in recession X Variable premium hits plans hardest just when economy is worst X Forces sound companies to pay for risky ones X Rewards unsound pensions / practices

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CURRENT PREMIUMS MAKE MOST COMPANIES PAY FOR OTHERS’ MISTAKES

Most companies are financially sound They are paying for others that are not

Should PBGC premiums be set like other insurance premiums? Financially Sound Riskier

Financially sound defined for this example as companies with D&B financial risk score classes 1-3. Other measures are available. Based on analysis covering 94% of single-employer DB plans.

For Most Companies, Reformed Premiums Could Stay the Same

– or Drop

3.4¢/ Hr

3.4¢/ Hr

Traditional Across-the-Board Approach: All Pay Same Rate

Plans with Financially Sound Sponsors Plans with Riskier Sponsors

3.4¢/ Hr 2.6¢/ Hr

10.5¢/Hr

Most would see no increase -- or a drop

The riskiest would pay more, though still a tiny %

• f total cost

Source: PBGC hypothetical analysis of potential average premiums for next 10 years

CAN PBGC PREMIUMS BE SET

LIKE OTHER INSURANCE?

Using the FDIC Model FDIC PBGC

Industry & Labor Consultation



Public Analysis / Design



Public Consultation/Rulemaking



Phase-in



Counter-cyclical



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FINANCIAL MEASURES ARE ALREADY AVAILABLE FOR ALMOST ALL COMPANIES & PLANS

94%

6%*

Financial soundness already measured Other 12

These plans cover ~99% of all participants

* Companies included in this 6% are generally very small, i.e., median number of employees in these companies is three.

DESIGN ISSUES

• Oversight
• How to Target
• Counter cyclical
• Effect on employers’

willingness to have DB plans

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WHO’S ENDORSED RAISING &/OR

REFORMING PBGC PREMIUMS?

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