S ETTING PBGC P REMIUMS
O UR G OAL : P RESERVE P ENSION P LANS 40 30 Participants (in millions) 20 10 0 1980 1990 2000 2008 Active Deferred Vested Retired 2 Includes both single-employer and multiemployer PBGC-insured plans.
P REMIUMS HAVE ALWAYS BEEN RAISED TO ENSURE PBGC CAN PAY BENEFITS WITHOUT A TAXPAYER BAILOUT $30,000 Flat premium increases Flat premium increases from $19 to $30 from $8.50 to $16.00. $25,000 w/automatic indexing . VRP introduced’ Multi Multi increased to $8 Flat premium premium increased to w/indexing increases from $20,000 $2.60 $1 to $2.80 $15,000 VRP cap eliminated Flat premium FFL exemption to increases from $10,000 VRP introduced $2.60 to $8.50 $5,000 PPA - basis for VRP changed & FFL exemption $0 eliminated ($5,000) Multi premium Flat rate premium increases increases from $0.50 from $16 to $19. VRP rate ($10,000) to $2.60 increases from $6to $9 w/cap increasing form $34 to $53. ($15,000) 1975 1980 1985 1990 1995 2000 2005 2010 Fiscal Year PBGC net deficit 3
IF PREMIUMS WEREN’T RAISED, PBGC WOULD HAVE BEEN BANKRUPT TWENTY YEARS AGO $90,000 $80,000 $70,000 $60,000 $50,000 PBGC Assets* $40,000 (Millions $) $30,000 $20,000 $10,000 $0 $10,000 $20,000 1975 1980 1985 1990 1995 2000 2005 2010 Actual Had Congress never increased rates 4 * Includes both single-employer and multiemployer programs.
R ECENT R ECOMMENDATIONS TO R AISE PBGC P REMIUMS 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 5
I SSUES • Can companies afford higher premiums? • Should PBGC premiums be set like other insurance premiums? 6
Can companies afford higher premiums? Yes $30 PBGC premiums are $25 a tiny portion of labor $20 costs $20 $20 $15 Average Private Sector Labor Costs ~$28 / Hour $10 Total Pensions Costs $1/ Hour $5 $7 $7 PBGC Premiums ~3 ¢ / Hour $1 $1.07 $0 Current If Rates Tripled Pension Cost Health & Other Benefits Pay 7 Source – Bureau of Labor Statistics Private Industry Average December 8, 2010 News Release USDL-10-1687
Should PBGC premiums be set like other insurance premiums? R AISING PBGC P REMIUMS THE O LD F ASHIONED W AY 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 8
Should PBGC premiums be set like other insurance premiums? CURRENT PREMIUMS MAKE MOST COMPANIES PAY FOR OTHERS ’ MISTAKES Most companies are financially sound They are paying for others that are not Financially Sound Riskier Financially sound defined for this example as companies with D&B financial risk score classes 1-3. 9 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 Most would see no increase -- or a drop 3.4¢/ Hr 2.6¢/ Hr 3.4¢/ Hr 3.4¢/ Hr 10.5¢/Hr The riskiest would pay Traditional Across-the-Board Approach: more, though still a tiny % All Pay Same Rate of total cost Plans with Financially Sound Sponsors Plans with Riskier Sponsors Source: PBGC hypothetical analysis of potential average premiums for next 10 years
C AN 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 11
FINANCIAL MEASURES ARE ALREADY AVAILABLE FOR ALMOST ALL COMPANIES & PLANS These plans cover 94% ~99% of all participants 6%* Financial soundness already measured Other * Companies included in this 6% are generally very small, i.e., median number of employees in these 12 companies is three.
D ESIGN I SSUES • Counter cyclical • Oversight • Effect on employers’ • How to Target willingness to have DB plans 13
W HO ’ S ENDORSED RAISING &/ OR REFORMING PBGC PREMIUMS ? 14
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