Pension proposal punishes healthy employers: consultants

Bush administration's plan hits healthy companies far harder than weaker ones
||Last Updated: 07/12/2005

Premiums that financially healthy companies in the United States pay to the Pension Benefit Guaranty Corporation (PBGC) for their defined benefit plans would increase by more than twice those of their weaker counterparts under the Bush administration’s proposal to overhaul pension funding rules, according to a new analysis by Watson Wyatt Worldwide.

The administration’s pension reform proposal, announced earlier this year, is designed to ensure employers keep pension benefit promises and to protect the PBGC from a taxpayer bailout. The proposal would overhaul pension funding rules and restructure premiums that employers pay to the PBGC. Currently, all single-employer pension plans pay a flat rate PBGC premium, although employers with “severely” underfunded plans may also pay a variable premium.

Under the proposal, all employers with pension plans would see the flat rate premium increase. Companies with underfunded plans would also pay a variable premium based on the total dollar amount of the underfunding. In addition, a company with a below-investment-grade credit rating would be deemed “financially weak” and would face stricter requirements than a “financially healthy” company.