Elaine L. Chao, U.S. Secretary of Labor and Chairman of the Board of the Pension Benefit Guaranty Corp.(PBGC), today announced the Bush Administration’s plan for strengthening the retirement security of workers and retirees covered by private, single employer defined benefit pension plans. Chao states, in the announcement, that the Administration has become “increasingly concerned as the number of terminated plans grows and the PBGC is forced to assume ever larger liabilities” and that “[i]f nothing is done, the financial integrity of the federal insurance system will be compromised and the pension security of 34 million workers and retirees will be more at risk.”
The announcement provides that the Administration’s plan is based on three main principles:
- Reforming the funding rules for private defined benefit pension plans to ensure full funding;
- Reforming PBGC premiums “to better reflect the real risks and costs”; and
- Increasing “disclosure of information about private defined benefit pension plans to workers, investors and regulators.”
There is a Fact Sheet summarizing the proposal and entitled “The Bush Administration’s Plan for Strengthening Retirement Security.” Two interesting aspects of the proposal:
(1) The proposal includes a change to the PBGC premium structure so that it would include a “risk-based premium” which would be based on “plan underfunding relative to the appropriate funding target.” The Fact Sheet notes that all underfunded plans would pay risk-based premiums.
(2) The proposal would allow “plan sponsors to make additional deductible contributions during good economic times.” (It’s about time!)