Dear Representatives Kline and Miller:
In testimony on February 2, 2012 before the Health, Employment, Labor and Pensions Subcommittee of the House Committee on Education and the Workforce, and in a concurrent press release, Joshua Gotbaum, the Director of the Pension Benefit Guaranty Corporation (PBGC), testified in favor of the Administration’s proposal to allow the PBGC to set its own premium rates for the insurance it provides for corporate pension plans. The proposal includes allowing the PBGC to charge a higher premium to the pension fund if the company that sponsors the pension plan has a poor credit rating. (There is already a variable premium which is based on the funded status of the plan.) A plan’s PBGC premium would be allowed to increase to up to four times its 2010 premium.
The House committee was apparently not given the complete story on the funding of PBGC premiums during its hearing. In his testimony, the PBGC Director stated that the company which sponsors the plan pays the premium. We believe that the Director’s statement is incorrect. In fact, the PBGC premiums are paid from the pension plan’s assets (thereby reducing funds available to pay pensions), not by the pension plan’s sponsoring company.
If Congress approves this proposal, it will in fact be injurious to the pensioner in two ways.
First, if the PBGC is allowed to set its own rate without the approval of Congress, it will be the same as allowing the fox to guard the hen house.
Second, if the PBGC is allowed to charge increased premiums to the pension funds based on the financial ratings of the pension plan’s sponsor, then they are penalizing the retirees on something which is out of their control. Is it fair to charge higher premiums to a pension trust because a separate party, the company which the PBGC refers to as the “plan sponsor,” has a poor credit rating? We believe that answer must be a resounding NO!
This is tantamount to a double penalty for retirees based on two elements totally outside of their
Your cooperation in further probing the basis for these incorrect statements by Director Gotbaum and in not allowing the PBGC to proceed to self-determine premium rates and charge increased amounts to pension trusts based on the plan sponsor’s credit rating is respectfully requested.
Jay Kuhnie – President
National Chrysler Retirement Organization