<nobr>Oct 17, 2005</nobr>

ERIC Letter to HELP Committee on Premium Increases

Hon. Michael Enzi, Chairman
Committee on Heath, Education, Labor and Pensions
United States Senate
Washington, D.C. 20510

Hon. Edward Kennedy, Ranking Member
Committee on Health, Education, Labor and Pensions
United States Senate
Washington, D.C. 20510

Dear Chairman Enzi and Ranking Member Kennedy:

The proposed budget reconciliation bill to be considered by the HELP Committee on Tuesday, October 18, increases premiums taxes paid by plan sponsors to the Pension Benefit Guaranty Corporation (PBGC) that are contrary to the interests of plan participants and that violate the mission of the PBGC that is enunciated in ERISA. The proposed bill (1) increases premiums from $19.00 per participant to $46.75 per participant, (2) automatically indexes premium tax increases in the future, and (3) introduces a wholly new premium tax of up to $3,750 per participant ($1,250 per participant for up to three years) that would be due when an employer emerged from bankruptcy. We strongly urge the Committee not to adopt these extraordinary and unprecedented increases.

• Premiums unnecessarily paid to the PBGC divert employer cash that otherwise could be contributed to the pension plan itself. Participants do not benefit when money is shunted unnecessarily to the PBGC. ERISA section 4002 explicitly states that the PBGC is “to maintain premiums...at the lowest level consistent with carrying out its obligations...” PBGC premium taxes are a singularly inappropriate source for budget reductions, which are by definition not related to the needs of the PBGC or its mandate to keep premiums as low as possible. At the very minimum, ERIC urges the Committee to support Sen. Bingaman’s amendment to reduce the premium increase to $30.

• There is no justification for “indexing” premiums. Indexing is nothing more than a windfall to an agency which has consistently overstated its liabilities by characterizing it’s exposure as if every plan would terminate immediately. Moreover, indexing would turn the PBGC into yet another major tax collector holding back business development.

• The post-bankruptcy premium is a wholly new proposal. It has not been examined in public hearing. Both the concept and the dollar amounts are extraordinary. An employer whose plan had 50,000 participants attempting to emerge from bankruptcy would be forced to pay the PBGC $187,500,000, raising the question of whether any such company could ever afford to emerge from bankruptcy. This perverse proposal would have the effect of driving more companies to liquidate in Chapter 7 bankruptcy proceedings, resulting in the loss of hundreds of thousands of jobs of employees who already are in troubled industries. It is not responsible to enact such a provision and in a way that bypasses the normal legislative process while affording plan participants no avenue to avoid its harmful effects.

ERIC has proposed a reasonable and strong proposal for improving the funding of pension plans. We believe that these proposals – not extraordinary taxes – are the best protection for plan participants and for the PBGC.

The Senate HELP Committee worked hard during the initial budget process to avoid including PBGC premium tax increases in budget reconciliation bills. The Committee was right. Premium tax increases are singularly unsuitable for inclusion in a budget reconciliation bill. Moreover, the premium taxes proposed are in and of themselves poor public policy. The Committee should reject them.

Sincerely,

Mark Ugoretz
President

Janice Gregory
Senior Vice President

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