<nobr>Nov 3, 2005</nobr>

ERIC Urges Senators to Support Bingaman Amendment to Budget Reconciliation Bill

Dear Senator:

The proposed budget reconciliation bill to be considered by the Senate Wednesday November 2, increases the premium-taxes paid by plan sponsors of defined benefit pension plans 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. imposes automatic premium increases regardless of the PBGC’s need for such increases; 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.

• Premiums unnecessarily paid to the PBGC divert employer cash that otherwise could be contributed to the pension plan itself. Participants do not benefit when excessive 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.
• The post-bankruptcy premium is a wholly new proposal that has not received a hearing. Few Senators are familiar with its implications. 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 to 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.
  
  Moreover, no consideration has been given to the effect on creditors which include small and large employers and even individuals. It is not responsible to pass such a provision and in a way that bypasses the normal legislative process while affording plan participants and others no avenue to avoid its harmful effects.

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