Order Code RS22315
Updated November 10, 2005
CRS Report for Congress
Received through the CRS Web
Budget Reconciliation and the PBGC
Neela K. Ranade
Chief Actuary
Domestic Social Policy Division
Summary
The Pension Benefit Guaranty Corporation (PBGC) posted a deficit of $23.5 billion
as of the latest reporting period, and the deficit is expected to grow further. Major bills
introduced in the 109th Congress to reform funding rules for the defined benefit pension
system and to raise PBGC premiums include H.R. 2830 and S. 1783. Neither has yet
passed the full House or Senate. PBGC premiums are an important source of revenue
for meeting the budget reconciliation targets. The House Budget Committee has
reported out H.R. 4241, a budget reconciliation package that would raise PBGC
premiums. The Senate has passed S. 1932, a budget reconciliation package that also
contains PBGC premium increases. The House and Senate budget reconciliation
proposals include different provisions for increasing PBGC premiums that would raise
revenues of $6.2 billion and $6.7 billion, respectively, over five years. The House
Republican leaders are attempting to bring the budget reconciliation bill to the floor in
the near future. Once the House passes its budget reconciliation bill, the House and
Senate will conference in the remaining weeks of 2005 to try to pass a final bill.
This report will be updated as legislative developments warrant.
Role of the PBGC in the Budget Reconciliation Process
The Pension Benefit Guaranty Corporation (PBGC), the federal corporation that
insures the pension benefits of participants in most private sector-defined benefit pension
plans, posted deficits of $23.3 billion and $236 million for its single-employer and
multiemployer programs, respectively, as of September 30, 2004, the latest reporting date.
Since September 2001, the PBGC has posted higher deficits each year; the PBGC deficit
as of September 30, 2005, is expected to increase.1
In April 2005, the House and Senate adopted a joint budget resolution that provided
the House Education and Workforce Committee and the Senate Committee on Health,
1 For additional information, see CRS Report RL32702, Can the Pension Benefit Guaranty
Corporation Be Restored to Financial Health? and CRS Report RL32991, Defined Benefit
Pension Reform for Single-Employer Plans, by Neela K. Ranade.
Congressional Research Service ˜ The Library of Congress

---

CRS-2
Education, Labor, and Pensions (HELP Committee) with target-savings numbers for
programs under their jurisdiction. A major program that falls under the purview of the
two committees is private sector pensions. Premiums that private sector employers pay
the PBGC are an important source of revenues for meeting budget reconciliation targets.
Because the PBGC’s premiums are recorded as offsetting collections to a mandatory
spending account, an increase in premium collections is reflected in the budget as a
decrease in direct spending.
House Budget Reconciliation Measure. The House Budget Committee
reported out on November 2, 2005, H.R. 4241, the Deficit Reduction Act of 2005, its
budget reconciliation bill that saves about $54 billion over five years. The bill includes
the following provisions with respect to PBGC premiums developed by the House
Education and Workforce Committee, expected to raise revenues of $6.2 billion2 over five
years:
! Flat-rate premiums for PBGC’s single-employer program would be
increased from the current $19 per participant to $30 per participant in
2006. The rate would thereafter increase at the rate of wage inflation.
PBGC would be given the power to increase premiums by an additional
20% per year, although Congress would be able to reject any of the
increases sought by the PBGC. This provision is estimated to raise about
$5.2 billion in additional resources for the PBGC over five years. Note
that in developing the cost impact of $5.2 billion, the Congressional
Budget Office (CBO) assumed that the full 20% premium increase would
be made each year.
! A new termination premium would be introduced to be paid when a
bankrupt company engages in a distress or involuntary termination of its
pension plan, resulting in the PBGC taking over the plan. The premium
would be $1,250 per participant, payable for three years following the
company’s emergence from bankruptcy. Under current law, an employer
ceases paying premiums to the PBGC when its plan is terminated. The
new termination premium is estimated to generate savings of
approximately $1 billion over five years.
Senate Budget Reconciliation Measure. The Senate passed on November 3,
2005, S. 1932, the Deficit Reduction Omnibus Reconciliation Act of 2005, which
achieves five-year savings of about $35 billion. S. 1932 incorporates the Senate HELP
Committee’s proposals on pensions. Under the FY2006 Budget Resolution, the HELP
Committee was required to find savings in pension policy of $6.7 billion over five years.3
To satisfy that requirement, the legislation makes three changes to current law:
2 Cost impact estimates were determined by the Congressional Budget Office (CBO) and can be
obtained at [http://www.cbo.gov/ftpdocs/68xx/doc6827/EdWrecon.pdf].
3 The cost impact of the PBGC premium provisions was developed by CBO and can be accessed
at [http://www.cbo.gov/ftpdocs/68xx/doc6809/HELPrecon.pdf].

---

CRS-3
! The bill increases the single-employer flat-rate premium to $46.75 per
participant and indexes it for wage inflation beginning in 2007. This
provision is expected to produce savings of $5.4 billion over five years.
! The PBGC premium for multiemployer plans increases to $8 per
participant, indexed for wage inflation, beginning in 2007. The premium
is currently $2.60 per plan participant. This provision is projected to
raise $300 million over five years.
! As in the House Education and Workforce Committee proposal, a new
termination premium is to be paid when a bankrupt company engages in
a distress or involuntary termination of its pension plan, resulting in the
PBGC taking over the plan. The premium is established at $1,250 per
participant and would be payable for three years following the company’s
emergence from bankruptcy. This provision is estimated to generate
savings of approximately $1 billion over five years.
Next Steps. The Deficit Reduction Act of 2005, passed by the House Budget
Committee, may go to the House floor for a vote in the near future. Once the House
passes its budget reconciliation bill, lawmakers will conference to try to pass a final bill.
Both the House and Senate Committees have stated that they have resorted reluctantly to
the large increases in PBGC premiums incorporated in the budget reconciliation
proposals. Efforts continue to pass H.R. 2830 and S. 1783 through the House and Senate,
respectively. If broad legislation that strengthens pension funding passes, there may not
be the need to increase PBGC premiums to the extent sought by the budget reconciliation
proposals. Both the House Education and Workforce Committee proposal and S. 1932
contain language stating that if comprehensive pension reform legislation is enacted in
2005, it would take precedence over PBGC premium provisions in the budget package.
Pension Reform in the 109th Congress
With the goals of strengthening the funding of defined benefit pension plans and
improving the solvency of the PBGC, several bills were approved by House and Senate
committees in the 109th Congress. These bills include provisions to raise PBGC
premiums, but generally not to the extent proposed by the budget reconciliation proposals.
The bills also would tighten funding rules, resulting in higher pension funding
requirements for many employers. However, the full House or Senate has not yet voted
on any of the bills.
H.R. 2830, the Pension Protection Act of 2005, was reported out by the House
Education and Workforce Committee on September 22, 2005, and referred to the House
Ways and Means Committee.4 On November 9, 2005, the Ways and Means Committee
approved a modified version of H.R. 2830. The bills passed by the Education and
Workforce Committee and the Ways and Means Committee generally match, as they both
apply to defined benefit pension plans. However, under the Ways and Means Committee
version, the tougher funding requirements for defined benefit pension plans would
4 For additional information, see CRS Report RS22179, H.R. 2830: The Pension Protection Act
of 2005, by Patrick Purcell.

---

CRS-4
become effective a year later, in 2007, rather than in 2006, as required under the House
Education and Workforce Committee version. The Ways and Means Committee version
of H.R. 2830 also adds a provision that imposes a fee of $1,250 per participant per year
for employers that terminate their pension plans in bankruptcy. The fee would apply for
three years after the employer emerges from bankruptcy. The budget reconciliation bills
passed by the Senate and under consideration by the House also contain the $1,250 per
participant provision.
In the Senate, S. 1783, the Pension Security and Transparency Act of 2005, was
introduced on September 28, 2005. The bill combines provisions of S. 219, the National
Employee Savings and Trust Equity Guarantee Act, passed by the Senate Finance
Committee on July 26, 2005, and the Defined Benefit Security Act, passed by the Senate
HELP Committee on September 8, 2005.5 However, S. 1783 has been stalled in the
Senate due to objections raised by Senators Dewine and Mikulski over language in the bill
that would use firms’ adverse credit ratings as a factor in determining pension plan
funding.
With limited time remaining and many pressing matters on the congressional agenda,
the passage of legislation regarding broad pension reform are uncertain in 2005. Failure
to pass comprehensive pension reform in 2005 could result in a reversion to the lower 30-
year Treasury rate for funding pension plans and restitution of deficit reduction
contributions (DRCs). The Pension Funding Equity Act (H.R. 3108), passed in 2004,
replaced the 30-year Treasury bond rate with a higher composite corporate bond rate as
the benchmark for defined benefit plan funding calculations. The act also allowed
companies in certain industries to postpone DRCs. These provisions will expire on
December 31, 2005.6
5 For additional information, see CRS Report RS22221, S. 1783: The Pension Security and
Transparency Act of 2005, by Patrick Purcell.
6 For additional information, see CRS Report RS21717, H.R. 3108: The Pension Funding Equity
Act, by Patrick Purcell and Paul Graney.

---