Totally by design.
Privilege is granted based on reputation alone - once the reputation drop below the required threshold, you won't have the privilege anymore.
Unlike badges, privileges are not for decoration only - they have actual use. So no, they should not be persistent.
For example, suspension is based on reducing the suspended user reputation to 1 - this effectively strips the user from all privileges he might had.
Another (hypothetical) example: person who posted 100 bad questions that do not fit in Stack Overflow. He accepted 100 answers, gaining 200 reputation he doesn't really deserve. All 100 questions are deleted so his 200 reputation will also be removed, taking away the privileges he should not have earned in the first place.
Bounty is different matter - in this case you don't lose the reputation because of something bad you've done but the same rules are still in place. You should simply think twice before starting a bounty and keep in mind the consequences.