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New Strains On Safety Net For Pensions
The costs of retirement security have been borne, at least in the era since World War II, by a combination of employers, especially big firms, and the government through Social Security.
Now the futures of both these retirement pillars are in doubt.
The Bush administration has proposed a pension reform plan that would raise the insurance premiums that companies must pay to the PBGC and tighten the funding rules. Congress is looking at those proposals, but many members worry that making things too tight will drive companies with well-funded plans to end them, depriving the PBGC of their premium payments.
There is also the question of so-called "cash balance" plans, which are hybrids that blend aspects of traditional pension and 401(k) plans. Such plans have been accused of violating federal age discrimination rules -- an issue that is currently up in the air -- and employers say if the matter is not resolved they will terminate those plans, which now account for about 20 percent of PBGC premium revenue.
Most companies do fund their pension plans fairly well, said Julia Coronado, also of Watson Wyatt, and much of the PBGC's problem stems from a few industries, such as airlines and steel, that have undergone fundamental transformations. These have left employers unable to afford the level of benefits they promised in the past.
Pension plans for the largest companies other than airlines are 90 percent funded, she said. "The way they got there was they poured billions of dollars in cash into their pension funds. The picture isn't nearly as bleak as the administration tries to paint it."
James A. Klein, president of the American Benefits Council, a large-employer group, agreed.
The United case, while not unexpected, "does shed new light on the importance of moving forward on pension funding reform," Klein said. But "what Congress and the country need to worry about is not that a handful of very underfunded plans may terminate but that Congress might react to that [with policies that] unintentionally lead thousands more well-funded plans to leave the system."