Employers should bolster pension funds
Monday, August 7, 2006 7:24 AM PDT
Printable version
E-mail this articleMembers of Congress had nothing much to brag about late last week, as they wrapped up business before heading home for their summer recess. Until late Thursday, that is, when the Senate voted overwhelming approval of legislation to strengthen nation's private pension system.
The bill, which now goes to President Bush for his signature, is the first major overhaul of rules governing traditional pensions in some 30 years. It represents a long-awaited rescue for an ailing system that some 44 million Americans look to for retirement security.
The reform also should give some comfort to American taxpayers, who guarantee a portion of retirement benefits when private companies renege on their promises through the government's Pension Benefit Guaranty Corporation (PBGC).
A new set of rules for traditional pensions came to be seen as a necessity over the past several years. The economic downturn following Sept. 11, 2001, combined with a number of other factors to push many big companies into bankruptcy. Some of their pension responsibilities began to fall to the PBGC. The government insurance program, like those companies filing bankruptcy, soon was in the red.
In 2001, the PBGC had a surplus of $7.8. Today, after assuming the pensions of many struggling companies, its facing a deficit of almost $23 billion. Absent congressional action to reform the pension system, that deficit was expected to grow to more than $87 billion over the next 10 years.
The prospect of a big, savings-and-loan-type bailout by taxpayers was a large part of the motivation for this single, bipartisan achievement, no doubt. And it is an impressive legislative achievement, particularly in an election year. But there may be a down side. Most observers believe the reform will accelerate the decline of traditional pension plans that provide defined benefits.
The new rules will require some 30,000 companies now offering pensions to pump more money into their pension plans. That's may well lead many companies to drop their pensions in favor of voluntary 401(k) plans and other savings.
It's a prospect that could send less-thrifty workers to retirement with little other than Social Security. But, given Labor Department figures that show companies underfunding pensions by more than $450 billion, demanding a bigger investment from employers is unavoidable. It was either that, or requiring taxpayers to assume larger and larger private pensions responsibilities.
Past Month's Most Commented Stories