Pension Tension: What Do You Think of the Reforms?

For about a month, the House and Senate have been working out their differences on pension reform, since each chamber passed a different version of the original legislation. Lawmakers are hoping to pass this agreement or, conference report, before the August recess, but until they do, voters’ opinions on the matter could still have an effect on its outcome.

So if you’ve retired from a company that’s in trouble and may not be able to continue to give you your promised pension, or if you currently work for a company that’s in financial trouble and might declare bankruptcy, read on, and then contact your legislators.

Bill details

• The bill would attempt to mend a $313 billion deficit in employer-sponsored pension plans by requiring most companies to fully fund their pensions within seven years.
• Airlines, many of which are weathering serious financial trouble and even bankruptcy, may freeze their pension benefits and, in return, get 17 years to fund their pension obligations. Of course, this does little for current beneficiaries, but may secure pensions for retirees to come.
• Companies with pensions that are less than 80 percent funded will not be able to promise future benefits until already-pledged pensions are paid.
• The legislation will require that companies fund 100 percent of their pensions, instead of the 90 percent under current law.
• Executives of companies with severely under-funded plans may have their own compensation deferred.
• Companies that terminate their pension plans when filing for bankruptcy must pay the Pension Benefit Guaranty Corporation a premium of $1,250 for each worker in their plan. And airlines would have to pay $2,500 per worker if they shut down their pensions during bankruptcy proceedings.

What’s the PBGC?

The Pension Benefit Guaranty Corporation is a private insurance fund that operates under federal rules. It is supposed to pay for retirement pensions that companies can no longer afford to pay to employees. It’s a federal corporation created by the Employee Retirement Income Security Act of 1974. PBGC receives no funds from general tax revenues.

The agency is considered "high risk" by the General Accounting Office because of its record deficit of about $23 billion. But some say the estimated PBGC deficit is inflated. The American Benefits Council, an organization that represents corporations, says that the PBGC should be using higher interest rates when estimating liabilities. According to an American Benefits Council report released September 23, 2005, the PBGC interest rate assumptions are "unnaturally low," and using a higher interest rate could lower the estimated deficit to $14.3 billion or even $4.6 billion.

The Center on Federal Financial Institutions, a non-partisan public policy organization that focuses on the federal government’s lending and insurance activities, holds a different point of view. The Center’s president, Doug Elliot, says that the exact amount of the current deficit matters little if the PBGC is going to lose between $60 - $120 billion over the next 20 years, as a recent Congressional Budget Office report suggests.

Who will be affected if companies can’t pay their pensions and the PBGC does not come to the rescue?

If the PBGC were unable to cover its plans, those with traditional plans that promise workers a specific monthly benefit at retirement (corporate defined-benefit pensions) would be affected. Plans that give employees money that they invest for themselves (defined contribution plans) and 401(k)s are not covered by pension insurance, and therefore would not be affected.

Only about 20% of Americans are covered by defined-benefit pensions, but if the country goes into a recession and the PBGC were to go under, seniors would lose purchasing power and many families would be impacted.

How do pensions relate to the stock market?

What does the PBGC do with its funds that come from employer-paid premiums? Some are invested in the stock market. Returns on these investments provide an important portion of the PBGC’s revenue. So, a dipping stock market makes the PBGC unstable.

The stock market also affects corporate pension plans’ investment portfolios, so when the stock market falls, more corporations struggle to afford promised pensions.

At issue is the quality of life for America’s seniors, present and future in a drastically changed global economy. Which is more important the current employees’ jobs or the pensions of retirees? How do you think the pension problem should be addressed? Should companies that promise pensions, and then go bankrupt, be held accountable? What is government’s responsibility?

Your input matters

Your representatives DO care what you think. Especially now -- 2006 is an election year and many representatives will be looking to reconnect with their constituents. Let your congressmen and women know what you think! Give your senators a piece of your mind! To find your reps, click here.

About WomenMatter

WomenMatter is a place to discuss life issues with other women. We don’t want to wedge women apart, but rather bring them together to dialogue. To participate in our blog, click here.

WomenMatter is the place where we can take one issue at a time, match what we do about it every day of our lives to the facts of the bigger system that we all live in and recognize that every idea for making it better has tradeoffs.

WomenMatter is dedicated to empowering women to participate in the political process. To do this we have invested in the most in-depth NONPARTISAN information, because we trust each woman to make up her own mind.

• We track nine issues every week and update this website several times a week.
• We launch after school GirlsMatter Clubs in middle and high schools to grow the next generation of politically aware women through a full curriculum and startup kit on girlsmatter.com.
• We do continuous research to make sure that we are meeting the needs of women across the country of all ages, races, incomes, preferences, and religions.

We offer all our services free of charge without memberships or subscriptions. To help us maintain this work - not just in election years but as a continuing part of women’s lives - please make a tax deductible donation, click here.

Article Posted on: 8/5/2006