January 10,
2005 (PLANSPONSOR.com)
– The
Bush Administration
on Monday released
a long-awaited
set of reforms
to the defined
benefit private-sector
pension plan
system including
stepped up pension
insurance funding
and simplified
plan funding
target rules.
The announcement
by US Department
of Labor (DoL)
Secretary Elaine
Chao comes as
federal government
regulators and
Congressional
lawmakers are
grappling with
how to fix a
system that
has seen numerous
private DB plans
taken over by
the pension
insurance agency
- particularly
in the hard-hit
steel and aviation
sectors.
Chao said rule
simplification
was a guiding
principle for
the sweeping
reform proposals
that now go
to Capital Hill
where enacting
bills are expected
to be introduced
in both the
US House of
Representatives
and the US Senate.
Administration
officials, briefing
reporters after
the speech,
said the administration
is leaving many
of the specifics
up the lawmakers.
"Today,
for example,
the rules that
govern how much
money an employer
must put in
a pension plan
are complex,
confusing and
ineffective,"
Chao admitted
in a speech
at the National
Press Club in
Washington,
DC. "The
maze that has
been created
by the current
funding rules
is virtually
incomprehensible.
When you put
it on paper,
it looks like
an engineering
schematic. If
we're going
to ensure that
companies can
prudently plan
for the workers'
retirement,
they shouldn't
need a rocket
scientist."
According to
Chao, the administration
proposal has
three prongs:
Reforming the
funding rules
for private
defined benefit
pension plans
to ensure that
employers fully
fund their retirement
promises. Officials
said this includes:
"a single,
accurate way"
to guage a fund's
liabilities
that would include
a requirement
for financially
strapped companies
to also actuarially
assume that
workers will
retire as soon
as they possibly
can and will
take benefits
in a lump sum.
funding targets
that reflect
a plan's risk
of termination
with a "reasonable
time" for
companies to
meet the target
of having enough
funding to pay
for its liabilities.
Officials said
they had studied
the notion of
giving plans
seven years
to reach their
targets.
flexibility
for solvent
companies to
make more generous
contributions
to pension plans
during good
economic times
restrictions
on the ability
of weaker firms
to promise more
benefits for
which they can
pay. "We
will put a stop
to financially
strapped companies
promising generous
retirement benefits
they cannot
afford,"
Chao said in
her speech.
"That is
one of the major
factors responsible
for the long-term
deficits currently
projected in
the federal
insurance program
for defined
benefit pension
plans."
Reforming the
premiums that
private defined
benefit plans
pay to the Pension
Benefit Guaranty
Corporation
(PBGC), to better
reflect the
real risks to
the insurance
system and costs,
in order to
keep the agency
- despite its
$23 billion
deficit - solvent
over the long
term. The proposal
calls for the
flat per-participant
rate to be raised
from the current
$19 set in 1991
to $30, which
officials said
would generate
about $1 billion
annually. The
$30 figure would
be indexed for
worker wage
growth going
forward. Troubled
plans would
have to pay
a risk-based
premium determined
by how far off
its funding
target the plan
is. The PBGC
would also get
new powers to
intervene in
a corporate
bankruptcy to
protect potential
pension assets.
Increasing
the disclosure
of information
about private
defined benefit
pension plans
to workers,
investors and
regulators to
ensure greater
transparency
and accountability.
Officials said,
for example,
that DB plan
sponsors would
have to reveal
a plan's status
earlier in the
plan year than
currently along
with funding
status in recent
years. More
information
about plan funding
currently filed
with the PBGC
would likewise
be made public.
Proposal Draws
Kudos
One retirement
services industry
group applauded
the administration
for putting
its reform ideas
on the table.
"The defined
benefit system
is heading for
the cliff's
edge,"
said American
Benefits Council
President James
Klein in a statement.
"We look
forward to working
with the Administration
and with Congress
to rapidly enact
pension reform
that can arrest
the disturbing
trends of recent
years."
One influential
lawmaker also
patted Chao
on the back
for the administration's
reform efforts.
"It's clear
that today's
outdated pension
laws have failed
to protect the
interests of
workers, retirees,
and taxpayers,
and it's essential
that Congress
take action
in the coming
months to reform
and strengthen
the defined
benefit pension
system on behalf
of workers and
employers,"
said Representative
John Boehner
(R-Ohio), chairman
of the House
Education &
the Workforce
Committee, in
a statement
"We plan
to review the
Administration's
proposal very
carefully as
we move ahead
with the process
of putting together
a comprehensive
legislative
package for
Congress to
consider."
In addition
to activity
in the House
led by Boehner,
Chao said House
Ways and Means
Committee Representative
Bill Thomas
(R-California)
will also be
involved in
considering
the administration
proposal as
will Senator
Charles Grassley
(R-Iowa ) in
the Senate.
< Back
to News
|