Experts say new requirements could hurt pensions

[Omaha Steve]

Full story: http://reuters.excite.com/article/20060806/2006-08-06T164852Z_01_N06278409_RTRIDST_0_POLITICS-FINANCIAL-PENSIONS-DC.html

Experts say new requirements could hurt pensions
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Aug 6, 12:48 PM (ET)


By John Crawley

WASHINGTON (Reuters) - Legislation approved by Congress could help undermine the future of traditional pensions if companies balk at tougher rules for maintaining them, financial and other experts say.

Airlines, autos and other big manufacturers are the industries most affected by the first overhaul of pension funding rules in 30 years, approved by the Senate on Thursday and sent to President George W. Bush for his signature.

Dorothy Coleman, vice president of tax and domestic economic policy for the National Association of Manufacturers, called the changes "a mixed bag."


The U.S. Capitol and (from L to R) Rayburn House Office Building, Longworth House Office Building, and Cannon House Office Building, photographed from the U.S. House of Representatives side of Capitol Hill from a U.S. Marine helicopter, February 10, 2006. REUTERS/Larry Downing


The new law, interpreted by many as a savior for traditional defined benefit plans and the 34 million people they cover, would make companies fully fund them in seven years, beginning in 2008. Expensive employer-sponsored plans offer fixed and secure payouts in retirement.

Nationally the government says defined benefit plans are underfunded by $450 billion. The American Academy of Actuaries says the figure is outdated and estimates it at less than $200 billion.

For businesses where pension liabilities outpace assets, stricter cash contribution requirements could be burdensome unless interest rates and investments that also nourish pension accounts provide strong, consistent returns.

Coleman said the dust has to settle but the new pension law will likely increase costs for business, which she noted would not make sense for some.

Rep. Earl Pomeroy, a North Dakota Democrat and former state insurance commissioner who opposed the pension bill, agreed. He said the funding demands will be too stringent and unpredictable.

[BeatleBoot]

1. Thus the increase in Corporate Bankruptcies

All to rid themselves of Pension Obligations.

[skids]

2. How the heck did this get passed?

OK, what thievery was also in the bill along with this to cause the R's to vote for it?

[rpannier]

5. It's an election year. So,I figure one of two things

1. They expect scrubbie to veto it, so it gives them cover;

2. They'll repeal it after the November elections (should they hold on to the House)

[w4rma]

3. It does help force companies to quit defrauding employees about a pension

they don't ever plan on paying them. It helps prevent these frauds from lying to their employees to get them to spend the bulk of their life working for them.

[brokensymmetry]

4. Yep. Now watch how many companies pull the plug.

If anyone thinks companies will reduce CEO pay to
secure employee pensions, they are hopelessly naive.

[Sgent]

6. This bill needed to be passed

It requires that companies fully fund their pension oblgations. Yes, it increases the cost (and thus decreases the likelyhood of traditional pensions), but it means that companies can no longer tell you one thing while doing another.

It also means that bankruptcy for the purposes of shedding pension obligations will no longer work after its fully enforce. Companies will have to fund pension obligations as they occur (when employees earn the pension), rather than sometime in the future from future profits.