“The president’s focus on Social Security alone will make it very difficult for Congress to have time to address the pension funding reform issue,” says Dallas Salisbury, president and CEO of the Employee Benefit Research Institute. “Employers should pay attention,” he says, but they should not view these proposals as having a high probability of enactment.
Bush’s plan has already been met with staunch opposition from employer groups.
In February, the American Benefits Council came out with a 32-page report that critiqued the proposal and provided alternatives. The council calls for a permanent implementation of the long-term corporate bond rate to determine current liability, opposes the use of termination liability instead of current liability calculations for funding, and seeks greater disclosure of funding in general.
Days after the council released its report, Labor Secretary Elaine Chao, who is chairman of the board of the Pension Benefit Guaranty Corp., expressed her disappointment with the report. She said it “fails to recognize the reality that the pension funding rules are broken, causing workers and retirees harm and putting taxpayers at risk.”
With such discord among key players, the passage of pension funding reform this year seems doubtful, according to Salisbury. “When everyone is in disagreement with the government, it makes it very difficult for something to happen,” he says.
But the government has to do something to address the issue. The temporary fix Congress implemented with the Pension Funding Equity Act of 2004 is set to expire at the end of 2005. That fix entailed replacing the use of the 30-year Treasury bond rate to determine a plan’s liability with a long-term investment-grade corporate bond rate.
The change, which was made because the 30-year Treasury bond rate had gotten artificially low, was supposed to be a temporary one, however. There was an expectation of a broader, more long-term fix. The question needs to be resolved one way or another this year, notes Steve Mirante, managing consultant of Watson Wyatt’s New Jersey office. But in the wake of opposition and an overflowing agenda, the concern is that Congress will just decide to raise premiums and extend the current interest rate. “This would not be a good thing. … It would just be a patch,” Mirante says.
Merely raising premiums and extending the rate would do nothing but add to the problems, says James Klein, president of the American Benefits Council. After all, it’s the way the PBGC is funded that has caused the current situation, not a lack of premium revenue, he says.
While Klein’s group has taken issue with several points of the pension funding reform proposal, he remains optimistic that legislation could be passed this year. “It will be difficult to get this done this year—. Everyone knows this,” he says. “But I think everyone is committed in good faith to getting something done both in the administration and Congress.”