Retirement: Mixed views on pension legislation
By Emily Brandon

Posted 8/15/06, U.S.News & World Report

The Pension Protection Act of 2006, passed by Congress on August 3 but not yet signed by the president, would amend the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code to establish new minimum funding standards for single and multiemployer defined-benefit pension plans.

The experts are mixed on exactly what this would mean for your pension.

A statement from the White House says that the reform measures would provide workers with better information about their pension plans, eliminate loopholes that interfere with strong pension funding, increase the accuracy of pension plan measurements, and reform the rules governing employer funding and premium contributions to strengthen the pension insurance system.

But Bradley Belt, former executive director of the Pension Benefit Guaranty Corporation, stressed what the new legislation would not do.

"It's not going to save the defined-benefit system," Belt said at the eighth-annual conference of the Retirement Research Consortium. "It was not an explicit goal of the administration. It will not insure against future loss of benefits under defined-benefit plans. It will not in itself ensure financial security." He also said it would not restore the PGBC to financial solvency but acknowledged that it would be a modest improvement to current law.

On the other hand, Mark Warshawsky, director of retirement research at Watson Wyatt Worldwide, is pleasantly surprised by the legislation.

"The old law was very dysfunctional. It did not encourage or mandate funding of plans in a real way," he says. "This new law will in fact achieve its goals."

Warshawsky sees the important changes as a benefit restriction on plans that are poorly funded, a calculation that reflects the risk of the plan sponsor, and allowing plans that want to contribute more than is required to fund up to 150 percent of the plan liability.

"It's not a magic wand," Warshawsky says, but "those that wouldn't even consider a defined-benefit plan in the past may feel a little bit better about it in the future."

Douglas Elliott, president of the Center on Federal Financial Institutions, also speaking at the retirement conference, disagrees.

"I believe a number of companies will announce plan freezes in the next term because they can blame Congress."

A Congressional Budget Office analysis predicted that the new legislation would result in lower contributions to defined-benefit plans initially, which would increase taxable corporate profits in the short term, and higher contributions later in the projection period that would lower profits and revenue then.

The major airlines would be exempt from the new rules.

The legislation also would ensure that defined-contribution plans are here to stay. U.S. Secretary of Labor and PBGC Board Chairman Elaine Chao issued a statement saying that the new legislation includes important reforms to protect workers in defined-contribution plans. And the statement from the White House goes on to say that this legislation would make is easier for workers to participate in defined-contribution plans by removing regulatory barriers to automatic enrollment; giving workers more information about how their accounts are performing and greater control over how their accounts are invested; promising workers greater access to advice about how to safely invest for retirement; and permanently allowing higher contributions to IRA and 401(k) plans.

But this also means that more of the burden of planning for retirement would fall on the shoulders of workers.

"Companies are rushing to the exit and going all defined-contribution," Belt says, "and there is a lot less money going into DCs than there was in DBs."