White House
says no to pension relief
Administration
throws cold water on move in Congress to offer plan sponsors a funding break.
“Poor PBGC.”
December 7, 2008 ET - Financial Week
Efforts to provide corporations with relief from new pension
funding rules that are kicking in just as stock and bond markets have conked out
have drawn opposition from the highest of authorities—the current
administration.
It’s a twist that could derail corporate hopes for speedy
approval of changes to pension laws, leaving large private employers potentially
on the hook to pump billions into their underfunded pensions after closing the
books on 2008 in just a few weeks.
Lawmakers and lobbyists have been
angling to push through changes to the Pension Protection Act of 2006—either as
a stand-alone measure or as part of any Big Three automaker-bailout package—that
would ease new contribution requirements the PPA triggers this year. But shortly
after leaders in the Senate formally introduced proposals at the behest of
hundreds of corporations, the Bush administration weighed in with several
concerns.
As administration officials noted in a memo circulated to
members of Congress and lobbyists late last month, allowing companies to forgo
new contribution requirements could cause plans that are already significantly
underfunded to grow even more underfunded over time. This could translate into
an estimated $3 billion in new claims placed on the Pension Benefit Guaranty
Corp. over the next decade, the officials estimated. In addition, “workers would
lose billions in unfunded pension benefits not guaranteed by the pension
insurance system,” according to the memo.
While $3 billion is not
insignificant, it pales in comparison with the projected record $280 billion
combined pension deficit that large companies currently carry, according to
consultants at Mercer. Such a deficit could force companies to make up to $150
billion in new contributions next year, according to estimates from the Center
for Retirement Research at Boston College. Employer advocates argue that
corporate earnings could suffer next year because of the stiffer funding
requirements, which could force companies to cut back benefits or reduce their
work forces.
“There are always going to be trade-offs,” said Mark
Warshawsky, director of retirement research at Watson Wyatt and a former
assistant secretary for economic policy at the Treasury Department. “But given
the broader economic implications if these relatively modest levels of relief
are not granted, that $3 billion [potential burden on the PBGC] strikes me as a
fair trade-off.”
The White House opposition to corporate pension relief
has intensified over the past week, several sources said, noting there still are
individuals in the current administration who helped construct the PPA, widely
cited as the most important pension legislation in decades.
“It may be a
pride-of-authorship issue,” observed Kathryn Ricard, vice president of
retirement policy at the ERISA Industry Committee, one of a dozen employer
advocates leading the movement to change the new PPA funding provisions. “Any
talk about rolling it back may send grave concerns up their backs.”
The
opposition to PPA relief is drawing the ire of some lawmakers and lobbyists. No
one appears to be more irked that Rep. Earl Pomeroy (D-N.D.), who is blasting
both the administration and the pension insurer for their stances.
“[The] PBGC and the administration have no plan to help workers and
employers except to suggest that Congress should wait and see what happens to
pensions over the next few years,” Mr. Pomeroy wrote to PBGC director Charles
Millard in a letter dated Nov. 26. “This is as unacceptable as it is
irresponsible.”
Mr. Pomeroy said in an interview last week that when Mr.
Millard testified before the House Ways and Means Committee in September, the
administration did not have a position on tweaking the funding requirements
included in the PPA. “It was only at the eleventh hour that the administration
chose to voice its opposition,” he said, adding that he has arranged for a
meeting with PBGC officials this week. “They have been moving, behind the
scenes, to try and kill the possibility of granting any form of contribution
relief to corporations.”
PBGC officials declined to comment. The White
House press office did not offer a comment.
The PBGC, which takes over
plans from corporations when they can no longer meet their pension obligations,
has managed to shrink its deficit to $11.2 billion at the end of September from
$14.1 billion last year. It’s an improvement, but there’s still a significant
deficit. The number also does not factor in the violent October and November
market collapses that have further eroded scores of defined-benefit pension
plans’ funding levels.
There should be no immediate concerns about the
PBGC’s solvency, insisted Bradley Belt, executive director there until early
2006. The agency still has a large pool of available assets—$61.6 billion—to
cover $72.3 billion in pension promises that are “very long-term liabilities,”
explained Mr. Belt, now chairman of Palisades Capital Advisors, an investment
firm with offices in New York and Washington.
“There is no need to pay
out these obligations right away,” he said, adding that the PBGC has paid out
total benefits of just over $4 billion in each of the last two
years.
Still, if the PBGC were forced to take over a number of
underfunded pension plans in short order—particularly plans that have a large
number of retired workers—then the agency would need what Mr. Belt called
“additional budget authority” from the government to handle the increased
workload.
“Although the long-term solvency of the agency would be further
impaired, there likely would be no need for an immediate bailout,” he said. “It
would take an extraordinary set of circumstances to create a liquidity crisis at
the PBGC.” FW
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