>The provision in the pending bill by Representatives
Rob Portman (R-Ohio) and Benjamin Cardin (D-Maryland) could
restore employer flexibility in choosing worker
mortality tables, which for the past decade have been
uniformly applied to all employers. However, at
least one critic says that those tables could be used
to support a notion that white collar Americans tend
to live longer than their blue collar
counterparts, according to a New York Times report.
The provision currently enjoys the support of the United
Auto Workers and manufacturing companies whose pension
funds now have assets far short of what they are projected
to need under previous assumptions about worker longevity,
according to the Times.
>Here's how the provision would work: By allowing
companies to assume that blue-collar workers will, on
average, die before pension plan calculations now
assume they will, firms could wind up with smaller
pension obligations. But the leader of the panel
that developed the actuarial data on which the new
provision is based told the Times that he is
concerned that the data is being misinterpreted.
Rather, actuary Edwin Hustead, told the Times that it
was the size of an employee's paycheck and not the
color of his collar that did more to predict when the
person would die.
>He complained that the current bill,
the Pension Preservation and Savings Expansion Act of
2003 (HR 1776),
dubbed "Portman-Cardin II," didn't adequately recognize
that white-collar workers tend to live longer and
consequently didn't make their employers set aside more to
fund pension promises made to them. He said, for example,
that many auto workers and airline pilots are classified as
blue collar in the bill, because they are covered by
collective bargaining agreements, even though they are
highly paid.
>Aides to Portman and Cardin told the Times that they
were unaware that the measure had overlooked other
mortality factors. A Cardin spokeswoman said the
congressman's goal was to help preserve the system of
traditional pensions while a Portman spokesman said the
bill was intended to make sure companies "aren't forced to
overpay" into their pension funds. "The pension system is a
voluntary system, and if you force companies to
artificially put more into their plan than is needed, that
is a real disincentive," the Portman spokesman told the
Times.
Worker Mortality
>Until the early 1990s companies at that time
were free to select any mortality rate when calculating
their current pension obligations, and some were discovered
to be using unusually high death rates, so as to shrink
their pension debt. In 1994, Congress required
all companies with pension plans to use the same mortality
table, or set of probability factors for death rates.
However, the commonly used table at that time was 11
years old. So the Society of Actuaries, a professional
group that engages in research and education, convened a
committee to prepare a new table, based on current
demographic trends, with Hustead as its chairman.
>The group decided to create a base mortality table,
then test a number of factors to see what effect they might
have on the death rates. One test looked at whether the
color of one's collar had any effect. The group defined
blue collar as people who were represented by unions or who
were paid by the hour a definition that turns such
unlikely workers as unionized athletes, airline pilots,
aerospace engineers and even some newspaper reporters into
blue-collar workers. Separately, the committee tested
to see whether pensioners' incomes affected when they would
die, according to the Times.
>After analyzing 11 million "life years," the
committee found that the color of the collar and the income
level affected life span significantly. Blue-collar workers
and the poorly paid both tended to die young. White-collar
workers and the well paid tended to live longer.
Demographic Divides?
>Lynn Dudley, vice president and senior counsel of
industry group the American Benefits Council, said the
actuarial debate had apparently lost sight of the fact that
the Portman-Cardin bill gives the Secretary of the Treasury
broad power to determine the appropriate mortality factors.
"Treasury is being given authority to make adjustments to
these tables," Dudley told
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.
>Dudley praised Portman and Cardin for their
longstanding pension reform efforts - particularly for what
she said was the lawmakers' willingness to propose ideas
they know will be controversial in order to spark
productive policy debate. This was especially true when it
came to the difficult areas of how to set pension funding
levels for different kinds of companies including the still
pending replacement for the 30-year Treasury in determining
pension obligations, she said.
"I think it highlights how brave Portman and Cardin are
to get out in front on a bipartisan basis and say 'We need
to look at this'," Dudley said.
>Janice Gregory, a vice president for the ERISA
Industry Committee (ERIC), said her group conceptually
supported the notion of only requiring employers to fund
pension plans to a level consistent with the demographics
of their employees. However, the group hadn't yet
determined what alternative it was going to ultimately
support, she said in an interview with
PLANSPONSOR.com
.