EPF Says DB Reform Proposal Would Hurt Manufacturing Industry

January 21, 2005 (PLANSPONSOR.com) - Jumping into the debate surrounding suggested proposals for private defined benefit pension reform, the Employment Policy Foundation (EPF) is warning that any move to increase costs to employers could result in many plans being dropped.

The Washington, DC-based research group has released a report saying that the proposed move, which would increase payments to the Pension Benefit Guaranty Corporation (PBGC) and reform liability calculations, may have a negative effect by pushing companies to abandon the use of such plans.

In particular, the reform proposal suggests that pension funding should be tied to a yield curve that would require companies to calculate liabilities based on age. The EPF report suggests that for workers over 55, pension liabilities would increase by 3.5% under the suggested proposal; for those between 50 and 54, the increase would be an additional 2%. Because of its older workforce, EPF suggests that the manufacturing industry would be the hardest hit by such a change.

Manufacturing would also be hit hard by the proposal to increase the payments due to the PBGC, according to the report. Under the proposal, payments under the fixed rate premium would increase by nearly 60%, with 49% of the premium increase falling on this industry’s shoulders. EPF suggests that the total cost per year to the manufacturing industry from the premium increases would be $178 million.

“Ultimately, Congress and the Administration must recognize that the current defined benefit system is voluntary. Reforms that greatly increase the burden on plan sponsors run the risk of causing many employers to stop offering those plans to their employees,” EPF President Ed Potter stated in a news release.

EPF is adding its voice to a chorus surrounding the Administration’s proposal to reform the private defined benefit system. Morgan Stanley, in a equity research report, gave its support to the changes (See Morgan Stanley Report Supports Private DB Reform ). The United Auto Workers’ union has come out against the proposal (See UAW Says Bush Pension Plan Would Wreck System ).

The full EPF study is available  here . A DoL fact sheet about the Bush Administration proposal is available  here .