Gretchen R. Haggerty, executive vice president and chief financial officer for the United States Steel Corporation, testified on behalf of ERIC before the House Education and Workforce Subcommittee on Health, Education, Labor & Pensions during a hearing on balancing pension security and economic growth. Haggerty contended that the current rules are severely burdening companies, undermining the future of defined benefit plans and potentially threatening the country’s larger national economic recovery.
Haggerty explained that the interest rate required by the PPA to calculate pension liabilities and minimum funding requirements is affected by the Federal Reserve’s extraordinarily low interest rate policy.
“The actions by the Fed to control interest rates potentially put a significant near-term burden on sponsors of defined benefit pension plans, something that the Fed has acknowledged. Minimum funding amounts will be higher in the near-term than necessary for a long term obligation, which creates great economic inefficiency and impacts other important capital allocation decisions that can help the economy,” Haggerty said.
Haggerty also said the current rate environment is much different than the interest rate environment and historical rate perspectives that existed at the time the PPA was enacted or that the PPA contemplated, and she believes that if the interest rate rules had been developed in today’s rate environment, they would have been much different and more flexible.
Haggerty urged Congress to pass the “Industry Proposal on Funding Stabilization” to better align PPA funding rules with more stable and predictable minimum contribution requirements that would reflect economic reality, without deteriorating long-term solvency of pension funds or the Pension Benefit Guaranty Corporation (PBGC).
“If enacted soon, this important reform could be the most constructive legislation Congress could pass to help ensure continued economic recovery, especially among the capital intensive industries where we want to continue to encourage productive investment in new plants and equipment,” Haggerty said.
Haggerty also reiterated that U.S. Steel and other ERIC members remain strongly opposed to any proposals that would dramatically increase PBGC insurance premiums or that give broad powers to the PBGC to vary the amount of premiums based on the PBGC’s subjective view of a company’s credit worthiness.The testimony can be accessed at http://www.eric.org/resources/testimony/.