Mark Warshawsky, an assistant secretary of the US Treasury Department, reminded an audience in a speech Tuesday at The DC Bar in Washington, DC, that administration officials have vowed to veto either bill in their current form, and asserted that the officials had a minimum alternative they would accept.
No matter the specifics of the final version of the bill, Warshawsky insisted, at a minimum it will have to help ease the burden on the Pension Benefit Guaranty Corporation (PBGC) within a decade. The PBGC insures private-sector defined benefit pension programs.
“We continue to have serious concerns and will insist on a bill that reduces the risk to workers,” the Treasury official told the DC lawyers. “Currently, the best available measure of that risk is projections of future claims on the PBGC. We believe that any acceptable reform bill should reduce expected claims on the PBGC over the next ten years compared to current law. We hope to work with the conference committee to ensure that the final bill meets this goal.”
He said the administration expects that PBGC’s current $23 billion deficit to “increase significantly” without “meaningful” pension reform moves (See PBGC Answers Questions on Reported Deficit ).
“We have before us an historic opportunity to make fundamental improvements to worker’s retirement security in the context of both the defined benefit and defined contribution systems,” Warshawsky said. “While the House and Senate pension reform bills do include many valuable provisions, we believe that more meaningful reforms are necessary. We look forward to working with the conference committee to make sure that the final legislative product ensures that pensions promises made are pension promises kept.”
Not All Complaints
Not everything in the current proposed legislation drew complaints – particularly provisions Warshawsky claimed mirrored the Administration’s original proposal. Those included:
- increased funding targets for pension plans to 100% of accrued liabilities,
- a reduced period over which increases in pension underfunding can be amortized to no more than seven years, and
- the use of a (modified) yield curve rather than a single long-term interest rate to compute pension liabilities and lump-sum distributions so that such computations reflect the liabilities’ underlying time structure.
“In addition, the Administration is pleased that the Senate and House bills include provisions to provide workers with more information about the financial condition of their pension plans and to restrict plan sponsors with severely underfunded plans from making additional pension promises without paying for them,” Warshawsky maintained.
However, in listing the continued disagreements between the Administration and Capital Hill lawmakers, Warshawsky pointed to problems in the House and Senate versions that include:
- overly long phase-in periods,
- continued inaccurate measurement of pension assets and liabilities,
- the use of mortality tables that do not recognize expected future increases in longevity to compute pension liabilities,
- the lack of any effective mechanism to increase the funding requirements for pension plans with financially weak sponsoring firms,
- the continued use of credit balances, and
- the inclusion of industry-specific relief and administrative workout programs that will weaken the entire funding regime.
“The Administration applauds the House’s decision to not provide any targeted funding relief for airlines or other specific companies or industries and to reject special administrative workout programs,” Warshawsky said. “The Administration opposes these provisions because it is obvious that allowing underfunded plan sponsors to negotiate a separate regime of weaker funding rules with a government agency will weaken the incentives for plan sponsors to fund their pension promises adequately.”
The DC Area
Looking at the defined contribution arena, Warshawsky said there are three remaining issues that still need resolution – areas he said the House and Senate bills deal with in different ways:
- Employers should be encouraged to make professional investment advice available to workers so that they can make informed investment decisions with respect to their 401(k) plans.
- Workers should be free to choose how to invest their retirement savings. The Senate bill allows participants to diversify their investments by selling their company stock after three years, “which we support,” Warshawsky noted.
- Workers need timely information about their 401(k) accounts.
Details of the Senate pension bill, S 1783, can be viewed here .
Information about the Bush Administration’s pension reform proposal is here .
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