PBGC: Bush Pension Reform Proposals to Produce Dramatic Results

April 12, 2005 (PLANSPONSOR.com) - A Bush Administration analysis of its pending defined benefit pension reform proposal paints a decidedly rosy picture of the plan's potential advantages that include a cut in pension participant losses and stronger overall pension funding.

The study of the Administration’s reform plan came from the Pension Benefit Guaranty Corporation (PBGC), the nation’s insurer of private sector defined benefit plans.

According to the PBGC study, the reform plan would mean:

  • greater contributions into plans. Overall minimum contributions paid to single-employer plans will increase compared to current law because of the higher funding targets and elimination of the full funding limitation and credit balances. Higher deductible contribution limits will enable sponsors to build up a funding cushion during good times to minimize contributions during bad times. Funding ratios under the proposal climbs steadily and reaches about 95% of termination liability by the end of the 10-year period studied.  
  • improved funded ratios. Funded ratios improve compared to current law because of the higher contributions required under the proposal.   In a baseline economy, funded ratios improve steadily under the proposal, reaching approximately 95% of termination liability by the end of the 10-year period. Under current law, funded ratios reach only about 80% of termination liability.
  • reduced termination insurance claims. Average claims against the pension insurance system are significantly lower under the proposal. Losses by participants would be correspondingly lower, as well. The PBGC said that in 95% of the economic scenarios run by its economic model in the stochastic mode, losses are lower under the funding proposal than under current law.

Wrote PBGC researchers: “The results of the simulations reported in this paper strongly suggest that the Administration’s single-employer defined benefit funding proposal will accomplish its primary goals of increasing the retirement security of defined benefit participants and decreasing losses to the pension insurance program.”

The PBGC’s economic modeling focused on the period between 2006 and 2015 for single-employer plans, the agency said. Agency researchers used the PBGC’s Pension Insurance Modeling System (PIMS) database that includes data on 400 pension plans sponsored by nearly 300 firms.