S&P Applauds Greater Pension Transparency

March 23, 2005 (PLANSPONSOR.com) - President Bush's defined benefit reform proposals would hurt employers with significantly underfunded plans, according to a new report.

A Standard & Poor’s news release said the research report by the company’s Rating Services asserted that the reform suggestions (See  Chao Releases Administration DB Reform Proposal  ) would enhance regulatory disclosure and accountability for plans as well.

Standard & Poor’s also said in the report that it would welcome the Administration’s support for making the pension system more transparent and accountable to workers, investors, and regulators since publicly available information about the size of pension liabilities and expected future regulatory funding requirements is still lacking. Also, proposed disclosure of unfunded pension liabilities calculated on a shutdown basis could help in ultimate recovery analysis, the company said.

“If the Administration’s plan is implemented as proposed, the credit implications for companies would be varied,” said Standard & Poor’s credit analyst Scott Sprinzen in the announcement. “Such measures could increase pressures on the cash flow and liquidity of companies burdened by such liabilities and would represent an unmitigated adverse development for companies in this situation. Year-to-year required contributions would, in a broad sense, be much more volatile and less predictable than they are now, and some companies might choose to adopt more conservative investment strategies for their pension portfolios, de-emphasizing equities in favor of high-quality fixed-income investments.”

It is possible that Congressional deliberations could result in special relief being granted to certain industry sectors, S&P said. That could possible leave those sectors with no more burdensome near-term funding requirements than they currently already, according to the announcement.

The article, titled Administration’s Pension Proposals Could Heighten Financial Pressures On U.S. Companies With Unfunded Liabilities, is part of a special report on social security, corporate pension plans, and retirement savings to be published in CreditWeek, Standard & Poor’s weekly magazine on credit issues. The report is available to subscribers of RatingsDirect, Standard & Poor’s Web-based credit research and analysis system available  here . Non-subscribers can purchase a copy of the report by calling 212-438-9823 or sending an e-mail to  research_request@standardandpoors.com .