The union’s legislative director, Alan Reuther, wrote to Capitol Hill this week warning lawmakers not to support the plan that Labor Secretary Elaine Chao announced on Monday for reforming “defined benefit” pensions (see Chao Releases Administration DB Reform Proposal ).
“The UAW strongly opposes these proposals because they would have a devastating impact on the retirement income security of millions of workers and retirees and would undermine the entire defined benefit pension system,” he said in the January 12 letter, which the union provided to Reuters.
Under the proposal, employer premiums for coverage by the Pension Benefit Guaranty Corporation (PBGC) will increase – to $30/participant from the current $19/participant for all programs (the rate has not changed since 1999), and risk-adjusted premiums will apply to troubled plans, based on “plan underfunding relative to the appropriate funding target,” according to the DOL. Liabilities would be measured using a current duration-matched yield curve of corporate bond rates, and participant disclosures would be enhanced – if the proposal is approved by lawmakers.
The UAW’s letter denounced the plan’s proposal for raising insurance premiums the PBGC charges companies, saying this would be a “huge tax increase” on the companies. It also complained the plan sought an “enormous, counterproductive increase” in the funding of company pensions. And, it opposed a proposal to give PBGC more clout in bankruptcy proceedings (see PBGC Pushing for Pension Changes ).
The letter said these provisions would encourage employers to abandon defined benefit pensions, and said the plan also could increase the likelihood of bankruptcies, plant closings, and layoffs. The PBGC, which insures the pensions of about 44 million American workers, has been struggling to absorb a series of underfunded pension plans from bankrupt employers, notably United Airlines and US Airways .
Reuther has previously said that taxpayers should rescue the agency that backs US corporate pensions by covering its losses from pension failures in the airline and steel industries, estimating that it would cost between $20 billion and $40 billion to cover the pension liabilities in the airline and steel industries that the Pension Benefit Guaranty Corp. (PBGC) either has already absorbed, or expects to absorb shortly (see A Taxpayer Bailout for the PBGC? ). In late November he compared the PBGC’s current woes to natural disasters where the federal government steps in to provide aid, according to the report.
The PBGC posted a $23.3 billion deficit for fiscal year 2004, more than twice as much as last year’s figure. The PBGC stated that the two biggest factors were a $14.7 billion loss from completed and probable pension plan terminations, as well as a $1.5 billion charge for actuarial adjustments due to a change in mortality assumptions (see PBGC Posts Record Deficit in FY2004 ).