The New York Times reports that the White House said that the provision giving airlines 20 years to close their funding gaps, while other companies are given seven years, is unacceptable. It also raised objections to the new proposed benefit calculations, the increased premiums companies are required to pay to the Pension Benefit Guaranty Corporation (PBGC), as well as the fee companies must pay the PBGC if they file for bankruptcy. The White House said the measures had too many built-in delays and did not go far enough to close loopholes.
In January, the Bush administration outlined a vision of pension reform, but companies with pension plans said it was unrealistically tough. The PBGC’s analysis found it would have required companies to put about $91 billion more into their pension funds over the next 10 years than under the existing law, according to the New York Times.
The Senate bill passed Wednesday contained several important provisions advocated by the administration, but with modifications that would make them take effect less quickly or less harshly. One would take ages of workers into account when calculating pension obligations, called a yield curve. Companies have argued that this would be unacceptably complicated. The Senate tried to address its complaints with a compromise that required companies to place their workers into three age categories and measure the pensions that way.
The Senate bill also included the concept of taking into account a company’s financial health when determining how it deals with its pension obligations, but with a complicated array of phase-ins and exclusions.
Meanwhile the ERISA Industry Committee (ERIC) issued a letter to the Senate urging revisions to the Act before it hits the president’s desk. According to an ERIC news release, its recommendations include:
- Funding rules must result in predictable, rational and stable funding over time.
- A plan’s liability must not be linked to the credit rating of the sponsoring employer.
- Increased funding requirements must be phased in gradually.
- Legislation should protect hybrid (cash balance & pension equity) pension plans.
These recommendations echo changes the American Benefits Counsel suggested as well.
A Positive Note
In contrast,ACLI President & CEO Frank Keating issued a very positive statement in reaction to the bill’s passing. In his statement he said, “Pension reform legislation passed by the Senate contains a variety of provisions of interest to the life insurance industry, as well as the employers and employees that benefit from the industry’s products.”
He noted that, “The legislation would codify into federal law current ‘best practices’ on corporate-owned life insurance (COLI).” COLI protects employers from the cost of losing an employee and the financial burden of providing retirement benefits. Keating praised the COLI provision of the Senate bill for limiting coverage to highly compensated employees and requiring the consent of insured individuals.
He also praised provisions that would encourage employers to provide lifetime annuities as payout options for 401(k) plans, and provisions for auto-enrollment in 401(k) plans as well as the creation of DB(k) hybrid plans.
Keating stated, “These provisions represent good news for workers in particular, but also employers, life insurers and the American public at large. They represent the type of retirement security policies Congress should adopt.”
The White House statement about the Senate bill is here .