Bill Would Modify Pension Plan Rules

[cthrumatrix]

Bill Would Modify Pension Plan Rules

By Albert B. Crenshaw
Washington Post Staff Writer
Monday, September 15, 2003; Page A06


Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) plans to sponsor legislation that would require operators of pension plans to take into account the age of their workforce when computing pension liabilities.



The proposal, which Grassley aides said could be marked up by the committee on Wednesday, is strongly opposed by companies that sponsor pension plans, though they agree that present law needs to be revised.

Grassley said through an aide that his proposal has "a solid core of bipartisan support" in the committee and is important because "workers need reliable funding of their pensions and employers need a reliable basis on which to calculate pension payments."

snip
http://www.washingtonpost.com/wp-dyn/articles/A10617-2003Sep14.html

They want to use a different interest rate assumption for corporate funding. If pensions are underfunded today....why make it worse? And why only do this for three years.

The govt. should be making sure that all pensions are fully funded ..period.

[Racenut20]

1. Is Iowa the last bastion or "real Republicans"?????

[papau]

2. It is a GOP con job-allows weaker pension funding to offset "poor earnings

Congress temporarily eased the rules last year, but that expires at the end of December. Companies say that if nothing is done they will be forced to pour cash into their pensions next year.

Companies would prefer as a solution a single rate based on corporate bonds. Such a rate would typically be higher than one based on Treasuries, easing their liabilities.

Grassley plans to propose that, but only for three years. After that a corporate-based, interest rate "yield curve" would be phased in. The senator's plan, somewhat similar to one suggested recently by the Treasury Department, calls for pension operators to use a variable formula in calculating the present value of the benefits they have promised workers when they retire. This value -- the plan's liabilities -- is matched against its assets in determining whether the plan is adequately funded.

Meaning poor coorporate earnings has folks wanting to reduce the amount of money the corporation is required to deposit into the pension plan fund. as the ERISA Industry Committee lady said "It's not something that will calm troubled waters,"

Now the yield curve lower maximun as you get bearer to retirement idea is actually protective of pensions, meaning it would require larger deposits into the pension fund. The corporate Bond idea is a weakening/reduction of the funding meaning it would reduce the funding required.

Given the GOP sponorship - how do you think it nets out - this required increase and required decrease in pension funding?

Yep - the net change would be the bond change and that would lock in a weaker funding.

Is this a good or bad? - well - "the pension plan will be dropped or we will go cash balance or 401k - thereby screwing the older worker worse" - is the positive GOP spin. Are corporations hurting? - and would they screw older workers less if they were making a lot of money? - remember the IBM screw the older worker cash balance plan was a 1995 idea. I do not see the screw the older worker wave reflecting economics - only GOP control of Congress. So this lets put funds in the pension more slowly idea is pure GOP.

BUT - "The rules are all integrated with each other. When you change something as critical as the discount rate you have to change everything else... people are going to be thrown into a bit of chaos" and their will be more jobs for actuaries - so it is not all bad!!!!! :-)