Why pensions are becoming even scarcer
More old-line industries may follow United Airline's move to default on pension obligations.
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"It's not mystery when you read the rules and the law. There are all kinds of loopholes that make it possible for companies to be underfunded and not penalized for it," he says. "If you're in a company with a defined-benefit plan, you better hope your company is around when you retire."Skip to next paragraph
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Some advocates for the elderly contend that Congress has bowed to corporate pressure, making it possible for companies to renege on the obligations they've made. They point to the United default as the latest in a trend that started in the mid-1990s as companies looked for ways to increase bottom lines.
"This is an assault on the retirees all over America, and we've got to bring it to a stop somehow, someway," says Jim Norby, president of the National Legislative Retiree Network in Washington, which represents more than 2 million retirees nationwide.
The Bush administration has proposed changes that would tighten accounting rules and require some companies to contribute more to their current pension plans to prevent underfunding. Among other things, the administration also proposes to increase the premiums that businesses pay to bolster the financial health of the PBGC. Currently, companies pay $19 per employee per year, a rate set in 1994. The administration hopes to raise that to $30 a month to reflect wage growth in the past decade.
The proposal has won praise from some of the Bush administration's usual critics for being financially sound and a necessary fix to prevent another debacle like the savings and loan crisis in the 1980s, in which taxpayers ended up bailing out thousands of failed banks. But it's also been criticized by some in the business community, who are usually supportive of the administration.
"There are some things that we can do to make the system stronger," says Judy Schub, director of government relations and pension policy at the Association for Financial Professionals in Bethesda, Md. "With the administration's proposal, we're concerned the medicine may kill the patient." That's because companies would have to put resources that could be used for growth and expansion into insuring their employees' retirement.
Mr. Belt of the PBGC counters that there is no evidence that the administration's proposals would have this effect, despite having asked for such evidence from people who've made the assertions. Instead, he calls the proposals common-sense remedies to ensure the nation's retirement safety net remains intact.
"When these losses are incurred, ultimately somebody is going to have to pay for them," says Belt. "The question is who is that going to be? Will our current premium payers get left holding the bag? Do we cut back benefits to participants? Or ultimately will the taxpayer get left holding the bag?"