We gave credit where none was due, and we stand corrected. David Strauss, executive director of the PBGC, has not proposed boosting the maximum pension fundable through a defined benefit plan to as much as $1 million, as we suggested in this space last issue.
Pity. It will take some such dramatic step for there to be any hope of revitalizing defined benefit pension plans.
Mr. Strauss does deserve credit for focusing on the problem of the declining number of defined benefit plans, and trying to find out what will be needed to revive them.
He has supported, in testimony before Congress, the introduction of a new type of defined benefit plan with simplified administration and reporting.
He also has championed a reduction in PBGC premiums to $5 per participant for new small-business plans.
But these steps do not address the greatest disincentives for the continuation of existing -- let alone the establishment of new -- defined benefit plans: the low cap on the maximum pension that can be funded on a tax-exempt basis, and the funding limitations that leave companies vulnerable to unpredictable and volatile contributions.
The proposals Mr. Strauss supports provide no incentive for top management of corporations to establish the most burdensome (to them and the company) of pension plans, the defined benefit plan. The proposals might reduce some of the disincentives, but they provide no meaningful incentives.
Without such incentives, defined benefit plans never will replace defined contribution plans, which relieve the sponsors of so many burdens.
