Pension funds may rescue the economy!
In an open letter to President George Bush, Edward H. Friend and Robert Neilson recommended relaxing the rules requiring employers to make up shortfalls in their pension funds by stepping up contributions in a short period of time. The Nov. 22 letter suggested employers be allowed to base contributions on a modified actuarial value of pension plan assets that would be computed using a 10-year smoothing for investment returns, which would "discourage employers from downsizing, diminish employee layoff fears and, as a consequence, stimulate consumer spending."
Messrs. Friend and Neilson also recommended requiring plan actuaries to certify that this modified approach would not affect the pension plans' ability to pay benefits and allowing companies to use the freed up cash only to save jobs.
Mr. Friend runs EFI Actuaries, an actuarial consulting firm in Washington; Mr. Neilson is counsellor at EFI and is former chairman of the City of Miramar (Fla.) Firefighters' Pension Plan.
And, separately, some more help for plan sponsors might be on the way.
In the fiscal 2004 federal budget Mr. Bush will present to Congress early next February, the Bush administration intends to offer a substitute for 30-year Treasury bonds, according to Bill Sweetnam, benefits tax counsel at the Treasury Department. He declined, however, to offer details about the proposed new benchmark for calculating pension fund liabilities, insurance premiums for the Pension Benefit Guaranty Corp. and lump-sum pension payouts.
For more than a year now, the ERISA Industry Committee has been urging the Treasury Department to use a new composite corporate bond index that would be an average of several indexes of high-grade long-term bonds. And just last week, the American Benefits Council also urged lawmakers to enact legislation in the 108th Congress, creating a benchmark that would track the returns of a pension fund portfolio conservatively invested in corporate bonds.