WASHINGTON — The Bush administration wants to gut the current pension funding rules under the Employee Retirement Income Security Act as part of an effort to prevent a wholesale collapse of the private pension system.
The proposals are intended to strengthen the balance sheet of the Pension Benefit Guaranty Corp. But critics say the proposals could force some companies into bankruptcy and saddle the federal insurance agency with more liabilities. And the new rules could accelerate the trend toward defined contribution plans unless they balance employers' concerns about volatility and predictability of contributions, sources familiar with the proposals say.
"We want plan sponsors to make promises they can afford to keep and fund the promises they make," said Mark Warshawsky, assistant Treasury secretary for economic policy, who recently previewed the proposals before a group of economists in Washington.
"The current regime has failed to ensure adequate plan funding, and will continue to fail," he said. Those who think the crisis in pension funding will disappear if the stock market recovers and interest rates climb are mistaken, he added.
Mr. Warshawsky declined to say when the administration intends to issue the proposals, but a senior administration official said they could be unveiled this summer.
The proposals envisage one funding rule — eliminating the various thresholds now in place — by defining a single minimum funding level and raising maximum deductible contributions to ensure all plans are funded to a specified target level. Mr. Warshawsky also said the proposals aim to eliminate the volatility caused by the universally disliked "deficit reduction" contribution rules that act as a backstop by requiring underfunded plans to speed up funding. But some pension experts worry the new rules could cause more volatility unless employers invest all of their pension assets in bonds.