Rep. Earl Pomeroy, D-N.D., who takes an active interest in pension issues, said that the dire predictions for defined benefit pension plans could not come at a worse time for the nation's aging population. "There will be millions of Americans realizing, to their dismay, that what looks like a robust 401(k) balance does not translate into an income stream for life."
These threats have accelerated under the Bush administration, Mr. Pomeroy believes. "One certainly cannot look at the track record of this administration and conclude that they have an overreaching commitment to preserve defined benefit pension plans." Mr. Pomeroy said.
But Democratic lawmakers must share the blame for failing to enact laws that would encourage, rather than discourage, employers from offering pension plans, he conceded. "I want this report to be a call to action, not another exercise in finger pointing," he said.
Mark J. Ugoretz, president of the ERISA Industry Committee, another Washington-based organization that represents large employers, agrees. Lawmakers on both sides of the aisle have been reluctant "to support a sound pension system," he said. Most changes in pension laws until the late 1990s were aimed at curtailing funding and limiting the ability of employers and employees to contribute to pension and retirement systems on a tax-favored basis, he added, to fund other government spending. "They were really robbing Peter to pay Paul, and ended up creating much of the crisis we have today."
But the Bush administration feels it's not hurting anything. "If we wanted to drive employers out of DB plans, we wouldn't be working on a comprehensive funding proposal," said Bill F. Sweetnam Jr., benefits tax counsel at the Treasury Department. "The result of our reform proposal, we believe, will be a vibrant, sustainable DB system."
The age discrimination issue that stalled proposed Treasury Department regulations will likely end up before the Supreme Court, sources said. That's because a federal district court last July ruled, in Cooper vs. IBM Corp., that cash balance pension plans, by their very design, discriminate against older workers. The Treasury Department in December 2002 had declared that cash balance plans were not discriminatory. In recent years, many large employers have, converted traditional defined benefit plans to cash balance plans, which mimic 401(k) plans.
The council report notes the need for lawmakers to enact legislation offering a permanent liability valuation, even though Congress last month passed a two-year law that allows employers to base their liabilities on four-year averaging of interest rates linked to corporate bonds. The issue is important to employers to ensure predictability of contributions, the report states. Because interest rates on 30-year T-bonds have slid in recent years, employers would like a permanent corporate bond benchmark, not just temporary measures. The council, along with the ERISA Industry Committee and other employer groups, rejects the Bush administration's proposal for a permanent replacement based on a yield curve of corporate bonds because they believe the proposal is hugely complicated, difficult to understand and would cause increased volatility.