By Mike Johnston
Now that the Bush administration has announced a broad overview of proposed new pension funding rules, it's worth asking whether these proposals (if adopted in total) will be helpful or harmful to the pension system overall.
Let's first concede three things: if adopted, the rules will result in better funding, they will shore up the Pension Benefit Guaranty Corp. and they will provide more timely information about the status of pension funding. On the surface, the proposed legislation sounds like an ideal solution.
But it's important to note these rules will also increase employer risk and the volatility of pension costs — which might simply expedite the employer exodus from defined benefit to defined contribution plans. These proposed rules need to be judged not only on whether the PBGC becomes less underfunded, but also in terms of whether they support the best interests of all stakeholders — employers, employees and the PBGC. When viewed this way, the proposed pension funding rules might do more harm than good.