Efforts to provide corporations with relief from new pension funding rules that are kicking in just as stock and bond markets have conked out have drawn opposition from the highest of authorities the current administration.
Its a twist that could derail corporate hopes for speedy approval of changes to pension laws, leaving large private employers potentially on the hook to pump billions into their underfunded pensions after closing the books on 2008 in just a few weeks.
Lawmakers and lobbyists have been angling to push through changes to the Pension Protection Act of 2006 either as a stand-alone measure or as part of any Big Three automaker-bailout package that would ease new contribution requirements the PPA triggers this year. But shortly after leaders in the Senate formally introduced proposals at the behest of hundreds of corporations, the Bush administration weighed in with several concerns.
As administration officials noted in a memo circulated to members of Congress and lobbyists late last month, allowing companies to forgo new contribution requirements could cause plans that are already significantly underfunded to grow even more underfunded over time. This could translate into an estimated $3 billion in new claims placed on the Pension Benefit Guaranty Corp. over the next decade, the officials estimated. In addition, workers would lose billions in unfunded pension benefits not guaranteed by the pension insurance system, according to the memo.
While $3 billion is not insignificant, it pales in comparison with the projected record $280 billion combined pension deficit that large companies now carry, according to consultants at Mercer. Such a deficit could force companies to make up to $150 billion in new contributions next year, according to estimates from the Center for Retirement Research at Boston College. Employer advocates argue that corporate earnings could suffer next year because of the stiffer funding requirements, which could force companies to cut back benefits or reduce their work forces.
There are always going to be trade-offs, said Mark Warshawsky, director of retirement research at Watson Wyatt Worldwide, Arlington, Va., and a former assistant secretary for economic policy at the Treasury Department. But given the broader economic implications if these relatively modest levels of relief are not granted, that $3 billion (potential burden on the PBGC) strikes me as a fair trade-off.