All three of the proposals now being considered by Republican lawmakers to change federal pension laws would actually worsen the pension crisis, according to an analysis provided by the Pension Benefit (PBGC) Guaranty Corp. and released by Rep. George Miller, a California Democrat.
Lawmakers on a joint Senate-House committee said last week that they expect to finally have—after many fits and starts—a bill to change the nation’s pension laws ready this week.
But a simulation model produced by PBGC estimating the defined-benefit pension insurer’s exposure over set time periods suggests that all the proposals currently being mulled would actually cut the contributions that companies must pay into their pension plans and increase the PBGC’s deficit, according to a press release issued by Miller, the ranking Democrat on the House Committee on Education and the Workforce.
Eventually, growth in its deficit could produce insolvency in the PBGC and an inability for it to continue paying the pensions in its charge. “This pension reform is the worst of every possible world,” warned Miller. “By driving up the PBGC’s deficit, it will increase the risk of an eventual taxpayer bailout of that agency.”
Employer groups say, however, that legislators have been too focused on the financial health of the pension insurer in hammering out legislation. “One of our concerns is that the starting point is the solvency of the PBGC,” said Lynn Dudley, vice president for retirement policy at the American Benefits Council, at an ABC webcast held last week. Of greater concern to her group, which represents many plan sponsors, is predictability—the ability of employers to foresee what their cost might be and to operate in a stable regulatory environment.
For his part, Miller contends that the current legislative proposals would encourage companies to dump their defined-benefit pension plans faster. By increasing pension levels of underfunding, the provisions under discussion would put more Americans’ pension benefits at risk and encourage more companies to drop their traditional pension plans altogether.
Miller asserted that the PBGC analysis shows that the private pension system would be better off if Congress did nothing than it would be if Congress adopted one of the pension proposals now under discussion.
If Congress made no changes to current pension law, for instance, U.S. companies would be required to pay $1.24 trillion into their pension plans over the next 10 years, and the PBGC’s deficit would rise by an estimated $12.8 billion over the same time period.
In contrast, under the three options now under discussion, companies would need to contribute between $1.21 trillion and $1.23 trillion over the next 10 years and would increase the PBGC’s deficit by between $14.9 billion and $15.2 billion.
House Majority Leader John Boehner an Ohio Republican, dismissed the study, asserting that the data no longer accurately reflect what House and Senate negotiators have been discussing behind closed doors, according to marketwatch.com,.
“It’s my understanding that the PBGC looked at a couple options more than a month ago as members began to discuss various issues,” Boehner said in the written statement, according to marketwatch.com. “It is not reflective of our work to strengthen the bill even further since that time or what will be included in the final agreement, so it irrelevant today.” The PBGC analysis cited by Rep. Miller was based on a June 21 compromise proposal that had been before the House-Senate group.