Businesses that sponsor pension plans are applauding the Bush administration's call for a broad overhaul of the nation's troubled retirement-benefits system. But when it comes...
NEW YORK — Businesses that sponsor pension plans are applauding the Bush administration’s call for a broad overhaul of the nation’s troubled retirement-benefits system. But when it comes to specifics, companies are wary.
Business leaders said yesterday they like much of what they heard this week when the administration outlined its proposal to reform pension plans and stabilize the government agency that insures them. But they are doubtful about costs and administrative complexities, and concerned that changes could prompt more firms to abandon their pension plans entirely.
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“If ever there was a case where the devil is in the details, this one is it,” said James Klein, president of the American Benefits Council, which represents firms that operate the largest pension plans.
The reaction of businesses will be a key in coming months as Congress considers what to do about pension reform.
The administration on Monday proposed what would amount to a 58 percent increase in the yearly per-worker premiums companies pay to insure their pension plans. That would substantially boost funding for the Pension Benefit Guaranty Corp. (PBGC), the federal insurer that has been forced to take over pension payments for numerous plans abandoned by troubled employers.
The proposal also calls for changes in how companies estimate their pension obligations, and a tightening of the time companies have to reinvigorate underfunded retirement plans.
“If nothing is done, the financial integrity of the federal insurance system will be compromised and the pension security of 34 million workers and retirees will be more at risk,” Labor Secretary Elaine Chao said in a written statement announcing the proposals.
Companies — many of which have had to make large cash payments to stabilize underfunded pension plans in the past few years — generally agree with the need to do something. They have been concerned both by their own obligations and the long-term financial stability of the PBGC, whose deficit more than doubled last year to $23.3 billion.
“We’ve obviously been very vocal and supportive of the need for pension reform, so we really welcome the dialogue that’s been opened here,” said Christopher Preuss, a spokesman for General Motors, whose pension plans cover about 425,000 retirees and spouses and about 195,000 active employees. “We’ll work actively with the administration to give our input.”
The current political environment — with a business-friendly White House and both houses of Congress controlled by Republicans — is widely seen in the business community as a good time to pursue reform.
But while companies embrace some aspects of each of the administration’s proposals, they take issue with key provisions, industry insiders say.
The administration, for example, wants businesses to use simpler, more accurate measures for calculating their pension obligations, and businesses agree. But they are likely to disagree on what measure to use. Most companies want to use a single interest rate, rather than a more complicated system of multiple interest rates advocated by the administration.
“Our clients would much prefer something that is simple and transparent instead of something that is complicated,” said Steven Kerstein, managing director of global retirement services at Towers Perrin, a consultant to companies that sponsor pension plans.
The administration also called for setting a deadline for all pension plans to be fully funded, suggesting seven years. Many companies with troubled plans will chafe at such a tight time frame, and that is likely to be the subject of much debate.
Companies also will look for changes that allow them to boost contributions to pension plans when times are good, without a tax penalty. But they also want to be able to draw on pension funds if surpluses rise beyond a certain level, a provision that’s not in the administration proposal.
Then there is the bottom line of the administrations proposals. Under the Bush administration’s plan, the premiums companies pay to the PBGC to insure their plans would be increased from $19 per participant to $30. In addition, the proposal calls for higher premiums for companies with underfunded plans, or whose business is considered at risk.
While companies might go along with some increase, such substantial changes are raising doubts. For now, though, businesses see many of the proposals as merely a starting point in what could be a long debate.
“At this point, most companies are still digesting and are expecting there to be a fair amount of debate on the subject,” Kerstein said.