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‘Perfect Storm’ Bearing Down on America’s Workers and Retirees
By Spectrum Staff
WASHINGTON
D.C. — The president of the National Retiree Legislative Network
(NRLN) said recently that Congress should pass additional pension
protection legislation to help safeguard retirement income in the
face of pension plan under-funding due to the steep losses in financial
markets.
“The ‘perfect storm’ is bearing down on the pension plans of
America’s workers and retirees,” said Bill Kadereit, NRLN president. “Congress
needs to close loopholes in pension laws that allow companies to use pension
plan assets for restructuring and downsizing.”
Kadereit said the impending pension under-funding crisis could be the largest
ever. He cited a report issued last week by Standard & Poor’s stating
that, given recent market conditions, pension plans are on their way to suffering
an under-funding greater than the $219 billion seen six years ago.
“At the same time pension plans will be under-funded, the Pension Benefit
Guaranty Corp. (PBGC), the safety net for when pension plans fail, has lost $4.79
billion in the 12 months ending September 30, 2008, because it invested a significant
portion of its funds in mortgage-backed securities,” Kadereit said.
The PBGC recorded a deficit of $14 billion in 2007. Although that has fallen
this year into the $10 to $12 billion range, the agency’s deficit will
likely soar in the near future given the recent market plunge.
“Congress should immediately amend the Employee Retirement Income Security
Act (ERISA) to narrow the definition of ‘ancillary’ benefits that
can be paid from pension plan assets,” Kadereit said.
“Companies should be prevented from using pension assets to pay for restructuring
and downsizing expenses, such as layoff allowances. These operating costs should
not reduce pension assets needed in the future to meet retirement income obligations.”
Kadereit said the NRLN pension plan assets should remain in pension trusts to
ensure the continuation of monthly pension payments, fund cost-of-living allowances
(COLA) and for transfers of surplus in excess of 120 percent of plan assets to
pay for retirement health care, in accordance with Section 420 of the IRS Code.
“Given the fact that many companies are downsizing their operations, pension
plans will be put at even greater risk when executives decide to use plan assets
for incentives for early retirement and for severance pay,” Kadereit said.
“Congress must promptly act to prevent this further weakening of pension
plans.”
The NRLN leader noted that his organization also advocates legislation to prevent
the purchase of defined benefit pension plans by third parties, such as financial
firms, and the misuse of pension plan assets to enhance compensation and benefits
for executives.
“If you combine pension plan under-funding and PBGC losses with the risks
created by the removal of assets for layoffs, the threat of purchase of pension
plans, and extras for executives, you have the ‘perfect storm,” Kadereit
said.
“Many pension plans are headed for disaster unless Congress acts to stop
the reversions of pension plan assets to corporations.”
Pension plans that are under 100 percent of being fully funded must receive an
infusion of cash. Because accounting requirements now force companies to include
their pension plan funding status on their balance sheet, many companies will
be faced with marking down their equity.
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Metropolitan News Company, Inc.
