Lawmakers Look to Overhaul Rules on Funding Pensions | AccountingWEB

Lawmakers Look to Overhaul Rules on Funding Pensions

Private pension plans are seriously underfunded despite a growing economy, according to new figures released by the government's pension insurance agency.

The Pension Benefit Guaranty Corp. (PBGC) reported that the 1,108 weakest pension plans – ones with assets that are $50 million or more below the value of the benefits they promise – were underfunded by an aggregate $353.7 billion at the end of last year, the Washington Post reported. That figure represents a 27 percent increase in the shortfall from the year before. During the roaring economy of 1999, only 166 plans were underfunded by $50 million or more.

The Bush administration has presented a plan to rewrite the lax rules that mask underfunding problems. The plan also calls for big increases in the premiums employers pay to PBGC. Congress is also pushing for an overhaul of pension-funding rules, which allowed some companies to avoid contributing to their plans. The Senate Finance Committee held a hearing Tuesday on the issue.

“As the $9 billion hole in United's pension plans has made painfully clear, a company's pension promise is only as strong as the rules that require companies to fund these plans," Sen. Charles Grassley, R-Iowa, said in a statement issued before his committee hearing. "We saw similar practices and events at Enron, but, unfortunately, this time it's perfectly legal."

About 20 percent of the nation's workforce plan to rely upon payments from defined benefit plans when they retire. About 120,000 of those workers, current and former United Airlines employees, will receive only about two-thirds of the benefits United had promised now that the airline has dumped its plans onto the PBGC.

Some observers worry that the country may be headed for the next S&L crisis, a government bailout that cost $480 billion in the 1980s.

Airline pilots are particularly concerned about pension underfunding. The government program caps retirement benefits at $45,614 a year, which is less than what they would have received under their pensions.

"Under current law, the only way an airline can avoid burdensome pension costs is by entering bankruptcy and terminating the plans," said Duane Woerth, president of the Air Line Pilots Association, in remarks prepared for the hearing. "But if more and more airlines choose to shed their pension liabilities in bankruptcy, it sets up the potential for the 'domino effect,' in which all the other legacy carriers are incentivized, or even forced, to file bankruptcy, in order to achieve the same cost savings and level the playing field," Woerth said, according to the Associated Press.

Wait, there's more!
There's always more at AccountingWEB. We're an active community of financial professionals and journalists who strive to bring you valuable content every day. If you'd like, let us know your interests and we'll send you a few articles every week either in taxation, practice excellence, or just our most popular stories from that week. It's free to sign up and to be a part of our community.
Premium content is currently locked

Editor's Choice

As part of our continued effort to provide valuable resources and insight to our subscribers, we're conducting this brief survey to learn more about your personal experiences in the accounting profession. We will be giving away five $50 Amazon gift cards, and a $250 Amazon gift card to one lucky participant.
This is strictly for internal use and data will not be sold
or shared with any third parties.