Pension Deficits Will Continue To Grow Fed Agency Says

The Pension Benefit Guaranty Corporation (PBGC) reports that its claims covering private pension plans could increase the federal deficit over the next decade according to the Associated Press. Senate and House members have proposed bills intended to reinforce this nation’s pension system, however, the agency is concerned about its mounting obligations as it takes over more collapsed plans.

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The PBGC insures some 31,000 pension plans containing the contributions of about 44 million employees and retirees according to the Associated Press. In analyzing 500 random scenarios, claim predictions ran up to $3.3 billion under the Senate bill and $2.5 billion under the current bill in the House over the next decade. The agency reported more than $23 billion in liabilities in 2004. Both bills under consideration are intended to strengthen the rules governing company pension plans.

Defending the House bill, Rep. John Boehner (R-Ohio) said the agency’s analysis was “misleading and inaccurate” while Rep. George Miller (D-California) said the PBGC analysis showed that Democrats were right to oppose the legislation the Associated Press reports. Miller continued speaking with the Associated Press, saying the analysis “shows that neither the House nor the Senate has come up with legislation to stop the erosion of Americans’ retirement security and prevent a taxpayer bailout of the private pension system.”

A provision in the Senate bill requires companies with weak credit ratings to pay more into their pension funds stalled the the passing of the bill. Manufacturing and labor groups support the senators protesting this bill, according to the Associated Press.

As the government seeks to shore up the nation’s private pension system, the Bank of New York has released a new study titled “New Frontiers of Risk: The 360 Degree Risk Manager for Pensions and Nonprofits” according to Business Wire. The study shows that managers are now spending about 40 percent of their risk-related time considering operational and political items. This is an increase of almost 20 percent from five years ago. The study indicates that operational risk will be an increasing consideration in the next five years for 80 percent of the managers included in the study.

“The study shows that investors increasingly recognize the non-tradiotional risk factors associated with the global investment landscape, namely operational and political risk,” said Debra Baker, managing director and head of Global Risk Services for the Bank of New York. “The challenge for all organizations will be embracing this new 360 degree view and taking the formal steps necessary for eliminating, transferring or managing critical risks.”

What can we do to help put companies on call with our pension plans? We can initiate litigation against retirement fund officers as more than 12,800 employees and the U.S. Labor Department have since 2001, according to Robert Morris, CEO for Larkspur Data Resources speaking with Bloomberg.com. Morris’s company monitors 401(k) plan records.

Employers can pass the legal responsibility of selecting investments directly to their employees via a 404(c) election after abiding by the rules and reviewing plan money managers.

“If an employer has not taken a 404(c) election and has participant-directed accounts, employees may sue to recover investment losses,” Morris said in Bloomberg.com. Morris said this position is also supported by the U.S. Labor Department’s amicus brief in the Enron case.

Although the legal frontiers have not been fully explored, employees even in participant-directed plans may be able to sue for the recovery of investment losses if not fully informed about their retirement plan decisions. U.S. retirement law may not isolate employers or fiduciaries from liability according to pension attorney and employee advocate Brooks Hamiliton speaking to Bloomberg.com.

Find out more about the Pension Benefit Guaranty Corporation at www.pbgc.gov.

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