Administration Working on Plan to Improve Private Pension Funding

AP ^ | 7/7/03 | Jeannine Aversa

[Jean S]

WASHINGTON (AP) - The Bush administration said Monday it is working on a plan aimed at improving the way traditional pension plans offered by private employers are financed.

The proposal, which would require congressional approval, is geared to the roughly 32,000 traditional, defined benefit pension plans, which promise participants a specific monthly benefit at retirement.

Senior administration officials, speaking on condition of anonymity, said the proposal would change the contribution companies make to traditional pension plans but not change the benefits flowing to retirees.

The proposal comes as many of these traditional pensions face funding shortfalls. More than half of the 32,000 employer-sponsored plans are underfunded by a total of some $300 billion, the Pension Benefit Guaranty Corp., which insures the plans, told Congress in April.

The proposal deals with the thorny and complex issue of how employers would calculate their future obligations.

The administration suggested replacing the 30-year Treasury bond, which carries low-interest rates, with high-quality corporate bonds, which tend to carry higher interest rates, to measure pension liabilities, the officials said. A temporary measure that uses the 30-year bond is set to expire at the end of this year.

The government stopped issuing new 30-year bonds in 2001, but even before then there was discussion about coming up with a better way to figure pension liabilities.

"Accuracy is essential because too high a rate leads to underfunding, putting retirees and taxpayers at risk. Too low a rate causes businesses to contribute more than is needed to meet future obligations, overburdening businesses at this early stage of recovery," the Treasury Department said in a statement.

In general, under the first two years of the administration's plan, companies' contributions into traditional pension plans would be lessened, but after that time contributions would depend on the company and the demographics of its work force, the administration officials said. Companies with many retirees and an older work force could face a larger funding burden, they said.

The administration hopes to build support for its proposal in Congress. A bill offered by Reps. Rob Portman, R-Ohio, and Benjamin Cardin, D-Md., would replace the 30-year Treasury rate with a long-term corporate bond rate to measure pension liability.

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On the Net:

Treasury Department: www.treas.gov

AP-ES-07-07-03 2122EDT