Editorial: Pension reform – A step in the right direction
November 17, 2005
In a rare modern example of “government for the people,” the Senate voted Wednesday to support legislation that tightens rules for companies that underfund pensions, to help return some of the estimated $450 billion that has been shorted workers’ retirement checks. Holding companies accountable to pension promises is a necessity with Baby Boomers retiring, and the Social Security system facing an uncertain future.
Currently, according to government accounting, $120 billion in pension benefits is issued every year, allowing some 20 million retirees to maintain a “living wage” after their careers end.
The bill takes an important step toward staving off the greatest threat to pension plans: Companies that default and send their liabilities to the federal Pension Benefit Guaranty Corp. If the bill is signed into law it would require more collateral for companies with questionable credit, and give companies time to pay off unfunded liabilities with a scheme that would make companies more accountable to current pension contributors. It would also increase premiums companies pay to the PBGC by more than 50 percent.
As it stands, the PBGC has indicated to the Senate that is has liabilities of a whopping $22.8 billion, a situation exacerbated by airline and steel industry bankruptcies. With future finances in these and other industries still uncertain, those liabilities could increase, a bad situation for taxpayers and retirees.
As we enter an era of generational change, where the costs to society will exceed the resources available to cope with those costs, it is imperative the government holds companies accountable to pension promises. It will force companies to manage rock-solid pension funds, and insulate taxpayers from future bailouts.
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