Senate Considers Changes to Pension Rules

The Senate is working on a bill that would tighten funding and accounting rules for corporate pension funds. Backers believe the new rules would shore up traditional pensions. But some experts think that the bill would actually force some companies to drop their pension plans altogether.

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RENEE MONTAGNE, host:

On Wednesdays, we focus on the workplace. Today, pension funds.

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MONTAGNE: The Senate is taking up a bill this week to strengthen the nation's pension system. Analysts say the legislation could actually encourage more companies to drop their pension plans, ultimately pushing more workers into 401k plans.

NPR's Frank Langfitt reports.

FRANK LANGFITT reporting:

Just about everyone agrees that the system for funding traditional pensions needs fixing. Loose accounting rules have allowed financially troubled companies to run up pension deficits of more than $100 billion.

Congress wants to tighten funding rules to make companies put more money into their pension funds. But instead of complying, analysts say, some companies will probably just get rid of their pension programs, which are voluntary to begin with.

Lynn Dudley works for the American Benefits Council, an advocacy group for corporate benefit plans.

Ms. LYNN DUDLEY (American Benefit Council): Some will leave because the combination of funding and competition will force them to do it.

LANGFITT: Although most people think the accounting rules have to change, Dudley insists that Congress is going too far. She says the new rules would leave companies vulnerable to the ups and downs of the financial markets. It could also force them to set aside more money than is actually needed.

Ms. DUDLEY: And it makes it much harder from a business perspective to take money and invest it in jobs or invest it in research or in product development if you're having to set it aside in case you need it.

LANGFITT: Traditional pensions - which pay a fixed amount of money each month -were once the bedrock of the American retirement system. But over the years, more and more companies have dropped them in favor of less expensive 401k plans.

One reason is competition. Dallas Salisbury is president of the Employee Benefit Research Institute. As an example, he cites lower cost competitors in the supermarket business which are pushing down benefits at more established companies.

Mr. DALLAS SALISBURY (President, Employee Benefit Research Institute): A big driver of that is the entry of Wal-Mart into the grocery business and the expansion of Costco in the grocery business, which do not have defined benefit pension plans. And essentially, that leveling down change the competitive framework.

LANGFITT: In addition to the funding changes before Congress, companies may face an even bigger problem. The Financial Accounting Standards Board wants businesses to show pension liabilities on their balance sheets. Ron Gebhardtsbauer is senior pension fellow at the American Academy of Actuaries. He says that accounting change could make the books of some corporations look awful.

Mr. RON GEBHARDTSBAUER (Senior Pension Fellow at the American Academy of Actuaries): If the assets in the pension plan fall dramatically like they did in 2000 through 2003, then your company takes a big hit to its bottom line. You could wipe out your net worth. In fact, this new rule could wipe out GM's stockholder equity. That might unnerve a lot of investors and say, wow, GM has no stockholder equity. Should I be investing there?

LANGFITT: If more companies shift away from traditional pensions to less generous 401k plans, Gebhardtsbauer says workers will ultimately suffer.

Mr. GEBHARDTSBAUER: I think over the long run that could be a real problem for this country, because there'll be a lot of people who will be realizing I'm running out of money and I'm in my 80s, and I'm - because they did the 401k and they didn't save enough or they spent it too fast in retirement. And so - but this problem, we won't see for 20, 30 years. And then it'll be too late to fix.

LANGFITT: Senate Majority Leader Bill Frist says the Senate must pass the bill this week without amendments so President Bush can sign it into law.

Frank Langfitt, NPR News, Washington.

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