Jump to Navigation
Jump to Content

Highway bill includes good news and bad news -- for pensions?

Highway bill

Today, Congress passed H.R. 4348, Moving Ahead for Progress in the 21st Century Act, which, among other things, re-authorized funding for the nation's highways and extended the current low interest rate on student loans. Why is the Pension Rights Center following this bill? The answer is simple:  Congress included major changes in pension law as part of the legislation in order to raise revenue, which will be used to help pay for highway infrastructure and student loans

As a general rule, the PRC believes that pension policy should not be driven by the need to raise revenue, especially when that revenue is not used to improve our nation's retirement system but to pay for other programs – no matter how worthy they might be. The need for money to pay for the highway and student loan provisions was the only reason the pension changes were included in the bill.

H.R. 4348 lets employers put less money into their pension plans by allowing them to value liabilities using higher interest rates than the prevailing low rates (see Section 40211 of the bill). When interest rates are low, as they are today, pension plan liabilities are estimated to be higher, and employers therefore are required to contribute more money to meet their obligations. But when interest rates are high, the companies' pension liabilities are valued to be smaller and employers are required to contribute less money. The bill enables employers to use a higher interest rate to calculate their obligations than they would otherwise, based on a blended rate of today’s and tomorrow’s expected interest rates. As a result, employers will be able to put less money into their pension plans today.

The reason these pension provisions are revenue-raisers is simple. Contributions that employers make to their pension plans are not taxed by the federal government until the benefits are paid to workers. By allowing companies to contribute less to their plans, the federal government calculates it will collect more revenue – either from the employer or from workers in the form of higher wages. This change is calculated to raise $9.5 billion in increased revenue over 10 years, which covers the shortfalls in the highway and student loan measures.

Employers have long complained that today’s artificially low rates have forced them to contribute millions of dollars to pension plans at the worst possible time – during a recessionary economy. Employers claim that, without these kinds of funding breaks, they would be forced to terminate their plans.

While the Pension Rights Center is sympathetic to business concerns, we believe that Congress must strike the right balance between giving employers a break on making pension contributions and protecting the pension fund and workers’ and retirees’ long-term security. We are concerned that giving employers a pass from making contributions in today's low-interest economy might exacerbate the problem of underfunded plans. This decision should have been made on its own merits and not in the context of revenue-raising.

There is, however, one bright spot in this legislation: to help protect workers and to provide more balance to the bill, Congress included one of the Pension Rights Center’s long-time priorities – the establishment of a new Participant and Plan Sponsor Advocate at the Pension Benefit Guaranty Corporation, the federal agency that insures most private pension plans. This new office is tasked with making sure participants receive all of the benefits and protections they are entitled to under the law (see Section 40232 of the bill). If appropriately staffed and funded, the Advocate could provide "one-stop shopping" for participants trying to navigate the maze of government offices with pension responsibility. You'll be hearing more from us on this important initiative.

Comments

Post new comment

The content of this field is kept private and will not be shown publicly.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Allowed HTML tags: <a> <em> <strong> <cite> <code> <ul> <ol> <li> <dl> <dt> <dd>
  • Lines and paragraphs break automatically.
print