No help for plans from PPA, says study

Oct 10, 2007 @ 2:07 pm

By Sara Hansard

The Pension Protection Act of 2006 has not improved the security of defined benefit pension plans, the chief policy actuary of the Pension Benefit Guaranty Corp. said today.

An analysis done by the PBGC found “that PPA may not have significantly strengthened the benefit funding rules, that it may not have significantly improved the premium rules, the [PGBC] deficit is not likely to change much over the next 10 years, and that most plans are not fully funded for workers’ and retirees’ benefits and for PBGC,” said David Gustafson, who is also director of the PBCG’s policy, research and analysis department.

Mr. Gustafson spoke today at a seminar sponsored by the American Enterprise Institute for Public Policy Research in Washington.

His remarks were based on an analysis conducted by the PBGC when Congress was working on passage of the legislation last year.

According to the PBGC’s forecasts, $12.8 billion in claims against the PBGC by companies defaulting on defined benefit plans were expected from 2007-2016 under prior law, while $15.5 billion in claims are now expected.

Much of the additional claim activity is expected as a result of relief given under the law to financially distressed airlines, as well as rules allowing companies to choose their own mortality assumptions, Mr. Gustafson said.

Mr. Gustafon’s remarks were in contrast to those of Mark Warshawsky, director of retirement research at Watson Wyatt Worldwide Inc. of Arlington, Va., and former assistant Treasury secretary for economic policy who worked on the legislation.

Mr. Warshawky said the law will lead to more stable funding of defined benefit pension plans as well as lower deficits at the Pension Benefit Guaranty Corp.

The legislation is “an improvement for the defined benefit system,” as it will lead to less volatility in what companies will need to fund their defined-benefit plans, he said.

Before the Pension Protection Act, companies were able to avoid funding plans until they reached a point where huge contributions were suddenly required to meet legal requirements, he said.

The new law allows for more gradual required contributions.

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