Blogging Employee Benefits

May 17, 2006

Opinion: Retire the Number $450 Billion

Filed under: Legislation, Pensions — Fuguerre @ 9:21 am

A PBGC spokesman said Monday that $450 billion in pension underfunding was still the official government estimate.

Reuters 5/15

Hold on, what's wrong with this picture? The Administration wants defined benefit pension plans to value their funded status on a current snapshot basis with asset values smoothed over no more than a year and funding of gains or losses accelerated, but we're supposed to use a dusty old, very opaque figure that no outside expert can duplicate to guide the development of major policy initiatives?

Even the Credit Suisse numbers alluded to in Reuters story are more pessimistic than need be: based on corporate financial statements, Zion's numbers include foreign pension plans and unfunded nonqualified plans. Even by year-end 2005 the overall funded status of U.S. qualified pension plans was probably close to even. And the updates projected by American Academy of Actuaries senior pension fellow Ron Gebhardtsbauer suggest that by the effective date of any pension reform legislation, a significant majority of pension plans will have assets exceeding the value of their obligations.

Do we really need to pretend that the very transient legend of $450 billion shortfall still exists to justify continuing to work toward pension reform? How about pretending instead that we're living under the new rules we seek to require, and start by updating that number to the present.

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2 Comments »

  1. ” Even by year-end 2005 the overall funded status of U.S. qualified pension plans was probably close to even. ”

    Any evidence other than a hunch?

    By mid-year 2006, I would estimate that the overall funded status of U.S. qualified pension plans – the ones not frozen or terminated – is probably minus. Probably not merely seven or eight figures minus. Probably eight. Not necessarily mid eight.

    Have you seen the recent headlines? “New lax rules for pension plans encourage deferral of contributions” – the bizarre and un-GAAP-like rules like allowing funds to take a paper credit for overcontributions, and cancel them against real future shortfalls don’t exactly reward plans for good behavior. Further easing the actuarial standards is also a recipe for worsened funding status.

    In other words, you attack the PBGC number (and until I see what went into it, I want more information too); but can you back up your assertion?

    Comment by Eh Nonymous — May 25, 2006 @ 8:46 am

  2. I meant “nine,” of course. 🙂 000,000,000. Counting to ten is sometimes so hard.

    Comment by Eh Nonymous — May 25, 2006 @ 8:47 am


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