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Today's Commentary: 03.22.06
Another Lost Opportunity:
A Look at the Congressional Bill to Save Pensions

Congress had a wonderful opportunity, once again, to do right by the voters who so naively put them in office and fix the pension problems facing far too many in the American workforce. It appears as though, also once again, they have squandered it.

With a directive from the President to fix the problem, members of the House and the Senate began the long process of looking at a system that has begun to break down. That process, tedious as it may sound, involved listening to countless lobbyists, some with incredibly deep pockets lined with the requisite campaign contributions, that had a pro-business solution to an otherwise difficult problem.

Finding the right mix between funding promised pensions to employees and allowing businesses to remain competitive found Republican Senator Charles E, Grassley of Iowa and the chairman of the Senate Finance Committee torn between what is right by the employee and what is good for the company that made the promise. Finding the balance, one the would not "put burdens on the plan sponsors that are too heavy" proved too difficult for committees, a joint House-Senate conference that intends to reconcile the pension bill by April 15th.

Imagine if you will for a moment, that the metaphorical road to retirement was actually a road. On this road, each company is driving a vehicle, whose passengers consist of all its employees with the pension promises they made tucked neatly in the trunk.

The Pension Benefit Guaranty Corporation would act like a highway emergency response vehicle, helping cars pulled to the side of the road because of mechanical difficulties.

Now for those of you who still may not know what the PBGC does, here's a brief refresher. The PBGC was designed to act as an insurance policy, funded by companies who made estimates of their pension planšs health and paid premiums based on the general pool of insured members. Problem was, some members miscalculated.

Now, companies whose pension health is looking rather robust are being asked by the PBGC to pay more in premiums to insure the weaker members of the group.

Unlike drivers who have had numerous accidents, it is not in the PBGC's best interest to target each bad driver and raise their insurance rates. The knee-jerk reaction would be pension default, which would send those passengers to the agency to collect their benefits, albeit at a reduced rate. In 2006, according to the PBGC's website, the maximum allowable pension payout is $3971.59 a month, if you were 65 when you retired.

When it comes to any kind of insurance, we all pay. Not only would the motorist who has had numerous traffic infractions, driven recklessly, or actually had accidents pay increased rates; we all would to some degree. If there are numerous drivers in a certain area faced with these problems, the insurance rates for the entire geographically related community might increase. It makes a sort of perverse sense to the insurance industry and there is little we can do about it as drivers except drive more cautiously.

But companies complained about the increase in rates to support other "bad drivers". Represented by the United States Chamber of Commerce, the Erisa Industry Committee, and the American Benefits Council, companies petitioned Congress to allow them to change the actuarial rules governing the plans they sponsor. They contended that companies should be allowed to make longer estimations of employee's lives which would, in turn, allow them to pay less now to their plans now.

The automobile insurance industry uses their resources to examine the problem facing drivers where increased premium costs are usually associated with poor traffic patterns, excessive speed limits, or lack of good driver awareness and education. It is a lot easier to do something for the common good than it is to give good drivers special privileges.

Changing the speed limit for all vehicles, akin to altering actuarial tables may seem like the right thing to do, but it doesn't fix a dangerous intersection. That intersection is what has Congress stumped. Companies want special access to go around that intersection by forcing their employees to do more for themselves. This bill would allow that.

Wall Street loves the idea. The $125,000 they have already paid to the campaign coffers of House Majority Leader John A. Boehner of Ohio would put more drivers on the road in their own cars, which is not always the best solution to congestion.

So how should Congress, historically poor traffic managers, solve this problem? In a word: Trusts. By simply forcing industries to join together, the argument for competitiveness used by companies like IBM and Verizon, would be a wash. Industries would join a collective, pool their resources, and pay premiums based on the health of their industries. It would be sort of like a car pool lane with its own speed limits based on the health of the participating companies.

At no time, however, would any company be allowed to promise their employees in excess of what the PBGC guarantees. That figure would act as more than a speed limit. Congress would only need to recognize this and allow employees to direct more of their income to their own retirements. In other words, the ceiling would become a floor. So much for the healthy companies; what about the ones with poor records?

The less than healthy companies would be faced with more difficult challenges. Many of these problems would be solved with the ceiling on future pension payouts. Other issues facing problem industries such as the airlines with plans that have been decimated by bankruptcies and poor management would be brought into alignment for far less by offering tax incentives to companies who are doing well enough to add additional funding to the pool. Companies with poorly managed pensions could be handed over to the hedge fund industry.

Acting as a sort of Wall Street SWAT team operating outside of fiduciary duty, hedge funds would do whatever is necessary to get the plan back to a solvent state but would be penalized if they failed to do so. That penalty could mean assuming the PBGC premium or waiving their fees for the years in question. Call it incentive.

During the Congressional hearings for the chief justice job on the Supreme Court, John Roberts was asked how he thought the legislative branch of government could keep the judiciary from making laws in the courtroom. His response was simple, memorable and straightforward. He suggested that Congress write unimpeachable laws that are not open to speculation or interpretation. This bill is not one of those efforts.

Removing pension considerations from industry competitiveness would answer many of the corporate complaints. It could also force all M&A activity or spin-offs, often designed to create a new entity and in doing so jettison any past obligations to employees under the guise of a "newly created company", to keep those pensions intact.

Understanding the ceiling on their future pension payout would allow them to better plan for their future. Giving individual retirement accounts a new higher ceiling would satiate the Wall Street lobbyists and allow employees whose income warrants it, the opportunity to amass wealth directed they way they choose.

The road to retirement would be safer with everyone traveling in the same direction. Companies would find it easier to be the mass transit of retirement and their employees would be confident that at least, they would get there safely.

BlueMoney Report

The Blue Money Report
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