On the Hunt for Another Bailout

Although I've said if before, it bears repeating: myriad factors helped bring about the current crisis, and no small number will continue to weigh on our economy -- and our world -- for many years to come.

Contrary to what some might argue, it wasn't just easy money, or high debt loads, or derivatives, or cross-border imbalances that brought us to this point. More broadly, the fact that we failed -- deliberately or otherwise -- to acknowledge the mismatch between our resources and our commitments lies at the root of many of our problems.

Nowhere is that more apparent than in regard to the sorry state of our retirement system, regardless of whether one is referring to the public or private sector. Unfortunately, instead of recognizing reality and making the tough, but necessary adjustments, people keep trying to put off the inevitable or make it somebody else's problem.

That is why, as the following press release, "U.S. Employers Face Huge Pension Funding Tabs Without Relief, Watson Wyatt Analysis Finds," suggests, corporate America is on the hunt for another bailout.

Despite recent increases in asset values and regulatory relief from the Internal Revenue Service (IRS), U.S. employers will be required to contribute $89 billion into their defined benefit (DB) plans in 2010 and more than $146 billion in 2011 unless they receive funding relief from the federal government, according to an analysis by Watson Wyatt, a leading global consulting firm.

"The combination of a deep recession and new pension law has landed employers in extraordinary circumstances, and they need temporary funding relief to lessen the enormous pension contributions required in the next few years," said Mark Warshawsky, director of retirement research at Watson Wyatt, who testified on these points at an October 1 House Ways and Means Committee hearing.

Watson Wyatt analyzed the projected required contributions for single-employer DB plans under various scenarios: the existing law (including the September 25 IRS guidance) and three legislative proposals currently under consideration.

The analysis found that past relief granted by legislation and regulations had lowered required contributions for corporate pension plans to $32 billion in 2009 from $38 billion in 2008. But without further action, employers' contributions would explode to more than $146 billion in 2011. Under the three legislative proposals, employers' contributions would be somewhat lower, by $10 billion to $25 billion annually with different time paths, but required contributions would still be very large.

Without additional funding relief, the average regulatory funded status would decline slightly from 96.4 percent in 2008 to 93.8 percent in 2009, and then fall to 83.8 percent in 2010 and to 76.8 percent in 2011, the analysis found.

...

"A crucial decision lies ahead for lawmakers," said Gene Wickes, global director of benefits consulting at Watson Wyatt. "Congressional and administration support for funding relief would help ensure that DB plans remain viable for employers and a vital element in the retirement security for workers. It could also save employers from making the difficult choice between large, required pension contributions or jobs, wages and capital investment."

For the funding analysis, please visit: http://www.watsonwyatt.com/us/pubs/insider/showarticle.asp?ArticleID=22407

For the testimony, please visit: http://waysandmeans.house.gov/hearings.asp?formmode=view&id=8071.

Comments

[Rocky]

When former Congressman Gerry Studds died in 2006, his surviving spouse, Dean Hara applied for survivor's benefits from the Congressman's Federal pension plan. Mr. Hara was turned down because the Federal government does not recognize same sex marriages. Now millions of other Americans will know what it is like to have their retirement security turned upside down. Like Nazi Germany was with its Jews, Republicans during the Clinton and Bush presidencies were obsessed with trying to write discrimination against gays into law. Even if Congress puts off the day of reckoning for employers with defined benefit plans, that won't solve the problem unless the economy stages a broad based, long term recovery. The cost of running two wars in the Middle East (Iraq and Afghanistan) and hundreds of military bases all around the world, together with a broken health care system (including Medicare and Medicaid) will make it more likely that many millions of Americans will face a gloomy economic future.