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Press release:

Government and Regulatory Initiatives Endanger America’s Retirement Security

Issued by: AFP

Date: Apr. 29, 2004

Pension Benefits for Millions of Americans at Risk According to New Survey of Large Pension Plans

BETHESDA, MD – MARCH 18, 2004 – Approximately 50% of major U.S. corporations are likely to reduce pension benefits if an unprecedented number of proposed accounting, legislative and regulatory initiatives are implemented, according to a report issued today by the Committee on Investment of Employee Benefit Assets, a committee of the Association for Financial Professionals (CIEBA of AFP). The disparate initiatives currently being considered by the U.S. Treasury, the Financial Accounting Standards Board (FASB), the Pension Benefit Guaranty Corporation (PBGC), and others would redefine the measurement of corporate pension plans, threatening the retirement security of millions of Americans and putting even greater pressure on the U.S. Social Security system to make up the difference at a time when this program is under increasing stress.

“The U.S. corporate defined benefit system is arguably the best-funded and best conceived system in the world,” said T. Britton Harris, CIEBA vice chairman and president of Verizon Investment Management Corporation. “With the baby boom generation nearing retirement and the U.S. Social Security system under continuing pressures, it is critical to encourage policies that promote a financially secure retirement for millions of working Americans. Rather than making the nation’s retirement system more secure, these proposed pension rules and regulations will make it less so. We must reject changes that threaten the U.S. corporate pension system or reduce its effectiveness as a core part of our national retirement strategy.”

CIEBA of AFP initiated a two-part study to analyze these proposed pension initiatives. According to the report, “The U.S. Pension Crisis: Evaluation and Analysis of Emerging Defined Benefit (DB) Pension Issues,” employer-provided DB plans continue to be a successful and critical part of the U.S. long-term retirement system, covering 35 million workers and retirees. More than 75% of Fortune 500 companies provide a DB pension encompassing employees at all levels within the corporation. CIEBA members oversee DB plans comprising 9.5 million participants, or more than one quarter of all Americans covered by DB pension plans.

“The report clearly showed we are entering an unprecedented period of danger for the retirement system that protects millions of Americans,” said Harris. “Our survey identified seven different initiatives that are currently being independently pursued by a number of governmental agencies and standard-setting organizations. These initiatives are varied and wide-ranging, including suggested changes in the accounting treatment, funding requirements and rules governing defined benefit plan assets. We believe that a comprehensive review of the funding rules and the regulatory regime that governs DB plans is desirable, but any proposed changes must be considered together, and not in isolation.”

CIEBA canvassed its members on the current status of their plans and ways their plans might change if some or all of the initiatives were adopted. Members representing almost $500 billion in pension fund assets responded to the survey. The CIEBA study found that:

  • Approximately half of the surveyed plan sponsors indicated that freezing accruals to existing participants or freezing entry by new participants was a possible or very likely response to the pending initiatives.

  • Three-quarters (75%) of CIEBA members surveyed would make a significant change in their asset allocation, principally by lowering long-term equity holdings and re-investing the proceeds in fixed income securities, increasing pension costs and reducing benefits for millions of participants.

“Changing the fundamental rules of the game will reduce corporate commitment to defined benefit pension plans, weakening retirement security for millions of current and future workers and retirees,” said Harris. “Proposed changes could make defined benefit plans much more expensive, hamper benefit delivery and reduce long-term benefits.”

In addition to its member survey, CIEBA invited a team of financial and economic experts from institutions including Goldman Sachs, Morgan Stanley, Bridgewater and Hewitt, to provide independent analysis of the potential impact of the proposed initiatives on retirement security and the U.S. economy as a whole. Among the potential impacts identified by the independent experts in the report are:

  • An estimated decline of 8-12% in the stock market, representing asset flows of between $250 and $650 billion out of the U.S. equity market.

  • A reduction in real GDP growth by 0.3-0.5% per year between 2005 and 2007.

  • A short-term loss of between 290,000 and 440,000 jobs.

  • Several of the emerging issues, including the elimination of smoothing of asset values and funding requirements, also contribute to greater volatility both of corporate earnings and year-to-year funding requirements.

Harris concluded: “Legislators, regulators and standard setters need to acknowledge that healthy pension reform must be broadly coordinated. CIEBA calls on them to meet together with representatives of plan sponsors and participants to develop a blueprint for considering pension reforms that takes into account the collective consequences as well as the individual impact of any proposed changes.”

Read the full report.

Executive overview.

The Committee on Investment of Employee Benefit Assets is the voice of the Association for Financial Professionals on employee benefit plan asset management and investment issues. CIEBA represents more than 110 of the nation’s largest retirement funds. Its members manage $1 trillion of plan assets, covering 15 million participants. Defined benefit plans managed by CIEBA members comprise 9.5 million participants, or more than one quarter of all Americans covered by DB pension plans

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This is a press release issued by the company named above. BenefitsLink is not the author. Use of any information obtained from this release is voluntary, and reliance on it should only be undertaken after an independent review of its accuracy, completeness, efficacy, and timeliness. Reference to any specific commercial product, process, or service by trade name, trademark, service mark, manufacturer, or otherwise does not constitute or imply endorsement, recommendation, or favoring by BenefitsLink.

 
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