Firms Had a Hand in Pension Plight They Now Bemoan Wall Street Journal (07/10/03) Vol. 57, No. 6 p.A1; Schultz, Ellen E.
While companies complain that pension costs rose too fast, many experts believe that strategic decisions made by executives to cut costs or boost earnings are to blame. In fact, many companies used pension assets to pay for retiree health care insurance, the costs of laying off personnel, and fees for benefits consultants. Moreover, companies restructured their pension plans, transferring funds into cash balance plans to make employees believe that their retirement savings were more than they actually are, which allowed companies to cut back on contributions. Surpluses that once existed in pension plans have now been whittled away, leaving many pensions with huge deficits since the collapse of the stock market bubble. As the economy dipped, employers were forced to lay-off workers, who were offered early retirements and severance pay, which was mostly paid for with pension assets. In fact, many employers offered workers lump sum payments as an early retirement option, which saved companies between 10 percent and 20 percent in pension liability costs. Additionally, employers have been lobbying to change interest rates used to calculate pension fund liabilities from the 30-year Treasury bond to the corporate bond rate, which is significantly higher and would allow the companies to reduce their pension obligations.