New Pension Math Underwhelms Public Plans Investment Management Weekly (07/28/03) ; Neel, Dan; Mulholland, Sarah
To the chagrin of some public pension plan sponsors, a revised version of the Portman-Cardin Bill has been approved by the House Ways and Means Committee. The bill would alter the way estimated pension liabilities are tallied over the next three years by replacing the 30-year Treasury bond with a long-term corporate bond index. The move is meant to mitigate pension defaults and help bring both private and public pensions closer to being fully funded. According to the Pension Benefit Guarantee Corp. (PBGC), corporate defined-benefit plans are currently underfunded by about $300 billion. Critics of the new plan argue that it is merely a superficial fix that will have no real effect on fixing the pension shortfall problem. Although Towers Perrin managing director Steven Kerstein says the new benchmark will allow companies to refigure their actuarial liabilities and reduce their required pension contributions by almost half, Maryland State Retirement & Pension System Public Information Officer Joe Coale says the new benchmark will do nothing to benefit the pension system. Other public plan sponsors say the change will only add to pension shortfalls by giving companies the means to bypass their pension responsibilities. The change is also opposed by the PBGC, which favors instead the implementation of a yield curve to measure pension liabilities.