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Labor Secretary Warns of Pending Pension Trouble
By Marilyn Adams, USA Today
October 27, 2005
U.S. Labor Secretary Elaine Chao says companies with traditional pension plans face the prospect of sharply higher pension costs next year unless Congress passes "responsible" reform this year. In an interview with USA TODAY, Chao said the business community is gravitating to competing plans pending in the House and Senate. Neither will win President Bush's approval, she said. Unless private employers push Congress to act soon on an acceptable plan, the financial consequences for companies with defined-benefit pensions could be "very bad," she said. A defined-benefit plan promises workers a fixed monthly sum in
retirement.
"It's imperative that pension reform pass this year," she said.
Inaction on reform could drive up employers' costs in two ways:. Pension relief enacted two years ago is set to expire Dec. 31. Unless it's replaced or extended, the interest rate companies use to calculate pension liabilities would automatically revert to a less-favorable rate - that of the 30-year Treasury bond. . Federal budget legislation moving through Congress would increase the annual pension insurance premium of $19 a worker to as much as $47 a worker - nearly 150% - if no comprehensive reform is
passed.
Private defined-benefit plans cover 34 million Americans, but many are at risk because assets are inadequate to cover liabilities. Also, the government's pension guaranty program, which partially insures pension benefits when companies can no longer afford their plans, is running a deficit in excess of $23 billion. The Bush administration reform proposal would raise the insurance premium rate - which hasn't changed since 1991 - 58% next year to bolster the insurance
program.
It would also make companies accurately report plan assets and liabilities to workers and close funding loopholes. No business group has endorsed Bush's plan. The head of one influential group said his members worry about a big premium increase next year but continue to believe the administration proposal is too rigid. "We have an honest difference of opinion," said James Klein, president of the American Benefits Council, representing 270 companies.
Chao says the administration opposes any pension measure - including versions pending in the House and Senate - that would be weaker than current law and worsen the deficit. She also opposes extending the current interest rates beyond December 31 as a stop gap.
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