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President Bush signed a pension reform bill into law Thursday, calling it the most sweeping reform in over 30 years at a White House signing ceremony. Economics Correspondent Paul Solman outlines the changes that promise to bolster pension funding and savings.
Forty four million workers are covered by traditional pension plans, and 70 million have 401(k)s, but the nation's pension system has been on shaky ground, falling $450 billion short of expected future obligations. The new law was designed to close some of that gap by forcing companies to spend more, employees to save more, and to invest differently.
To help walk us through the changes, we're joined by NewsHour economics correspondent Paul Solman.
So, Paul, what do the bill's sponsors say about what the benefits of this new law would be?
PAUL SOLMAN, NewsHour Economics Correspondent:
Well, companies have to pay higher insurance premiums to the government insurance agency, the Pension Benefit Guaranty Corporation, and that will be several billions of dollars over the next few years, so they're ponying up more for the insurance that they're getting.
And also there's a change in how fast you are allowed to write off the losses. If your pension assets have less money in them than you owe to workers — today, let's say — you have to make up that money more quickly than you had to in the past. In the past, it might have been 30 years; today, it's only seven years.
Well, at least according to the people I talked to, and I've been talking to a lot of experts about this today, one guy said it was Orwellian to call it "full funding." It is no such thing, because the companies are still going to be investing in stocks, which obviously go up and down, when they've got promises that are etched in stone. And the reason the government winds up taking over those promises is because the companies can't actually meet their payments if the stocks go down, the companies do badly, as, for example, with the airlines.
So that big problem really doesn't seem to be covered here. And in fact, the Pension Benefit Guaranty Corporation did a study showing that the gap won't be closed in the next 10 years, according to the assumptions of the bill, the breaks for the airlines, for example.
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