Prometheus 6

Yesterday I said I know this is important. I don't know if it's good or bad. Well, I got my answer.

The bill concerns "defined-benefit" plans, the sort which, unlike a 401(k), guarantees a certain size of pension to workers. The main provision changes the interest rate that these plans use to calculate how much they will need to meet their promises. Until now, sponsors of the plans have assumed that their assets will grow at the modest rate of money put into risk-free Treasury bills; because pension promises are supposed to be risk-free, this seemed appropriate. In the future, however, sponsors of retirement plans will assume they're going to earn the higher rate investors get when they risk their capital in a basket of corporate bonds. Moreover, the basket includes bonds with credit ratings of A or AA, not just rock-solid AAAs; and it is composed only of high-yielding long-term bonds, even though pension obligations to workers approaching retirement will come due in the short term. By assuming this higher interest rate, companies will pay $80 billion less into their pension plans than they otherwise would have over the next two years. If they go bust, the government-backed Pension Benefit Guaranty Corp. will shoulder their unfunded promises. In short, companies will effectively borrow money from their pensioners; if the companies default, taxpayers ultimately will be liable.

…Without the efforts of the White House, the bill would have been worse. Sen. Edward M. Kennedy (D-Mass.) led a campaign to allow cuts in contributions to multi-employer plans -- never mind that the funding requirements applying to those plans are already extraordinarily lenient. The Senate also wanted to waive the rules for all underfunded plans, rather than just for the steel and airline lobbies. The Bush team deserves credit for successful resistance on both fronts. But its attempts to declare a complete victory are hollow. The bill "provides important worker protections and prevented further systemic pension plan under funding," a statement from the Treasury declares. This is Orwellian nonsense.