Retirement

Highway Bill Would Let Companies Slash Pension Payments


Highway Bill Would Let Companies Slash Pension Payments

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Amid provisions for repairing bridges and easing congestion, an amendment to the Senate highway bill that is being debated today would provide relief for companies facing an onslaught of pension obligations—but could also end up putting employee retirements at risk.

As Bloomberg Businessweek reported on March 1, companies may have put $400 billion into their pension funds through 2015 to make up shortfalls. After several major companies that include United Airlines defaulted on their pensions, a law that largely took effect in 2008 gave employers a seven-year deadline to catch up on underfunded plans. It also said companies must use market-based rates of return, instead of internal estimates, to calculate how fast their contributions will grow over time. Today, with the Federal Reserve keeping interest rates at historic lows, companies must contribute more money than they did in the past to reach the same goals.

Companies want some relief, saying they could better use the cash to invest in their businesses and hire more people. The Senate highway bill amendment, which was agreed to by unanimous consent on March 7, would let companies calculate their contributions based on 10 years of corporate bond rates, instead of the current two-year requirement. That would help them because interest rates were much higher before the 2008 financial crisis. The Wall Street Journal reported that a coalition of industry players is looking to expand the calculations to a 25-year average.

In an op-ed for Bloomberg View, Roger Lowenstein, who has written a book on the problems facing pension funds, says that cutting payments reflects “short-term thinking. … Underfunding merely sustains the fiction that a plan is more viable than it is.” He says pensions may constitute a burden, but they’re a burden that companies willingly took on when they chose to offer pensions as a benefit to employees. Now, Lowenstein says, they must stand behind that obligation by keeping their plans fully funded.

Weise_190
Weise is a reporter for Bloomberg Businessweek in New York. Follow her on Twitter @kyweise.

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