Wednesday, March 16, 2005

Senate Pension Forum

The Senate Finance Committee and the Senate Health, Education, Labor andPensions (HELP) Committee held a pension forum on March 15, to discuss "the retirement system of the future." Presenters at the forum included a mix ofparticipant advocates and labor unions as well as plan sponsors and service providers. All of the speakers agreed on the importance of the defined benefit pension plan system and indicated their support for the "three-legged stool" of retirement security - i.e., Social Security, employer-sponsored pensions, and private savings - while many of the plan sponsors predicted that the defined benefit system was in danger of extinction. The speakers did not agree on measures necessary to expand plan sponsorship or to make it more affordable and attractive to corporations.The speakers also agreed that the low rate at which Americans save for retirement was a disturbing trend. However, they did not agree on ways to encourage or preserve savings. Speakers with labor and participant advocacy backgrounds preferred mandates, such as mandated matching contributions on plan sponsors, others favored greater education or investment advice. Labor and advocacy speakers expressed concern regarding stagnation of wages, downward pressure on benefit programs, worries over old-age poverty, globalization, lack of benefits for contingent or part time workers, need for rules regarding hybrid plans that protect a worker's expectation of their benefits, and better funding by plan sponsors. One of the researchers said that the move in the U.K. to require plan sponsors to move their investments solely to bonds had resulted in a 65 percent freeze /termination rate in their defined benefit plans. In addition, he noted thatU.K. companies that had employees in the U.S. were now discontinuing their plans for the employees in the United States. Business and service provider speakers expressed concern regarding the impact that upcoming pension funding reform could have on the ability of a plan sponsor to budget and predict its pension plan contributions. The need for legal certainty on hybrid plans and conversions to hybrids was equal to the need for stability and predictability in funding, they said. All supported having a strong defined contribution system and were looking for ways to increase participation and reduce leakage. Speakers noted that businesses generally oppose increased burdens on plan sponsors such as additional non-discrimination rules or tests or reduced vesting schedules. Automatic enrollment was universally supported as were other ways to improve savings through 401(k) plans and the importance of annuitization. The business and service providers speakers predicted, however, that if the flexibility of employers to change or discontinue offering their plans were restricted, there could be a rush to freeze and terminate their retirement plans.

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