Council Says Quit Stalling on Pension Funding Stabilization

In a letter to congressional leadership, Klein said the Council strongly supports the defined benefit (DB) pension plan interest rate stabilization measure previously approved by the Senate as part of the surface transportation funding bill, which is currently stalled in conference negotiations with the House of Representatives. On June 7, Senate Majority Leader Harry Reid (D-NV) proposed using the funding stabilization measure as a revenue offset for a separate bill, the Stop the Student Loan Interest Rate Hike Act (S. 2343). 

According to Klein, the funding stabilization provision was based on a proposal developed by the Council in 2011 to help address the pension funding implications of historically low interest rates. This low-interest-rate policy, designed by the Federal Reserve Board to help stimulate economic recovery, has inadvertently triggered abnormally high pension liabilities. The Council’s questions and answers document about funding stabilization provides a comprehensive summary of the issue.  

Reid has also suggested – as an additional revenue offset – inclusion of a proposal to increase defined benefit plan insurance premiums paid to the Pension Benefit Guaranty Corporation (PBGC). However, the Council’s letter argues that “careful congressional examination should be conducted before any change in PBGC premiums is considered,” citing a lack of clarity on numerous elements of the premium increase proposal, including the true nature of the PBGC’s surplus or deficit position, the agency’s methodology for calculating the surplus or deficit, the effect of interest rate volatility on the PBGC’s financial status, and the urgency (or lack thereof) of premium increases, given the long-term nature of PBGC’s obligations and the need to fully examine the matter.  

The Council recently prepared a “myths and facts” document examining serious concerns with PBGC’s premium proposals.