UPDATE on
Federal Pension Law debate: THE
LONG AWAITED PENSION LAW HAS PASSED
- 4/10/2004!
Congress
is considering proposals to change
the pension rules governing the
interest rate used to determine
whether or not a pension plan
is under funded and to calculate
lump sum payments to workers.
These changes would allow corporations
to both reduce payments to under
funded traditional pension plans
and pay out smaller lump sums
to workers.
In Crawford Texas last week
President Bush signed into law the hard
fought bill providing pension accounting
relief for roughly 31,000 single employer
funds (including Xerox). This measure, now
signed into law, is aimed at saving more
than $80 Billon in pension contributions
over the next two years for those same employers.
The law was signed just days before the
firms made quarterly payments, and is effective
immediately. The Big Winners are the big
three auto makers, airlines, and many other
large companies. A smaller benefit will
go to those multi-employer plans more prevalent
in the construction and transportation industry.
The effected pension plans cover about 35
million workers and promise a specific annuity
payout based upon salary and service. Many
of the traditional pension plans were under
funded because of the weak stock market
in the last several years, and the lower
interest rates. As a result many companies
are struggling to make payments and lump
sum distributions from these plans because
profits have shrunk.
The relief comes from replacing the formula
for calculating pension contributions. None
of the aid comes from government payments.
The law is intended as a temporary measure
to keep plans afloat while Congress works
on longer term pension reform. Yet to be understood
is how this will affect individual workers
selecting Lump Sum distribution instead of
an annuity. AARP has an advocacy web site
that allows you to give your opinions and
respond to your congressional representatives
by Email.
The AARP concerns are stated below as follows:
"Congress is considering
proposals to change the pension rules governing
the interest rate used to determine whether
or not a pension plan is under funded and
to calculate lump sum payments to workers.
These changes would allow corporations to
both reduce payments to under funded traditional
pension plans and pay out smaller lump sums
to workers.
AARP believes that whatever funding relief
Congress gives to employers, employees' pensions
should not be reduced. Please email your Senators
and Representative and ask them to be fair.
The legitimate needs of both pension plan
sponsors and beneficiaries must be recognized.
Tell Congress not to cut the value of lump
sum pension amounts by changing the interest
rate."
