US - The American Benefits Council has criticised the method for calculating assets and liabilities under the new Pensions Security and Transparency Act, labelling it "completely inappropriate".
James Klein, ABC president, called for reform to a number of areas in the final Bill, which was passed by the US Senate recently.
Failure to do so would hasten the demise of the DB pension system and result in less retirement security for working Americans, said Klein.
Under the Bill, the interest rates used for calculating pension obligations and valuing assets introduce too much unpredictability and cost volatility into pension funding, he said.
“The one-year period over which both assets and liabilities would be averaged is completely inappropriate for a long-term obligation such as a pension plan,” he said. “It will make it extremely difficult for companies to make business plans and force them to hold in reserve excess assets that may be needed to fund the plan.”
Klein called for three-year averaging to be included in the final Bill.
The legislation also imposed additional liabilities on companies with less than investment grade credit ratings - even if their pension plans were well-funded and posed little risk to the Pension Benefit Guaranty Corporation (PBGC), said Klein.
“Placing onerous costs on financially weakened companies undermines their ability to recover and, ironically, could force the termination of such companies’ plans, rather than their survival, thereby harming retirees and imposing greater liabilities onto the PBGC,” he said.
Linking funding to credit rating was ill-advised when the method by which ratings are determined was also under scrutiny in Congress. Rather, Klein said any ‘at-risk’ liability should be based only on the funded status of the plan in question as appears in the House and Senate HELP Committee bills.
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