US - Pension plans should be required to target funding levels of 100% and the PBGC should be given more flexibility to deal with individual problem areas in order to solve the federal insurer's mounting deficit, argues Delphi chairman and CEO Robert Miller.
The PBGC has suffered recently from numerous plan terminations, bringing its total deficit US$23.3bn.
“The big question surrounds this dilemma: do you tighten the funding rules and risk tipping over more pension plans into the arms of the PBGC? Or do you loosen the rules, only to find more pension plans getting into trouble later?” Miller said. “In a nutshell, I would tighten the rules, and require all plans to be targeted at 100% funding.”
However, the PBGC should also be given the flexibility - with approval authority vested in its board - to cut tailor-made repayment plans that reflect the needs of particular companies that fall behind, he added.
“I would also give the PBGC what I call 'conventional weapons', including the right to negotiate covenants, collateral packages, benefit freezes, and other mechanisms to protect the interests of the PBGC from catastrophic failures. Right now, the PBGC has only the nuclear option of plan termination, which they use sparingly and only when all is lost.”
A number of companies, most notably some airlines, have pressured Congress for a relaxation of the rules, and Miller agreed that more time to allow for a cure was preferable to plan terminations, which would further deepen the PBGC's woes.
One of the key reasons for the spate of recent plan failures is that current accounting rules permit companies to use generous assumptions about the earning power of plan assets. These rules often end up underestimating the potential true economic shortfall in plan funding, he said.
“The SEC is looking into this, and I expect some changes in the disclosure requirements so that we can at least face up to the problem.”
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