Official Says Pension Rules Encourage Underfunding

A top strategist at the U.S. Securities and Exchange Commission says current U.S. defined benefit pension rules give employers an incentive to put in too little cash and invest plan assets recklessly.[@@]

SEC Chief Economist Chester Spatt delivered his critique of the U.S. pension system last week in Washington at a seminar organized by a Georgetown University research center.

The current pension system has problems because employees and the Pension Benefit Guaranty Corp., the agency that insures pension benefits, bear much of the load if a plan fails, Spatt said, according to a prepared version of his remarks posted on the SEC Web site.

Because employers are contributing cash to pay for other people’s pension benefits, they start with an incentive to contribute too little, Spatt says.

PBGC funding rules encourage employers too much stock in plans in an effort to increase plan asset totals temporarily and eliminate or reduce the need to put in more cash, Spatt says.