Pension Act Signed

The new law “takes a number of steps which would ameliorate the finances of the PBGC, but all of that doesn’t appear to be enough to solve the insolvency,” Pollock says. “It also doesn’t address the real fundamental structural problem of the PBGC, which is you have the government guaranteeing other people’s risk decisions, which is almost certain to lead to problems.” He believes that Congress will need to enact further changes to address the PBGC’s structural problems, which includes how to deal with the fact that people are living longer.

Former SEC Chairman Arthur Levitt agrees that the bill is a step in the right direction, but says it’s “certainly not a cure for what ails the pension system.” Besides the fact that implementing the bill will take a “long transition period,” he sees trouble looming for those companies that will see their contributions more than double. How will these companies respond? “More companies will go into debt to fund their plans, or they may allocate their investments differently to protect the plans’ funded status,” he says. Moreover, if interest rates continue to creep up, “some companies may close their plans.”–Melanie Waddell