Greenspan today testified before the House Committee of Government Oversight and Reform and called the recent economic crisis a “once-in-a century credit tsunami.” The American Benefits Council has issued a warning, indicating a coming benefits tsunami:
The following is an internal report from the chief actuary of one defined benefit plan service provider:“Our projections are showing DB plans due to get slaughtered in their next round of actuarial valuations. Lest we forget, asset smoothing has all but been eliminated so their unfunded liability will see a $1 for $1 increase for their investment losses this year….I haven’t heard this consistent level of concern from plan sponsors in 20 years. Just to throw a real example out there, a large [organization] has gone from 114% funded for the 1/1/2008 year down to restricted (i.e., below 80% funded) as of yesterday….You have to assume we’ll be doing a lot of freezing amendments next year.”
The benefits system has never seen this level of concern before. Unless something is done — quickly — massive funding obligations will trigger benefit freezes on an unprecedented scale. And freezing does not eliminate current funding shortfalls, so companies will be forced to direct huge resources to their plans, which will cost many jobs and prevent companies from making essential investments in their businesses.
Some evidence of this in today’s news: “GM Suspending Benefits.”