Today’s Federal Register.
You’ve heard of a run on a bank. Ever heard of a run on a pension plan? That is the subject of this article–“A Lump-Sum Threat to Pension Funds“–by Mary Williams Marsh for the New York Times here or via the Tuscaloosa News. The article discusses how those employees nearing retirement who are working for companies with underfunded pension plans are considering early retirement along with lump-sum payouts to avoid the scenarios which occurred with U.S. Airways (discussed in this article–“Broken Promises“–for the Tampa Tribune.) The New York Times article reports:
Officials of the Pension Benefit Guaranty Corporation, the government agency that insures the plans, say they are monitoring the pension funds of two companies where worried employees are withdrawing their benefits, further eroding weakened plans. A spokesman for the insurance agency declined to identify the companies, citing concerns about the possible effect on their stock prices.
As the article states so aptly, it is very hard for employees to get the real picture about the health of the pension funds they are apart of, making a decision such as when to retire even more difficult.
But determining the condition of an underfunded plan can even be problematic for the directors of a company to determine, as discussed in this article by Randy Myers for Corporate Board Member: “How to Tell if Your Company’s Pension Plan Is Sinking.” The article urges board members “to find out just how healthy their company’s pension plan really is” and explains the challenges directors face in getting to the bottom of it:
The scary news for anyone monitoring these figures—and board members should be—is that bad as they are, they don’t reflect the whole problem. U.S. pension accounting is a notoriously perverse art that at times allows a company to book pension income when the fund is actually experiencing losses, to show pension-related assets on the balance sheet without recording underfunded plans as a liability, and to base the whole ball of wax on a series of forecasts about future plan performance that may be wildly out of step with reality.
And while we are on the subject of pension funding, the American Benefits Council has some great materials posted on their website “in preparation for continuing debate on pension interest rate replacement by Congress and the Bush Administration.” The materials include a comprehensive chart comparing the various legislative proposals to current law, prepared by the Benefits Group of Davis and Harman, and talking points on interest rate replacement, lump sums and the yield curve approach. You can also access all of the proposed legislation at their website as well.