<nobr>Mar 1, 2005</nobr>

ERIC Calls On Senate Finance Committee To Protect Robust Voluntary Pension System

March 1, 2005 – The ERISA Industry Committee (ERIC) a trade group representing America's major employers today called on the Senate Finance Committee to help develop a more robust pension system that encourages employers to provide pensions and to safeguard those pensions for employees.

In testimony submitted to the Committee, ERIC noted that the "sweeping proposal" put forward by the Administration seeks to "re-invent the rules governing voluntary defined benefit pensions." While the proposal has some elements with which major employers could agree, on balance the proposal "will reduce retirement security by making it far more difficult for employers voluntarily to sponsor defined benefit pension plans."

"Whether at the end of the day employers are provided with a regulatory framework that encourages them voluntarily to establish, maintain, and fund pension plans -- or whether they are faced with rules that discourage and even penalize such actions will depend on the ability of Congress and stakeholders to find the right balance of rules and opportunities, risks, and protections,” according to ERIC.

"The system only works if it both encourages employers to stay in the system and provide pensions while it protects employees who depend on those pensions," said Mark Ugoretz, president of ERIC, "any proposal that doesn't do both, should not go forward."

While the organization supports a soundly finance Pension Benefit Guaranty Corporation (PBGC) (the agency that insures pension plans), ERIC questioned whether the agency is really in the dire straights it claims. Although the agency contends it had a $23 billion deficit at the end of 2004, almost 25% of it's proclaimed deficit -- $17 billion -- was due to claims it had not yet received and may not receive in 2005. These claims, dubbed "probables" by the PBGC, for the most part reflect a troubled airline industry rather than a broad section of companies with pension plans.

According to ERIC the major weakness of the Administration's proposal is the replacement of current law funding rules that provide some predictability and stability to a company's funding requirements with an unpredictable and extremely volatile system based on "spot rates." ERIC argued that the spot rate proposal would result in "volatility and lack of predictability" for employers, who could not "tolerate that much risk exposure." Moreover, the Administration proposal would impose even harsher rules based on the financial health of the plan sponsor rather than the plan itself. A pension plan can be well funded even if the employer-sponsored is having difficulty. The result of these rules, said ERIC, will be to cause the very plan terminations Congress seeks to avoid.

ERIC called on the Finance Committee members to make permanent the benchmark for measuring pension plan liabilities that Congress enacted in 2003 and which is based on conservative long term corporate bond indexes that are public and transparent. The Administration proposal calls for a benchmark based on a "yield curve," yet to be developed by Treasury employees, that would require a company to measure plan liabilities based on guestimates of plan payouts far into the future. The proposed standard adds additional volatility, is complex, and is opaquely confusing.

In order to avoid risk, unpredictable and volatile funding requirements, Administration spokesmen have suggested that employers turn to bonds rather than equities to fund their liabilities. In a separate statement, ERIC president Mark Ugoretz noted that there are not enough bonds available to fund the enormous pension industry and that the Administration's proposal would significantly disrupt both the equity and bond markets as companies rushed from stocks to bonds.

As part of its Testimony, ERIC also released Principles that its members, all major employers, believe should govern any new legislation on pension funding.

The ERISA Industry Committee (ERIC) is a non-profit association committed to the advancement of employee retirement, health, and compensation plans of America's largest employers and is the only organization representing exclusively the employee benefits interests of major employers. ERIC's members provide comprehensive retirement, health care coverage and other economic security benefits directly to tens of millions of active and retired workers and their families. ERIC has a strong interest in proposals affecting its members' ability to deliver those benefits, their cost and their effectiveness, as well as the role of those benefits in the American economy.

For further information contact Janice Gregory, Senior Vice President or Mark Ugoretz, President.

The ERISA Industry Committee
1400 L Street, NW Suite 350
Washington, DC 20005
Tel: 202.789.1400 Fax 202.789.1120
http://www.eric.org

Websites:

ERIC Testimony

ERIC Principles

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