<nobr>May 24, 2005</nobr>

ERIC Letter to Congress Re: Pension Funding, PBGC Reform, and Hybrid Pension Plans

Dear Senator/Representative:

If we are going to meet the challenges facing retirement security, the law must reflect a realistic and balanced policy that does not discourage pension plan sponsorship or employee participation. The ERISA Industry Committee (ERIC), whose members comprise the greatest concentration of private sector defined benefit plans in the nation, urges your consideration of our proposals regarding pension funding, the PBGC, and hybrid pension plans. ERIC’s proposals meet the challenges facing retirement security in a way that will enable and encourage employers to continue to offer soundly funded defined benefit plans to their employees.

The proposals (17 pages), along with an executive summary are found at:
http://www.eric.org/forms/documents/DocumentFormPublic/viewDoc?id=36DE00000006

Few, if any of today’s policy discussions about pension policy provide a full and accurate picture of how defined benefit plans today do – and tomorrow can – provide substantial retirement income security to tens of millions of current and former workers and their families. Instead, they focus on worst possible scenarios or scenarios that are industry specific.

Enacting changes that follow too narrow a view of pension reform, that are too harsh and too volatile, and that penalize companies who sponsor defined benefit pensions for their employees is dangerous. It will drive employers away from these secure plans with the result that millions of Americans will retire with less money in their pockets. Moreover, such proposals can create the very problems they seek to avoid, in some cases pushing the company itself out of business and employees out of work.

Over 44 million Americans receive benefits from defined benefit pensions or will receive benefits in the future. Approximately 20 million plan participants are still working and accruing benefits under these plans. Defined benefit plans pay approximately $110-120 billion in benefits each year. This compares to about $3 billion in benefits paid in 2004 by the PBGC, which manages plans that will pay benefits now or in the future to about one million participants. From its beginning in 1975 through the end of 2003, the PBGC had assumed responsibility for 3,277 plans with underfunded liabilities. Over that same period, 194,000 defined benefit plans either have concluded their business through standard (i.e., fully funded) terminations or are still in existence. The vast majority of plans are not a threat to the PBGC – but harsh and volatile rules are a threat to the vast majority of plans and the businesses that sponsor them.

Moreover, the PBGC does not have a cash-flow problem. Rational, non-punitive reforms can be enacted that will protect the agency by ensuring a sound and robust defined benefit system. Of equal importance, it is essential that Congress affirm the lawfulness of hybrid pension plan designs and the ability of employers to convert to these designs that provide a secure pension while meeting the needs of many modern workforces.

We welcome your questions and would be pleased to discuss these important issues with you further.

Sincerely,

Mark Ugoretz
President
mugoretz@eric.org

Janice Gregory
Vice President
jgregory@eric.org

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