journal of pension planning & compliance - Kluwer Law International

8 / JOURNAL OF PENSION PLANNING & COMPLIANCE
The current yields on U.S. Treasury securities range from 0.255% in
2010 to 3.87% in 30 years and beyond. In order to properly fund this plan to
protect pensions would require $93,760,534 in current funding. Substantially
greater than the prescribed obligation of $61,171,922 as presently required
or even the $51,436,400 permitted under Treasury and PBGC rules.
CONCLUSIONS
Relying on the results of these simulations, two consequences of
the PPA provisions become quite apparent. There is a pattern over time
under the pressure of the PPA obligations to increase discount factors
on the part of the U.S. Treasury, and the PBGC that results in an inevitable
reduction in the financial obligations of the pension funds. This
serves the purpose of meeting the obligations imposed in the legislation.
However, under a more comprehensive analysis, recognizing the impact
of declining rates, largely due to the economic decline and policy measures
on the part of the Federal Reserve System to push down interest
rates while attempting to stimulate the economy, the results are conclusive,
that pension plans likely will expose pensioners to greater risk.
While some firms, significantly underfunded, may be stimulated to meet
the newly prescribe obligations, others may decrease funding while relying
on the authority and insurance of the PBGC.
Clearly, the monetary obligation to properly fund pension plans is
substantially greater than the prescribed financial obligation if the goal
is to protect pensioner interests. However, the assumptions involved
in these simulations may still be too general. Factors such as race and
gender have not been distinguished in this study and could impact the
financial requirements further. Additionally, the PBGC as well as the
simulation study disregards any commitment to nonvested employees
which imposes a further financial burden on the pension plan.
It remains to be seen if the funding provisions required under
current PBGC guidelines will adequately fund the obligation under the
insured pension plans as the U.S. economy recovers from the severest
recession since the Great Depression.
REFERENCES
BLS, Table 3.1 Civilian Labor Force by Age, Sex, Race and Ethnicity,
Employment Projections Program, U.S. Dept. of Labor , August 2010.
Landsberg, Richard D., “An Overview of the Pension Protection
Act of 2006,” Journal of Pension Planning and Compliance , Vol. 33,
No. 4, pp. 22-42, 2008.