Friday, August 18, 2006
Bush Signs Pension Reform Bill
The 30,000 traditional pension - or defined benefit - plans in the United States are currently underfunded by 450 billion dollars. President Bush has just signed a pension reform bill that requires corporations offering those plans to fully fund them in seven years, starting in 2008. The new bill includes some exceptions for airlines to give them at least 10 years to fulfill their pension obligations, and a three year delay before defense contractors - such as Cheney's old company Halliburton? - are required to adhere to the new rules. "You should keep the promises you make to your workers," Bush warned, or pretended to warn, those companies that now offer pensions. However, the bill offers neither encouragement to corporations without pension plans to establish them nor any real protection against the freezing or discontinuation of existing plans, and many believe the bill will spell the end for pensions in the future. In effect, Bush may actually be saying to American corporations as a group, "Hey guys, we all know pensions are a thing of the past, but for the time being we?re stuck with a few. So let?s pay up, cut our losses, and eventually we?ll move on to a pensionless society." After all, most of the 112,000 pension plans that existed in 2005 have already disappeared, and most of the 30,000 still left are bound to be phased out in the next twenty years.
The bill, in fact, encourages 401(k) plans, and allows corporations to automatically enroll employees in such plans as soon as they are hired. It also encourages corporations to make matching contributions, but these remain entirely voluntary. The bill institutes some other helpful changes, such as slightly more generous limits on non-taxable yearly IRA contributions - $4,000 until 2007, $5,000 in 2008, with gradual increases for inflation afterwards. This is an improvement, as the limit was previously scheduled to be cut back to $2,000 in 2010.
To better entice the cooperation of business, the bill removes prior legal constraints on investing pension dollars in hedge funds. Hedge funds, despite their risks, have become the favorite financial instrument of the rich. Perhaps at least a few million American workers will get a taste of their quick and slippery cash in the coming years. Although I suspect the CEOs want the hedge funds to beef up their own pensions first.
"Overview of U.S. pension bill signed by Bush" from Reuters
"President Bush Signs New Pension Bill" from Forbes
"Bush signs pension reform bill" from Capitol Hill Blue
"Bush OKs sweeping changes to strengthen pensions, retirement funds" from Sun-Sentinel
"Pension bill becomes law" from Marketplace (NPR)
"AARP Highlights Positive Effect of Pension Bill Signed Today by President Bush" from Newswire