Thursday, June 16, 2005

Pension Benefit Guaranty Corporation Underfunding Exposure

Director Douglas Holtz-Eaton of the Congressional Budget Office (CBO) testified before Congress yesterday
( The director indicated that the present deficit was $23.5 billion and that economic costs to taxpayers would be about $68 to $91 billion over the next twenty years. He also said that present techniques emphasized cash flows rather than future economic costs, which tended to obscure the potential problem. He recommended some increase in employer premiums and added that Bush administration proposals were reasonable. At the same time, he warned that overly drastic changes could jeopardize employer willingness to continue the plans.

My opinion? Defined-benefit employer-sponsored plans are on the way out. Few if any new defined-benefit plans will be offered and many employers will attempt (hopefully through legal and ethical means) to convert defined-benefit plans to defined-contribution plans or eliminate pension coverage altogether.


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