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January 11, 2005
Bush Plans Changes to Pensions

The Bush administration has unveiled a plan that aims to protect the pensions of 34 million Americans and ensure the solvency of the Pension Benefit Guaranty Corporation by increasing premiums and revising pension-funding rules.

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In November, the Pension Benefit Guaranty Corporation reported that its deficit swelled from $11.2 billion in 2003 to a record $23.3 billion in 2004.

"If nothing is done, the financial integrity of the federal insurance system will be compromised and the pension security of 34 million workers and retirees will be more at risk," says Secretary of Labor Elaine Chao.

The administration's plan would raise flat-rate premiums from $19 to $30. The plan would index the premium to reflect growth in worker wages.

Companies with underfunded plans would be required to pay risk-based premiums. The PBGC would adjust the risk-based-premium rate periodically so that premium revenue is sufficient to cover expected losses and to improve the PBGC's financial condition.

The plan calls for revisions to the funding rules for pension plans to ensure that employers fully fund them. The administration's plan would require:

  • Pension plans to make up funding shortfalls within a reasonable period of time, e.g., seven years.
  • Employers to forego promising additional benefits, or pay for them immediately, if the company is financially weak or the pension plan is significantly underfunded.

The plan would also allow plan sponsors to make additional contributions during good economic times.

For more information, read the Labor Department's Fact Sheet.

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