With a stroke of his pen, the president of the United States can approve legislation and create federal policy that can change the future for millions of Americans. But sometimes he just signs stuff and not much changes.
In August, President George W. Bush signed the Pension Protection Act of 2006, widely reported as the biggest overhaul of the pension and retirement benefit system in 30 years.
Started as "pension simplification" about eight years ago, the new law does consolidate a variety of pension administration issues and fixes a few budding funding and legal problems, but fails in setting a positive future policy.
Here's what it does pretty well:
* It helps protect the Pension Benefit Guaranty Corp. from needing a taxpayer bailout by tightening funding standards and sets a reasonable catch-up deadline for employers.
* It bails out the struggling airline industry by giving them more time to meet their pension responsibilities.
* It settles legal issues that prevented employers from providing cash-balance hybrid plans.
* It allows employers to "auto-enroll" employees in defined contribution plans, thereby mildly increasing retirement saving.
* It encourages and protects employers and defined-contribution plan administrators that offer investment advice to plan participants.
* It creates a model for a new hybrid plan that may appeal to smaller employers.
Now here's what it doesn't do:
* It doesn't establish a clear national retirement policy that deals with an aging America in a comprehensive way that includes retirement-asset building, social-service programs and support for employer programs.
* It doesn't offer employers support to create new defined-benefit plans.
* It doesn't protect employer plans from market volatility.
* It doesn't encourage retirement savings from Generation X and Generation Y workers.
* It doesn't build new vehicles for employers to help employees deal with escalating retiree medical costs not covered by Medicare, such as long-term care and home care.
* It doesn't provide incentives for employers to support services to employees for housing, relocation and work/life issues after retirement.
Even the praised provisions may do less than meets the eye, notes Sheldon Gamzon, principal at PricewaterhouseCoopers Human Resources in New York. "Investment volatility is the single biggest reason defined-benefit plans are frozen or terminated," he says. "The bill does little to help employers deal with volatility--allowing 'smoothing' over 24 months. I expect there will be no change at all in the steady decline of defined-benefit plans."
Gamzon also says the technical aspects of the new funding rules discourage plan sponsors from investing in equities that tend to be volatile over a seven-year cycle--which may not only depress the stock market but limit investment earning potential in remaining defined-benefit plans.
I suppose celebration is in order for the industry lobbyists who have struggled for years to get some of these provisions passed and some annoying administrative problems solved, but as James Klein, president of the American Benefits Council says, it is still a "mixed bag."
He's being generous. I still don't see any new shine on the Golden Years for the next generation of retirees.
LEN STRAZEWSKI, a professor and benefits expert, is a columnist for
Risk & Insurance®.
October 1, 2006
Copyright 2006© LRP Publications