Does Law Need Changing to Protect Company Pensions?

(MoneyWatch)  Questions are being raised if traditional pension plans that companies hold for their retired workers are viable or need refunding.

Some critics are even raising the specter that pensioners might get only a fraction of the money due them or nothing at all unless changes are made.

The financial crisis has cost hundreds of companies billions of dollars in market capitalization in October alone, making their pension plans under funded as defined by federal law. The Pension Protection Act of 2006 requires companies to inject cash into their pensions after they reach certain levels.

Already some 15 U.S. business groups are lobbying Congress to provide relief by lowering the levels at which funds must be refunded and by offering longer, easier refunding terms. The groups, including the American Council of Life Insurers and the American Benefits Council, complain that firms are so desperate for cash right now that they can't afford to refund pension plans at 100 percent levels as the 2006 law requires.

Pension consultant Brett Goldstein says that according to the law, retirees may be forced to accept half or nothing of their original pension plans unless changes are made. He notes that if plans don't have enough money to cover at least 80 percent of the employees, they can only get 50 percent of their money. Lump sum payments are not possible if plans can no longer cover 60 percent of the members.

Other critics claim that companies are using scare tactics so they can diminish their contributions to pension plans or force changes to their liking. Business blogger Donald E. L. Johnson notes: "Help or pension would be frozen or suspended. That would be a radical move, and General Motors, Ford or Chrysler might very well have to suspend or freeze their pensions due to the financial crisis regardless of whether Congress bails them out."

More companies that could have pension issues include Lockheed Martin, Unisys, Dow Chemical, The New York Times, Ryder Systems and Burlington Northern.
The pension issue is a separate one from another involving retirement. Many firms long ago switched to 401 (k) retirement savings plans. Firms are suspending their contributions to those plans as stock market drops dramatically decrease the value of many plans.