Dying Time A Pension Issue

Under a House bill, companies with blue-collar workers would be allowed to save less in their pension funds because blue-collar workers die sooner than others.

The New York Times reports the measure has the support of the United Auto Workers, which apparently wants money from pensions freed up for higher salaries, as well as large companies that are anxious to reduce their pension obligations.

Currently, companies with pensions must base their estimates of how long employees will live after retirement — and therefore how much money their funds need — on a broad average of lifespan estimates.

The new measure is based on a more specific actuarial study that finds blue-collar workers do not live as long as white-collar workers.

That means blue-collar workers require pensions for fewer years, which translates into pension funds needing fewer dollars and companies being able to spend the extra money elsewhere.

However, The Times reports that the man who led the Society of Actuaries panel that devised the new actuarial tables, Edwin C. Hustead, is taking issue with the way some members of Congress are interpreting the numbers.

Hustead said the panel found that white-collar workers lived longer than average, yet the bill does not force companies to increase pension projections to accommodate white-collar workers' longer life spans.

Plus, the definition of "blue-collar" in the bill encompasses all workers represented by unions or paid by the hour. That means professional athletes, airline pilots and other highly-paid workers are included, along with other, more traditional blue-collar employees.

Hustead also says income level has been shown to be a good indicator of lifespan, but the bill does not reflect that.

He says his panel found that poor and blue-collar workers did indeed die younger than well-paid and white-collar workers. But the Society was unable to agree on how to treat workers who were considered "blue-collar" but also very well paid.

Reviewing the Society's study, the American Academy of Actuaries agreed that a blue-collar/white-collar breakdown was a sound way of projecting pension funding needs.

The Academy told the Treasury Department that well-paid workers should be kept out of the blue-collar definition, and explained why it thought a purely income-based mortality table was inferior to one based on the color of workers' collars.

In a press release announcing their bill, The Pension Preservation and Savings Expansion Act of 2003, representatives Benjamin L. Cardin, D-Md., and Rob Portman, R-Ohio, say the law will "instruct the Treasury Department to update mortality assumptions to more accurately reflect the life expectancy of particular worker populations."

The bill covers many aspects of retirement financing, increasing eligibility for IRAs and raising contributions for 401(k)s.

The three-year slump in the stock market has buffeted pension plans. In recent testimony to Congress, the director of the federal Pension Benefit Guaranty Corporation said the agency's pension insurance program last year saw a $7.7 billion surplus vanish and a $3.6 billion deficit appear.

The loss was "more than five times larger than any previous one-year loss in the agency's 28-year history," said the director, Steven A. Kandarian.

Estimates so far this year show the deficit has grown to $5.4 billion.

"Furthermore, data now coming in to PBGC confirm that the total underfunding in the single-employer defined benefit system exceeds $300 billion, the largest number ever recorded," he said.