- Last Updated: 10:48 PM, July 28, 2012
- Posted: 10:48 PM, July 28, 2012
In a bipartisan deal, Congress and the president recently granted US companies the right to lower their pension-fund contributions at a time when the retirement funds are hurting.
The Highway Investment, Job Creation and Economic Growth Act of 2012, which was signed into law by President Obama earlier this month, let the funding-rate formula for pension funds to be dialed back, allowing US companies to report additional revenue.
The new law comes on the heels of an S&P report on the dire state of US defined-benefit pensions as baby boomers begin retiring.
The report notes that 338 of the S&P 500 companies have pension funds, but only 18 companies’ pensions are fully funded. The report says that those about to retire who don’t have significant resources outside their pension plans could be the big losers.
For the fourth year in a row, and for the eighth year in the last 10, the S&P 500 companies have underfunded their pensions, the report said.
“Data for fiscal 2011 shows that S&P 500 defined pensions reached an underfunding status of $354.7 billion, an increased deficit of $100 billion from the end of 2011 and surpassing the record $308.4 billion underfunding level set in 2008,” according to the report.
The report also adds that more and more plans have performed poorly over the past four years. For instance, average pension-fund returns have declined from 9.1 percent in 1999 to 7.6 percent last year. These plans are funded under federal rules, which the new law amended.
The corporate windfall from reduced pension expenses will go right to the company’s bottom line, which then could lead to higher tax revenue for Uncle Sam.
In fact, the US Joint Committee on Taxation estimates that the government will take in an additional $17 billion in taxes.