April 27, 2005
Timken exec criticizes Bush plan
By Paul M. Krawzak
Copley News Service
WASHINGTON — A top financial officer from the Timken Co. has added her voice to those urging President Bush to make significant changes in his proposal to reform and preserve the nation’s corporate pension system.
“Taken as a whole, we believe the administration’s proposals would have very adverse consequences for the retirement security of American workers,” said Sallie Ballantine Bailey, Timken’s senior vice president for finance and controller.
Bailey was among several experts who testified Tuesday before a Senate subcommittee chaired by Sen. Mike DeWine, R-Cedarville. Bailey said she was representing the National Association of Manufacturers and several other business groups, not the Timken Co.
In particular, she argued against a provision of the president’s plan that would increase the cost to participating employers by increasing their premiums.
Congress has increased its scrutiny of the pension system since the Pension Benefit Guaranty Corp. reported that its deficit had grown to $23 billion. The Pension Benefit Guaranty Corp., a federal agency, guarantees the pensions of participating corporations.
About 35 million workers and retirees participate in pensions, or retirement plans that promise a fixed benefit.
The agency’s deficit has resulted in large part from the bankruptcy of several steel companies and airlines in the last few years, including defunct LTV Steel and Republic Technologies International in Ohio.
When financially troubled companies that are insured by the Pension Benefit Guaranty Corp. lose the ability to pay pensions, the agency assumes control of their plans and continues to pay benefits, typically at a reduced rate.
The administration has proposed changing the way pensions are funded, raising premiums that employers pay to finance bailouts and increasing disclosure rules to put the system on a solid footing.
Bradley D. Belt, the agency’s executive director, told the subcommittee that while the agency has sufficient assets to continue paying benefits for a number of years, it lacks the resources to fully satisfy its obligations in the future.
“We need comprehensive reform of the rules governing defined-benefit plans to protect the system’s stakeholders,” he said.
The agency does not receive tax revenue. It is financed through premiums assessed to participating corporations, as well as the assets within pension plans over which it assumes control.
Although the administration received praise for its efforts to reform the system, witnesses at the hearing criticized several aspects of the proposal.
Bailey said the plan focuses too much on reducing the deficit at the agency and not enough on strengthening the pension system.
“It would be a distressing calamity if the PBGC was strengthened but the entire defined-benefit system was weakened,” she said. “We believe that the administration’s pension-funding scheme will do far more harm than good.”
She said “unwarranted” increases in premiums, basing premiums on companies’ credit ratings and other changes “will only force employers to exit the system through plan freezes and terminations, thereby eroding retirement security of American workers.”
Another critic of the proposal, Alan Reuther, legislative director for the United Auto Workers, argued there is “no crisis” at the agency since it has sufficient assets to pay benefits at least through 2020.
“Thus, the reports about the PBGC’s growing deficit should not create a stampede towards extreme, counterproductive proposals,” he said.
Reuther said the UAW favors allowing the federal government to finance the cost of steel and airline pensions over a 30-year period.
“We believe this approach would cost the federal government about $1 (billion) to $2 billion per year, depending on the magnitude of the airline pension liabilities that are ultimately assumed” by the agency, he said.
DeWine, who could play a role in shaping pension legislation in the Senate, opposes that solution.
“A taxpayer bailout of the PBGC is not an option,” he said.