A recent article in the Washington Post discusses a new law, signed by President Obama on July 6, that reduces companies’ contributions to their employees’ pension funds.
“The bill Obama signed into law [on July 6] … would raise around $10 billion over the next decade by boosting the premiums companies pay the government to insure their pension plans, and another $9 billion by changing how businesses calculate what they must contribute to their pension funds.
That computation change will let companies estimate their pension fund earnings by assuming the interest rate will be near the average of the past 25 years, rather than the past two years when interest rates have been extremely low. Since they will now be able to assume that their pension investments are earning higher profits, they will be required to contribute less money from corporate coffers to make up the difference.”
“The short-term contribution cuts worry University of Pennsylvania insurance professor Olivia S. Mitchell, who says the fact that Congress can change the formula ‘does not mean that pension funds will be able to defy the laws of economics and finance.’”
The Wharton School
