We found yet another reason why the U.S. retirement crisis will be uglier than many retirees are prepared for…
You see, while retirees were napping last year, Congress and President Barack Obama were quietly stealing from their pension plans by enacting a little-known law called MAP-21.
Hidden in the wording of a new transportation bill, the act allows big companies to slash their contributions to pension funds.
The number of companies defaulting on their pension plans could balloon and bankrupt the Pension Benefit Guarantee Corp. (PBGC) insurance program – leaving retirees out in the cold.
"That smell of sulfur is what MAP-21 gives off," Jeremy Gold, a pension consultant, told The Fiscal Times. "It's got a smell about it of a deal made with devils."
That's bad news for retirees — or those about to retire – who are counting on a lifetime of payments from a pension plan.
MAP-21: A Wolf in Sheep's Clothing
In 2012, the government faced a shortfall between current gas taxes and projected highway spending.
So how to raise the money?
Let corporations cut funding on their pension plans and generate taxes from higher wages.
The bill – titled Moving Ahead for Progress in the 21st Century or MAP-21 – lets companies change how they calculate how much they need to fund pension plans.
MAP-21 lets employers put less money in their pension plans by allowing them to value their liabilities – what they have to pay in to fund pensions – using higher interest rates instead of current, low rates.
You see, pension plan liabilities are higher when interest rates are low because returns from bonds and other investments are expected to return less. When rates are high, the returns are expected to be higher and the liabilities are reduced.
Allowing companies to contribute less to their plans raises revenue for the federal government.
The government is assuming MAP-21 will raise $9.5 billion over 10 years because it will get more tax revenues from higher wages of current workers.
Defined Benefit Plans Targeted
MAP-21 is squarely targeted at traditional defined benefit (DB) pension plans. These are plans funded by the companies to provide employees with a source of income after retirement.
But the number of workers with DB pensions has been in steep decline for years. Fewer and fewer workers outside of the government sector have them.