Feature
GOVERNMENT’S ROLE IN
THE PENSION SYSTEM:
WHO IS IT HELPING?
By Erica Harper, AASA, EA, MAAA
E
veryone has their own
perspective on government’s
role in our daily lives. Is
it there to provide aid and
assistance or is meant to
merely provide the framework for us to
govern ourselves? In the context of the
US pension plan system, what started
out as a framework for the provision
and funding of retirement benefits, has
evolved most recently into a pattern of
government assistance – but to what end?
Is it intended to benefit the employees, the
plan sponsors or the government itself?
rules for determining the minimum and
maximum tax deductibility of contributions,
precluded discrimination in favor of
highly compensated employees over
rank-in-file, and prevented the misuse
of plan assets for means other than the
benefit of plan participants. At the same
time, it established the Pension Benefit
Guaranty Corporation (PBGC), a pension
insurance system intended to protect
participants’ benefits up to specified limits
set by law. All-in-all, it provided some
much-needed structure to an otherwise
rudderless system.
Dating back 40 years, the Employee
Retirement Income Security Act of
1974 (ERISA) was enacted to give
participants a better understanding of
their eligibility and entitlements from
their pension plans. It also defined the
In good times, when the market was strong,
interest rates were high and plans were
well-funded, these rules permitted plan
sponsors to avoid contributions, despite
the fact that participants continued to
earn benefits each year. At the time, this
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was a win-win for companies and the
government. Companies found “better”
uses for their cash, and the government
benefited from greater tax revenue
when fewer deductions were taken.
However, it neglected to consider the
future benefit security of participants
should a downturn occur.
In the early 2000s, with the failure of
several high profile companies putting
a strain ۈ H