There’s a new line doing the rounds about the oh-so-spinningly-named Moving Ahead for Progress in the 21st Century Act: instead of MAP-21, it should’ve been called KTC-22 – Kicking The Can into the 22nd Century.
Well, maybe that particular can hasn’t been kicked quite into the 22nd century, but that’s not for lack of effort. This is the third time since the Pension Protection Act was passed in 2006 that steps have been taken to pull back on the funding requirements PPA put in place (the fourth if you include a novel IRS interpretation of look back rules in 2009). So there are obviously sympathetic ears in Washington for corporations who’d like to delay fully funding their pension plans in the hopes of better times ahead – perhaps a return to the 7% interest rates and runaway equity markets that made pension provision so easy in the good old days (when “prices were reasonable, politicians were noble and children respected their elders” as the old song puts it). Let’s not pretend it’s anything other than pushing the issue into the future and hoping it doesn’t get worse in the meanwhile.
Not that the corporate defined benefit world is alone in this. It’s what happens when tough financial decisions are driven by a political process that inevitably tends to favor short term expediency over long term sustainability. In the absence of external discipline, corporations need to apply their own. For some that could mean contributing at the minimum required, using cash to support other areas of the business and relying on the corporate covenant to backstop the pension promise. For others, a lower and more stable long-term cost will be achieved by contributing more than the MAP-21 minimum in the short term.
This blog believes in accurate attribution, so I should note that the lyrics of the 1999 hit song “Everybody’s free (to wear sunscreen)” are taken from the column “Advice, like youth, probably just wasted on the young” by Mary Schmich, Chicago Tribune, June 1, 1997.