Tampering With Pensions

The Reagan Administration and congressional deficit controllers have placed at risk many of the nation’s pension plans in their zeal to strengthen the financial integrity of pension plans and to make sure that they are not used as tax shelters by employers.

There was recognition of the risks when the legislation was put together in the confusion of the budget compromise at the end of the congressional session last year. The Treasury Department is to report in August on whether revisions are required. That must be an occasion for a rigorous examination of the changes.

Rules to require adequate funding of pension plans are welcome in principle. So are provisions to limit the abuse of tax concessions for contributions that companies make to the funds. But the danger is that Congress, in writing rules to implement tighter controls, may have created an atmosphere that will weaken overall the protection of Americans going into retirement at the very moment when that will be, for demographic reasons, a significantly expanding segment of the population.

“What they’ve succeeded in doing in all of these changes is they’ve made defined-benefit plans a luxury that most medium and small employers can no longer afford,” according to Phyllis C. Borzi, pension counsel for the House subcommittee on labor-management relations. In effect, the new legislation will discourage the kind of pensions that have been traditional, through which employees can look forward to a defined benefit on retirement. At the same time, the law will encourage so-called defined-contribution plans--which offer far less security as their value to the employee rises and falls according to changes, for example, in the stock market.

Reagan Administration officials and leaders of the congressional tax-writing committees are confident that the reforms will strengthen the pension system without damaging the traditional programs. That remains to be seen. Clearly both the Administration and Congress were more concerned with increasing federal revenue than with perfecting the protection of pensions. That is not the best way to write pension law. Now the burden of proof lies with them. And if the August review shows rising risks, they will need to change the law--and promptly.