Heyas all,
Just reading this over, a lot of people really don't really understand DB plans ('A' funds) or how the funding requirements of the federal goverment work.
The plans are not insolvent or "bankrupt" (meaning they pay out more than they take in). At least at NWA, they have been doing very well this year, with almost a %15 return on captal. Up until the stock market dump of 2001, these funds were well over 100% funded, even by the governments stupid rules.
What is causing the "contribution crisis" are the unrealistic funding requirements of the federal government, which is based on an assumed interest rate and a calculation of future liabilities.
The problem is the assumed interest rate that the federal goverment uses is all out of wack with reality, considering that interest rates have been at historic lows in order to prop up the economy since 9/11. Because this is at such a disconnect with that the pension funding assumes, this generates these artificial funding requirements. Mind you, this has NOTHING to do with the return the plans themselves actually require to be solvent, only the money the federal government requires to be there.
The problem is that federal governement requires these payments, WHETHER THE FUND ACTUALLY NEEDS THEM OR NOT. And they require them RIGHT NOW, even though the plan has enough money in the interm.
To put this in perspective.... Say you have $200k morgage on your house. You've been good, and have been making your payments ok. You lose your job, but you have a lot of savings (but it's not generating the same reuturn, because interest rates tanked), but you are still making your payments. But the bank gets nervous, and calls the loan. Now you're screwed, because you don't have 200k to pay out right away. Did you have enough money to pay your payments? Sure. Are you going to get another job? Sure. Are interest rates going to go back up? Yep. But what caused your "crisis" is the bank wanting all their money RIGHT NOW.
What the proposed legislaton does is to allow for a more accurate interest rate/captal return assumption for the plans. It also allows a time span in which any deficit can be paid (instead of RIGHT NOW), however, chances are there won't be any payments, because the funds themselves will generate enough revenue, especially if they are frozen (IE no new benefits accrued).
DB plans are actually a VERY cost effective of provided retirement benefits, they they are managed properly. In average to high return years, they require NO contribution at all, since profits in the fund itself pay for the contributions.
Nu
