Retiring Plans

In 2010, policy makers now preoccupied with health care will be worrying instead about a shortage of retirement savings, warns Larry Zimpleman, vice president of the American Academy of Actuaries.

A recent AAA report finds that government red tape is encouraging many businesses to eliminate their retirement programs. In a survey of 1,084 companies that canceled defined-benefit pension plans (those funded by tax-deductible contributions from employers) between 1988 and 1990, about half said they did so due to the burdens of regulation: excessive compliance costs, complex rules, frequent changes in requirements.

Fewer than 40 percent of those companies replaced their defined-benefit plans with a 401(k) or other employee-funded pension plans, leaving many workers without the opportunity to save for retirement through the office.

Businesses with fewer than 25 employees have suffered the most from pension regulations. At least 50,000 such companies have ended their defined-benefit pension plans since 1988, the AAA reports, and most will not offer alternative plans. Nearly 60 percent of the small businesses cited regulations as the reason for dropping their pension plans. The 1987 Omnibus Budget Reconciliation Act, for example, reduced the amount companies are allowed to contribute per employee.

Larger companies complained most frequently about a provision of the 1986 Tax Reform Act that prohibits employers from offering different pension deals to different workers. Large firms also cited the high premiums they must pay to the Pension Benefit Guaranty Corporation, the federal agency that insures pensions.

"With the retirement of the baby boomers—the majority of whom do not have adequate money saved—only two decades away, we are looking at a very serious problem," says AAA Executive Vice President Jim Murphy. The AAA is calling for a moratorium on new pension-plan regulations to help stem the flood of cancellations.