WASHINGTON — The Bush administration dealt a blow to the already reeling financial services sector Wednesday, ruling that companies can’t transfer pension plans to large banks to be managed for profit.
The Treasury Department and the Internal Revenue Service said current law doesn’t allow such transfers unless they are part of a larger transaction that also includes “significant business assets.” Despite the ruling, the Treasury Department indicated the Bush administration would support legislative changes to allow the transfers to occur.
The notion of allowing banks and other companies to acquire pension plans and manage them for a profit has raised some concerns among Democrats in Congress and unions.
Rep. Earl Pomeroy, D-N.D., said the Democratic-controlled Congress is unlikely to approve legislation allowing such transfers. Pomeroy has requested a report on the issue from the Government Accountability Office, the investigative arm of Congress.
Given the “chaos in the lending world” that’s resulted from the “slicing and dicing of mortgages,” Pomeroy said, “I don’t think it would be a good idea to have pension obligations similarly passed around.”
The head of the Pension Benefit Guaranty Corp., which is charged with backing the retirement benefits of 44 million Americans, disagrees.
“For technical reasons, these transactions are not currently permitted under law, but as a policy matter they should be,” PBGC Director Charles Millard said.
Millard and other proponents of the deals say they could benefit retirees by allowing a company with a weak balance sheet to transfer its pension plan to a bank or other financial institution with more resources. Banks also could do a better job investing the plan’s assets, they say.
Financial institutions, meanwhile, would benefit by receiving a payment from the companies in exchange for assuming the risks associated with pensions. More funding could be needed in future years, for example, if beneficiaries live longer than expected.
Several large banks, including JPMorgan Chase and Citigroup, had urged Treasury to allow the transfers, according to Don Fuerst, a partner at the Mercer consulting firm in Denver. Spokesmen for those two banks did not immediately return calls for comment.
“The players in this think the market is potentially very big,” Fuerst said.
Companies hold as much as $2 trillion in pension plans, according to some estimates.
