Law to boost pension costs at companies

Annual pension costs at more than a hundred of the nation's largest companies could double under Washington's new retirement law, a recent Wall Street analysis found, increases that many analysts think will hasten the demise of traditional benefit plans.

When he signed the law on Thursday, President George W. Bush touted the pressure it will put on companies to beef up traditional plans that are often underfunded, which have burdened the federal Pension Benefit Guaranty Corp.

To close the gap, the law sets formulas and other rules that will significantly increase how much many retirement plan providers must contribute. In a research paper Monday, Credit Suisse research analysts in New York found 102 companies whose estimated pension costs could soar by 100 percent or more .

Ohio utility American Electric Power, for instance, would have to pay $143 million into its retirement accounts if the legislation were in force this year, up from an expected contribution of $8 million it will actually pay , a 1,683 percent increase, the report found.

Also, they found, New Jersey drug maker Johnson & Johnson would have to pay $659 million, up from $37 million , and International Paper Co. of Tennessee would have to raise spending to $473 million from $34 million.

The authors, led by analyst David Zion, cautioned they made some large simplifying assumptions about the bill, many of whose key provisions don't kick in until 2008 . Also, many companies might borrow to fund their plans, increasing corporate debt issuances, they wrote, and a few companies will actually see spending decrease.

Neither Johnson & Johnson nor International Paper responded to questions for this article.

Steve Kiser, AEP's director of trusts and investments, said the utility actually predicts little extra pension spending in part because of a funding credit Zion's analysis skipped. But other companies likely will have to take dramatic steps in the face of rising pension costs, Kiser said. ``I think a lot of other companies will be either freezing or terminating" pension plans, he said.

Instead, both Kiser and workers groups like the Pension Rights Center say, companies are now more likely to adopt individual savings plans like 401(k)s. These are usually less generous to workers but more predictable for companies to manage than traditional pension plans. Most are known as ``defined benefit" systems because they guarantee workers a set payout each month after retirement until they die.

``The bill was intended to strengthen the defined benefit system, and I don't think that's what it did. Rather, negotiators helped prevent the worst from happening," said Christian Weller, senior economist for the Center for American Progress in Washington, a progressive think tank.

For their part, business groups supported the law because of its other provisions, like those encouraging 401(k) accounts and hybrid systems known as cash balance accounts.

``All those really tipped the scale for most of the business community to be in favor," said Aliya Wong, director of pension policy for the US Chamber of Commerce.

Ross Kerber can be reached at kerber@globe.com.