WASHINGTON – Unless Congress reforms pension funding rules, Johns Hopkins Health System will have to divert resources from patient care and lay off personnel to meet its pension obligations, system President Ronald Peterson told Congress Thursday.
Peterson testified at a Senate Health, Education, Labor and Pensions Committee hearing on how the recession has impacted retirement security. Peterson was introduced by Sen. Barbara Mikulski, D-Md., who is a senior committee member and chairwoman of the Subcommittee on Retirement and Aging.
In his testimony, Peterson referred to higher funding requirements for pension plans adopted in the Pension Protection Act of 2006. The act went into effect in 2008, shortly before the recession began.
“We fundamentally support the goals of the PPA to increase the funding levels,” Peterson said, “but the rules were enacted in a more robust economy.”
Peterson said employers such as Johns Hopkins “are facing staggering funding obligations for 2010 and beyond, which will divert funds from other purposes.”
Failure to reform pension funding rules, Peterson said, could impede job growth during the economic recovery.
“In the absence of pension reform, we could be faced with the undesirable choice to reduce benefits or eliminate jobs,” Peterson said.
Hardships faced by workers and retirees after their companies can no longer guarantee their pension plans were another subject of the hearing.
When firms go bankrupt, employee pension plans are taken over by the federal Pension Benefit Guaranty Corporation. However, a study released by the Government Accountability Office found that workers and retirees often experience delays while that agency calculates individual benefits.
“Some wait years for their final benefit amounts,” said Barbara Bovbjerg, who testified on behalf of GAO. “That makes it very difficult to plan for retirement.”
While retirees wait for their final benefits to be determined, they receive benefits based on estimates, which means overpayments can occur. Bovbjerg said overpayments are later deducted from the final benefits, a practice which leads to significant financial hardship for many workers and retirees.
Following Bovbjerg’s testimony, Mikulski spoke about the hardships faced by Maryland workers and retirees whose pensions went to PBGC after the bankruptcy of Pennsylvania steel giant Bethlehem Steel in 2001.
“My workers are still hurting,” Mikulski said. “They saw their pensions reduced when they went to Pension Guaranty, but they were grateful that there is a Pension Guaranty.”
While the workers received “modest” estimated benefits, Mikulski said, “Pension Guaranty told them they’d made a math mistake. They have to give them money back because of a government math mistake. I can’t correct it for them, but I want them to know I’ll never forget what happened.”