Pension Smoothing Changes Would Worsen Job Losses in Recessions
Keybridge Research evaluates the potential impact of new pension rules on economic growth and the job market
In an economic analysis for Business Roundtable, Keybridge Research investigates the current administration's proposed changes to defined-benefit pension plan rules. Current defined-benefit pension plan liabilities are calcuated by using a four year moving average of the yield on long-term bonds, a tool which enables pension calculations to track with general economic trends, but avoid irregular highs and lows.
Proposed changes to this system eliminate four-year smoothing on bond yields, basing pension liability on 90-day spot rates. This method of determining pension liability would raise liability calculations during recessions, causing employers to cut investment spending at a time when the economy is at its weakest. The study concludes that such a plan would intensify the U.S. economy's cyclical nature, exacerbate economic downturns, and increase job loss during recessions.
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