1. Tom Terry JPMorgan Compensation and Benefit Strategies April 15, 2008
Pensions in the US
How are pension plans holding up?

2. Looking Back … The Insurance Era De-regulation Re-regulation (ERISA)
Reform (PPA)

3. The Insurance Era 1915 to 1945 Pensions were highly regulated
Plans were fully funded
Asset and liability matching prevailed

4. De-regulation of Pensions
1945 to 1974
Employers pushed aside the insurance companies
Traditional disciplines were abandoned
No required funding
No solvency standards
No asset-liability matching

5. Re-Regulation Early ERISA Era: 1974 to 1988
Federal government steps in with
Required minimum funding
Required service-based vesting
New reporting and disclosures
New federal insurance program - PBGC

6. Re-Regulation, Part 2 Late ERISA Era: 1988 to 2005
Accelerated minimum funding based on a solvency measure
High hurdles for funding above the minimum
Pension insurance program introduced a mild form of underwriting

7. Pension Reform 2006 + Pension Protection Act (PPA)
Seven year funding of unfunded liabilities
Minimal smoothing
Increased maximum tax deductible contributions
Increased premiums to the PBGC
FASB is mid-stream in revamping accounting

8. Outlook: Doom and Gloom
Enhanced and newly volatile solvency standards will drive plan sponsors away
FASB stands ready to drive off any remaining DB sponsors

9. Outlook: Better Days Ahead
Elimination of actuarial opacity is a good thing
PPA did not introduce any new risks
PPA actually opens up the door for level, rational funding policies

10. Emerging Dramas The PBGC deficit remains
What will happen to frozen plans?
Public pension plan regulation is lacking
Social Security imbalances not yet addressed