2 Republicans to Propose
Fix for Private Pension Woes
By Mary Williams Walsh New York Times
Thursday, June 9, 2005
The first major legislative blueprint for solving the problems of private pensions is expected to be introduced today in the House Committee on Education and the Work Force by Representatives John A. Boehner, Republican of Ohio, and Sam Johnson, Republican of Texas.
The plan would require companies to put more money behind their pension promises and give workers more information about the security of their pensions.
An aide to Mr. Boehner said the bill would also be sponsored by the House Ways and Means Committee chairman, Representative Bill Thomas of California, who has been involved in recent attempts to enact pension legislation.
A summary of the new bill, provided by Mr. Boehner, showed that it would seek to protect the financially troubled Pension Benefit Guaranty Corporation by barring companies and unions from promising pension increases if they were already having trouble paying for their existing pension plans.
The bill would also increase the premiums that companies pay to the federal pension guarantor. Companies with shaky plans would have to start paying the higher premiums in three years, while those with strong plans would have five years.
The bill would try to set legal standards for so-called cash-balance pensions, whose legality is in question because of a federal judge's ruling that such plans illegally discriminate against older workers.
The bill covers some of the most contentious areas of pension policy, including the best way to calculate the value of benefits due in the future. It would require companies that offer lump-sum distributions to retirees to take steps to avoid a "run on the bank," in which retiring workers could topple a pension fund by rapidly draining its assets.
Mr. Boehner, the Education and Work Force Committee chairman, said the current law governing pension funds, enacted 30 years ago, was now so far out of date that it put workers at risk of losing their benefits and taxpayers at risk of having to bail out the system. "The pension terminations at United Airlines underscore the need for fundamental pension reform," Representative Boehner said. United is in bankruptcy and its four employee pension plans are being taken over by the federal guarantor.
An earlier pension proposal, issued in January by the Bush administration, was criticized by some companies and their actuaries, who said it was too demanding.
Mr. Boehner said in his summary that his bill had several features in common with the administration's proposal. For example, it adopted the concept of an "at risk" pension fund, one with a higher-than-normal risk of failure. The bill would hold the sponsors of such funds to a higher standard of funding than companies with healthy pension plans.
It would not go as far as the White House had hoped to eliminate the practice of "smoothing," an actuarial technique that can distort a pension fund's appearance. Smoothing would still be allowed, but for shorter periods.
On the touchy question of how to calculate benefits due in the future, the bill would appear to stop short of the administration's approach.
Interest rates are used in the calculations, and the Bush administration has said that pension funds are one of the last parts of the financial services sector to adopt the notion that interest rates change according to the term of an obligation.
Banks and bond issuers generally charge lower interest rates for short-term obligations and higher rates for longer-term obligations, but pension officials plug the same interest rate into all their calculations, no matter how soon or far in the future the benefits must be paid.
The Bush administration has called for pension sponsors to use a whole range of interest rates in their calculations, depending on the schedule of their obligations to retirees. But companies have strongly resisted that idea, saying it is unacceptably complicated.
The new bill would modify the administration's approach. Rather than a full range of interest rates, referred to as a yield curve, it would use three individual rates - one for obligations due in 5 years or less, another for obligations due in 5 to 20 years, and a third for obligations due more than 20 years in the future.
"This change will ensure that employers progressively make more contributions to pension plans as employees get older," Mr. Boehner said. That would reduce the risk of running out of money when many workers reached retirement.
The senior Democrat on the committee, Representative George Miller of California, said in a statement yesterday that while he agreed that it was essential to amend the pension law, Mr. Boehner's bill appeared to contain enough harsh features to discourage employers from offering pensions.