Pension reform takes center stage
A bill introduced by Ohio congressman John Boehner would go a long way toward assuring millions of American workers of a secure retirement.
Denver Post
Monday, June 13, 2005

House Republicans led by Rep. John Boehner have introduced a sweeping pension-reform plan that could ease the worries of 44 million American workers and retirees still covered by traditional "defined benefit" plans.  The plan deserves to share center stage with Social Security as sensible members of Congress struggle to craft a comprehensive "retirement security" program.

Boehner's proposal is especially timely after United Airlines defaulted on $9 billion in pension commitments last month - with the result that 120,000 current and retired workers will receive only about two-thirds of their promised pensions through insurance provided by the federal Pension Benefit Guarantee Corp.  For some highly paid retirees, such as pilots, the cut will be much more, because the federal guarantee is limited to a maximum of $45,614 in annual benefits for a retiree age 65 or older.

Pension funds already in trouble

Storm clouds were forming over traditional pension funds long before United's default.  More than 40 bankruptcies among steel companies and five by airlines contributed to a $23 billion deficit at the PBGC last year - a shortfall that congressional analysts predict could reach $71 billion during the next decade.  A recent Congressional Budget Office report estimated U.S. companies underfunded their plans by about $600 billion last year.

President Bush proposed a far-reaching pension-reform package last January, but business and labor groups fought it, fearing that it would only prompt more companies to junk their defined benefit plans entirely.  The number of companies offering traditional pensions has already fallen from more than 100,000 two decades ago to 29,651 today. In their place, many workers are now covered by defined contribution plans such as 401(k) plans.

Some companies, including The Denver Post, offer a blend of defined benefit and 401(k) plans.

Defined benefit plans pay a fixed monthly amount to retirees that is usually based upon earnings and years of service.  With 401(k) plans, employers and employees contribute fixed sums into individual accounts that, together with any earnings, belong to the employees when they retire.  Because they have no guaranteed benefit, 401(k) plans are not affected by Boehner's proposals, which are designed to ensure that defined benefit plans can keep their promises.

The plan by the Ohio Republican offers five key components, which together would go a long way to buttress defined benefit plans and reduce the risk of a taxpayer bailout of the nation's embattled pension system.

Like Bush, Boehner would require companies to fully fund their pension systems.  But Boehner would allow companies to continue to accumulate credits against future payments for paying pension contributions early.  Bush sought to eliminate such credits.  Boehner also would allow companies to calculate pension assets and liabilities using interest rates averaged over three years instead of the 90-day period Bush proposed.

Like Bush, Boehner would raise premiums from $19 per worker per year to $30 for pensions backed by the PBGC.  But Boehner would phase that increase in over three years.

Boehner's plan would bar companies and unions from negotiating higher pension benefits until the company's existing plans were at least 80 percent funded.  Bush wanted to forbid increases unless an affected plan was 100 percent funded.

Bush proposed charging companies with low credit ratings increased fees for pension coverage.  Boehner's plan applies that penalty only to companies with low credit ratings whose plans are underfunded by at least 40 percent.

View more realistic reports

Boehner's bill would also allow employees to view the same reports about their plan that their employer files with the PBGC.  Currently, employees only have the right to see reports filed with the IRS, which are often rosier than those filed with the pension underwriters.  Access to the more realistic reports would give employees earlier warning of impending pension troubles.

Taken as a whole, the Boehner plan reduces the risks that companies will default on their pensions in the first place, and provides stronger insurance reserves to cover those plans that do fall short.  By so doing, Boehner has gone a long way to assure a secure retirement for millions of American workers.