Pension Measure May Increase
By Theo Francis and Deborah Solomon
The Wall Street Journal
Monday, July 24, 2006
Legislation to strengthen the U.S. private pension system, which
lawmakers could adopt as soon as this week, could increase the
government's burden even as it reduces corporate funding
requirements, according a recent analysis by the federal pension
The projections from the Pension Benefit Guaranty Corp. suggest
that the pension agency would have to make more pension payments
for companies unable to do so themselves over the next decade
than it would under current law. They also suggest that
companies would have to contribute slightly less to their
pension plans as well, leaving them less of a cushion to make
payments. Under its estimate, the PBGC could absorb more than
$2 billion in additional claims than it would under current law.
But some congressional staffers called the PBGC's analysis
flawed, in part because they say it overestimates what companies
would have to contribute under current rules.
The disagreement over what the proposed changes in pension
funding rules would accomplish comes at a critical time.
Concern over the health of private pensions, which were
underfunded by $313 billion last year, has intensified this year
as more large companies have abandoned their pensions. Concern
has also centered on the PBGC, the federal pension insurer,
which takes on abandoned plans and has seen its obligations
swell after assuming the plans of US Airways Group Inc., United
Airlines parent UAL Corp. and others.
Negotiators in the House and Senate have been seeking a
compromise among various proposals intended to strengthen the
health of pension plans and shore up the PBGC's finances.
Supporters say the legislation, which among other things changes
the minimum requirements for employers' contributions to their
pension plans, would keep pensions better funded and make it
less likely the PBGC will have to assume their obligations.
The PBGC estimates, which were prepared in late June, suggest
that under current law the agency will absorb an estimated $12.8
billion in claims, or pension obligations. By contrast, the
proposals under consideration by congressional negotiators would
swell the agency's obligations by $14.9 billion to $15.2 billion
in claims over the decade.
The projections also suggest that under existing law, employers
would contribute about $1.24 trillion to their plans from 2007
through 2016. By contrast, three variations on the compromise
legislation would result in contributions of $1.21 trillion to
The agency cautioned in its report that several factors mean its
analysis exaggerates the effectiveness of the compromise
proposals. That's because the PBGC didn't take into account
proposals giving airlines and potentially others breaks on the
funding rules, among other technical changes that would tend to
Some congressional staffers say the PBGC's characterization of
the new legislation is overly dire because it overestimates what
companies would have to contribute to their pension plans under
current law. The disparity stems from the PBGC's use of
interest rates on 30-year Treasury bonds to estimate corporate
liabilities, as current law requires. As an interim measure in
the past two years, however, companies have been allowed to use
a higher rate based on corporate bonds, thus making pension
obligations appear smaller and lowering required contributions.
The pension legislation instead would link a company's funding
requirements not to a standard interest rate but instead to when
its own pension obligations will come due.
Both Democrats and Republicans have continued to insist that the
compromise proposal will be tougher than current law. Final
legislation, which is expected to be unveiled this week, will
include a requirement that all pension plans, with the exception
of struggling airlines, be 100% funded within seven years, that
plans with funding levels below 80% freeze new obligations, and
that companies not be allowed to use so-called credit balances
when assessing their funding levels.
House Majority Leader John Boehner has criticized the PBGC
modeling, saying it doesn't take into account some of the
provisions in congressional proposals.
Rep. George Miller, a California Democrat on the pension-bill
conference committee, complains that fellow lawmakers haven't
made the PBGC's findings available for public discussion. He
said he was able to obtain the information only after filing a
Freedom of Information Act request with the PBGC.
The PBGC referred questions to the White House, which has been
pushing Congress to enact legislation that is stronger than both
existing law and what is now under consideration.
Theo Francis at
email@example.com and Deborah Solomon at