overhaul bill sent to president
By Jim Abrams, Associated Press Writer
Friday, August 4, 2006
WASHINGTON (AP) -- Congress passed major pension legislation
designed to assure American workers, including millions of
baby boomers nearing the end of their working careers, that
the pensions they have been promised will be there when they
The Senate, in its last vote before adjourning for a
four-week summer break, approved the 900-page bill that
compels employers with defined-benefit pension plans to meet
their funding obligations and seeks to prevent companies
from terminating plans and shifting the financial burden to
the taxpayer. The House passed the bill last week.
The 93-5 Senate vote late Thursday on the pension bill came
shortly after the Senate fell four votes short of the 60
needed to advance a Republican-crafted package that combined
an estate tax cut with a federal minimum wage increase.
Republican leaders, unsuccessful earlier this year in moving
an estate tax cut through the Senate, tried to attract
Democratic votes by linking it to a package of popular
middle-class tax breaks and the offer to raise the minimum
wage from $5.15 to $7.25 an hour over three years.
Democrats, backed by unions pushing for what would be the
first increase in the minimum wage in nine years,
overwhelmingly rejected the deal.
Votes on the pension bill and the estate tax package became
possible after leaders from the two parties agreed to put
off until September final action on a spending bill for the
During three days of debate, senators increased the size of
the defense package to almost $469 billion with the addition
of $13 billion to supplement the $50 billion for operations
in Iraq and Afghanistan and $1.8 billion to build 370 miles
of triple-layer fencing along the border with Mexico.
The pension bill now goes to President Bush for his expected
signature and gives lawmakers returning to their states and
districts a major achievement in an election-year session
characterized more by partisan politics than legislative
"This bill is the most important action to safeguard the
retirement of hardworking Americans in a generation," Sen.
Edward Kennedy, D-Mass., said.
The legislation affects some 44 million workers and retirees
with defined-benefit pension plans, forcing employers with
such plans to meet their full funding obligations within
seven years. Currently a 90 percent funding level is deemed
Companies that fall seriously behind in their contributions
must follow an accelerated funding program and are
prohibited from taking steps, such as promising new
benefits, that could cause further deterioration in their
"Promises made will be promises kept by limiting when
benefits may be increased," said Sen. Mike Enzi, R-Wyo.,
chairman of the Senate Health, Education, Labor and Pensions
The bill was the result of years of debate and months of
negotiations between House and Senate lawmakers trying to
work out a formula that would force companies to meet their
pension obligations without driving more companies toward
terminating their plans and shifting benefit responsibility
to the Pension Benefit Guaranty Corp.
The PBGC, the federal agency that insures pension plans, has
accumulated a deficit of $22.8 billion, in part from taking
over defunct steel and airline industry pensions. There is
concern that a rash of future terminations could result in a
multibillion-dollar taxpayer bailout.
The legislation carves out special treatment for the airline
industry, giving airlines that are in bankruptcy court and
have frozen their pension plans an extra 10 years above the
seven years for other plans to become financially whole.
That would directly benefit Delta Air Lines and Northwest
Airlines Corp., although two others with active
defined-benefit plans, American Airlines and Continental
Airlines Inc., would be eligible for the same break if they
decided to freeze their plans. Otherwise they would get 10
years - the seven plus an extra three - to reach full
funding after the new rules go fully into effect in 2008.
Northwest, in a statement, said the bill "will save the
pension benefits of 73,000 current and former Northwest
"The winners are tens of thousands of employees in the
airline industry, confronted within the next 30 to 60 days
with the loss of up to 70 percent of their pensions with
them going on the back of the PBGC," said Sen. Johnny
Isakson, R-Ga., a leading advocate of the airline provision.
Delta is based in Georgia.
Critics of the legislation said that it does little to
reverse the trend of employers dropping defined-benefit
plans in favor of less secure defined-contribution plans
such as 401(k)s.
"Except for the helpful relief for airlines and
multiemployer plans, the new funding regime for most
companies will inject more unpredictability into their
pension financial obligations," said James Klein, president
of the American Benefits Council, which represents companies
with defined-benefit plans.
But the bill also won praise for encouraging Americans,
particularly young workers, to save for their retirements
through such steps as allowing the automatic enrollment of
workers into 401(k) plans.
The bill also:
- Makes permanent provisions in a 2001 tax cut law that
raised annual contribution limits for IRAs.
- Ends the legal uncertainty surrounding cash balance
pension plans, which have run into legal challenges from
employees who have claimed that older workers lose out when
employers switch from traditional defined-benefit plans.
- Permits qualified financial firms that manage investment
firms to offer face-to-face investment advice to help
employees manage 401(k) and other retirement options.