Passes Bill to Require Full Funding of Private Pensions
By Albert B. Crenshaw
Wednesday, November 16, 2005
The Senate yesterday overwhelmingly approved a bill to
strengthen the nation's private pension system by requiring
employers to pay higher premiums to the government's pension
insurance agency and toughening rules for keeping plans
The measure, approved 97 to 2, also included a provision
that would give Delta and other financially troubled
airlines far more time than other companies to fully fund
their pension plans. Bush administration officials have
warned that such a timetable could greatly increase the cost
to the pension insurance agency if the airlines ultimately
fail, and yesterday the White House threatened a veto if
that provision remains.
The House has completed committee action on a pension bill
that lacks the special relief for airlines. Chairman John
A. Boehner (R-Ohio) of the House Education and the Workforce
Committee said yesterday that he expects a vote on the bill
The Senate action came the day after the Pension Benefit
Guaranty Corp. reported that the liabilities it has assumed
to pay the pensions promised by failed companies remain more
than $22 billion greater than its assets. The agency's
executive director said the agency will run out of money if
nothing is done.
An analysis last month by the PBGC concluded that neither
the House nor the Senate bill strengthens the agency as much
as would the administration's original proposals early this
year. However, the PBGC prefers the House measure to the
Strengthening the PBGC, which insures the pensions of about
44 million workers and retirees, isn't the only
Lawmakers have been in a difficult position as the changing
economy and flat stock market have weakened many employers,
especially airlines, steelmakers and companies in the
automobile industry, making it more difficult to fund
traditional pension plans.
Bankruptcies such as those of Bethlehem Steel and United
Airlines have plunged the PBGC into the red, but some
healthy employers warn that if the rules are tightened too
much they will freeze or terminate their pension plans.
If the traditional system continues to shrink, as if has for
the past two decades, more workers will be forced to depend
on savings and 401(k)-type retirement plans that some
experts fear won't be enough.
"It's a crisis. We see it with our airline workers. We see
it with workers in manufacturing industries," said Sen.
Edward M. Kennedy (D-Mass.).
Congress is also under pressure because a temporary
technical measure passed two years ago to ease funding
requirements expires at year-end. If that happens, the
formula by which employers calculate their pension
liabilities will change in a way that will make those
liabilities much larger.
The Senate-passed bill would also require employers other
than airlines to fully fund their pensions within seven
years. The airlines would get 20 years.
Companies whose credit ratings are low would have to make
additional payments to their plans. The PBGC has found that
poor credit ratings are a good predictor of plans that will
fail, but critics say requirements should be based on the
condition of the pension fund, not that of the employer.
Other provisions of the bill include rules that would:
- Raise premiums paid to the PBGC to $30 per participant
per year, from the current $19.
- Make it easier for companies to put money into the plans
when times are good.
- Clarify that in the future cash-balance and other
"hybrid" pension plans will not be regarded as violating
federal age-discrimination laws.
- Require increased disclosure to workers of the financial
status of their plans.