Agreement Reached On Pensions

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Agreement Reached On Pensions

By Albert B. Crenshaw, The Washington Post

January 23, 2004

Key senators reached agreement yesterday on a bill that would grant major pension-funding relief to the airline and steel industries, and ease the formula by which all companies with traditional pension plans calculate their obligations.

Under terms of an amendment to a bill passed by the House, airlines and steel companies, some small businesses and a railway workers' union would be able to avoid making special payments that would otherwise be required to shore up their underfunded pension plans.

The relief, worth an estimated $16 billion to the companies, would be for two years, and companies would be required to pay only 20 percent of the amount that would otherwise be due in the first year, and 40 percent in the second year. If still underfunded after the two-year relief period, those plans would have to resume making up the difference.

The measure also would substitute for two years a higher corporate-bond interest rate for the now-required 30-year Treasury bond rate used in computing pension liabilities for all companies. In these calculations, the lower the interest rate used the higher the liabilities work out to be. The change would mean that companies who sponsor traditional pension plans for about 35 million workers would have to have $25 billion less than they would have under a relief provision that just expired, and as much as $80 billion less than under current law.

Funding, or underfunding, of private pensions has become a major issue in the wake of the stock market decline of 2000-02 and the bankruptcies of such companies as Bethlehem Steel Corp. and U.S. Airways Group Inc. The government's pension insurance agency, the Pension Benefit Guaranty Corp., has gone from a $9.7 billion surplus in the late 1990s to an $11.2 billion deficit last year. Officials at PBGC and elsewhere in the government fear that unless pension funding is strengthened, the government could be called upon to bail the agency out.

The Bush administration said yesterday it "will strongly oppose" the sort of special relief for badly underfunded plans contained in the senators' amendment, on the grounds that that allowing the weakest plans to grow weaker could exacerbate the problem.

The amendment was worked out by Sens. Charles E. Grassley (R-Iowa), Judd Gregg (R-N.H.), Max Baucus (D-Mont.) and Edward M. Kennedy (D-Mass.).

Kennedy, in a Senate floor statement, defended the proposal as "immediate short-term measures needed to deal with [a] temporary crisis."
A provision in the Senate agreement also would give special relief to bus company Greyhound Lines Inc., by deeming it to be better funded than it is.

The senators' plan also would aid multi-employer pension plans, such as those common in the trucking and construction industries, by allowing them to defer recognition of up to two years of investment losses. That provision is meant to allow the plans to bargain for new contracts to keep them afloat.

Companies not included in those provisions could apply to the Secretary of the Treasury for relief. Firms whose funding level is below 75 percent -- that is, assets are less than 75 percent of the present value of their liabilities -- could not increase benefits during the relief period.

The Senate is expected to continue debate on the issue today, but no votes are scheduled until next week.