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House Clears Bill to Bolster Pensions
By Michael Schroeder, The
Wall Street Journal
December 16, 2005
In a step to shore up private pension protections, the House approved legislation to reduce the deficit of the federal government's pension insurer and to press companies into fully funding retirement
obligations.
The 294-132 vote follows more than two years of debate and sets the stage for final provisions to be negotiated with the Senate, which approved its version last month. Congress hopes to send President Bush a pension bill early next year.The legislation is the most extensive revamp in 31 years of the federally insured employer defined-benefit pension system, in which retirees get a monthly check based on their pay and years of employment. The system represents 44 million workers in single- and multiemployer plans, about 20% of the private U.S. work force. Multiemployer plans cover workers who tend to move from employer to employer within unionized industries, allowing them to keep retirement-benefit plans negotiated under a common union contract.Among changes the bill would impose are requiring most companies to fully fund their pension plans within seven years, raising premiums paid to the government's financially strapped Pension Benefit Guaranty Corp., increasing public disclosure of a plan's financial health and forging a deal for several airlines. Funding rules have many exemptions and loopholes that allow companies to defer pension contributions, which can allow plans to operate with deficits.Considerable horse trading lies ahead on these and other provisions.
The Bush administration has warned that it is concerned that Congress's final bill won't sufficiently pressure companies to keep their promises to employees, and has threatened a veto.Battles also are expected on measures related to how companies measure and pay for retiree pensions, including whether companies with junk-rated bonds must pay more into their pension plans. To assuage critics including General Motors Corp. and Ford Motor Co., which have such ratings, the conference committee is expected to eliminate credit ratings as a measure, but put in place another early warning system to require companies to pay more into plans before deficits become too large.Business groups are expected to lobby to modify a proposed corporate-bond interest-rate measure that will be adopted to replace the 30-year Treasury rate to determine pension liabilities. Employers groups all oppose reverting to the Treasury-bond rate, because it would mean higher payments.Final action on the bill is expected before companies' next pension-plan contributions are due April 15.While the House bill doesn't give struggling airlines a special break, as the Senate bill does, industry officials say they have been assured that the final measure will contain a deal that carriers -- including AMR Corp.'s American Airlines, Continental Airlines, Delta Air Lines and Northwest Airlines -- will be able to stretch over as many as 20 years the period for fully funding their pension plans.In urging passage during the floor debate, Rep. John Boehner (R., Ohio) said he thinks taxpayers could eventually get stuck bailing out the PBGC without legislation.To that end, the bill focuses on narrowing the PBGC's rising $22.8 billion deficit by increasing premiums to $30 from $19 annually for each plan participant.The PBGC, which doesn't receive any taxpayer money, earns returns on its assets and collects about $1.5 billion in flat-rate and variable premiums annually from the single-employer plans it insures.
But that has fallen far short of its obligations. Still, the increase would raise an additional $374 million annually.
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