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Senate Passes Bill to Shore Up Pensions
By
Marcy Gordon, Washington Post
November 16, 2005
The Senate on Wednesday approved far-reaching pension legislation meant to ensure that companies with traditional pension plans live up to the promises they make to their workers.
In the face of new warnings about the future solvency of the nation's private pension system, the bill passed 97-2. Debate now moves to the House, which is expected to take up its version of the legislation next month. "The retirement security of millions of hard-working Americans is at risk," said Sen. Edward Kennedy, D-Mass., one of the authors of the legislation the requires companies to fully fund their pension plans and takes steps to improve the gloomy financial outlook of the federal agency that insures private pension plans.
The vote came a day after the Pension Benefit Guaranty Corporation, which insures defined-benefit plans, announced in an annual report that it was now carrying a $22.8 billion deficit and was looking at a future where more bankrupt companies abandon their plans, transferring payment responsibility to the PBGC.
The White House, in a statement, said it supported the Senate bill but opposed provisions that would give airlines more time to fully fund their pensions and other measures that might delay meeting full funding targets. It said the president would be urged to veto legislation if the net effect is to weaken funding requirements relative to current law.
The agency on Tuesday reported the deficit for fiscal 2005, which ended Sept. 30, a year in which big airlines flew into bankruptcy court and dumped their pension liabilities.
Without a legislative overhaul, the PBGC, which is financed by insurance premiums paid by companies and by PBGC's investment returns, eventually will run out of money to pay the claims of retirees of companies whose plans it has assumed, policy-makers warn. That would raise the possibility of a taxpayer bailout.
In its annual report, the PBGC said that as of Sept. 30 it had $56.5 billion in assets to cover $79.2 billion in pension liabilities.
Traditional employer-paid pension plans, giving retirees a fixed monthly amount based on salary and years of employment, are now estimated to be underfunded by some $450 billion.
In recent years there has been an explosion of big, ailing companies--especially in labor-heavy industries such as airlines and steel--shifting their pension liabilities to the PBGC.
"Unfortunately, the financial health of the PBGC is not improving," the agency's executive director, Bradley D. Belt, said in a statement. "The money available to pay benefits is eventually going to run out unless Congress enacts comprehensive pension reform to get plans better funded and provide the insurance program with additional resources."
For the fiscal year, the PBGC assumed 120 terminated pension plans. It reported $4 billion in losses from pension liabilities while it collected only $1.5 billion in insurance premiums from companies. The agency earned $3.9 billion in investment income.
United Airlines and US Airways used bankruptcy earlier this year, with judges' blessings, to slash costs by dumping their employee pension liabilities _ a combined $9.6 billion _ onto the PBGC.
Delta Airlines and Northwest Airlines, which both filed for Chapter 11 bankruptcy protection on Sept. 14, may do the same. The pension plans of the nation's No. 3 and No. 4 airlines are underfunded by an estimated $16.3 billion. And there is speculation that auto parts maker Delphi Corp., which filed for protection from creditors last month, also could end its pension plan and transfer liability to the federal agency.
Many companies are replacing traditional defined-benefit pension plans with less expensive defined-contribution programs, such as 401(k) plans _ in which employers contribute to a retirement fund and workers receive only what the investments have earned. The PBGC backs only defined-benefit plans, which are most prevalent in older industries such as automobile manufacturing, steel and airlines.
The agency was created in 1974 as a government insurance program for traditional employer-paid pension plans. Companies pay insurance premiums to the agency.
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