Senate Ends Year Without Acting on Pension Funding

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Senate Ends Year Without Acting on Pension Funding

Albert B. Crenshaw, The Washington Post

December 11, 2003

The Senate's adjournment Tuesday without changing a key pension funding formula leaves companies with traditional pension plans facing a choice, at least temporarily, of adding millions of dollars to pay future benefits, or freezing or even closing their plans, industry experts and lobbyists said.

At issue is the standard used to calculate pension liabilities. Current law requires firms to base these calculations on the interest rate of the 30-year Treasury bond -- a security that is no longer issued.

The combination of poor investment performance in recent years and low interest rates has thrown many plans into deficit. Although an economic turnaround could ease the problem, use of the 30-year Treasury bond makes it worse. In liability calculations, the lower the interest rate used, the higher the liabilities work out to be. Today's rates are low overall, and demand for the 30-year bonds still in circulation has pushed yields even lower.

Employers have pleaded with Congress to replace the 30-year Treasury bond with a standard related to high-quality corporate bonds, especially since a two-year fix expires at the end of the month. The House approved measures that would do that for another two years. But the Senate became deadlocked, primarily over even bolder relief provisions for troubled pension plans, and the best it could do was to agree Tuesday to go back to work on the pension issue when it returns in January.

As it stands, companies become liable for funding requirements under the old formula, beginning Jan. 1. They generally don't have to make the contributions until April -- so a retroactive agreement could spare them. But industry representatives said employers are increasingly discouraged by what many see as lack of concern, or even outright hostility, by national leaders toward traditional pensions.

The lack of action "will be interpreted that Congress and the administration are not going to support companies that are providing defined-benefit plans," said Mark J. Ugoretz of the ERISA Industry Committee, a group representing large companies with pensions. "That's the danger: These companies start shifting their operations and their own thinking to reflect that. That's not a good signal today."

House Education and the Workforce Committee Chairman John A. Boehner (R-Ohio) said: "This issue is important because providing employers with some degree of limited, short-term funding relief will reduce the likelihood that the federal government will have to step in and pay benefits for underfunded plans, often at lower benefit levels for workers. Without this interest rate fix, the pension benefits of millions of workers could be jeopardized."

Many companies have already frozen their plans, meaning they are closed to new employees and that those in the plan stop getting credit for further benefits. A recent survey of 1,000 pension operators found that more than 20 percent have either frozen or are considering freezing their plans.