Pension Fund Relief Plan Fails to Clear the Senate

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Pension Fund Relief Plan Fails to Clear the Senate

By Mary Williams Walsh, The New York Times

November 26, 2003

A measure that would have let the nation's businesses defer tens of billions of dollars in pension contributions over the next two years was beaten back in last-minute Senate maneuvering yesterday evening, disappointing companies that have been pushing all year for help with their depleted pension funds.

Earlier in the day, senators from both parties said they thought they had found an acceptable way to give companies a break on their looming pension bills - an arrangement that they thought would be acceptable to members of the House as well. But the measure required unanimous consent in the Senate, and late yesterday, with legislators trying to leave for the Thanksgiving holiday, a small number of senators were still withholding their support.

As a result, the Senate broke for the Thanksgiving recess with no progress on the pension issue and no sign of whether it would be possible to enact legislation by the end of the year. Companies that offer pension plans are now operating under an interim break that will expire at the end of the year. If no new replacement measure is enacted, the companies' mandatory contributions will balloon.

The Senate is scheduled to consider the pension issue on Dec. 9. But staff members said that any pension measure would still have to receive unanimous consent then, a difficult standard to achieve on a technically demanding issue with so little time left. The House of Representatives has already passed a pension measure, but it will now have to reconsider any revised language that may be approved by the Senate.

Opposition to the Senate's compromise measure appeared to be based, in large part, on concerns that it might allow some companies to neglect their pension funds, putting benefits in peril. One staff member also complained that senators were expected to give their consent right away, even though they were not shown the legislative language until late Tuesday morning. With tens of billions of dollars hanging in the balance, that was asking too much, he said. There were also suggestions that opposition was coming from senators of states where low-cost airlines are based.

The large, established airlines are among the companies expected to benefit most from any pension break. Competing airlines that do not offer pensions see pension relief as an indirect subsidy to their larger and older competitors, according to Senate aides who have received calls from airline lobbyists.

United Airlines, a unit of the UAL Corporation, in particular would have benefited from the pension measure. It has disclosed in filings with the Securities and Exchange Commission that without legislative relief of some sort, it will have to put $4.8 billion into its four pension funds over the next five years, with most of the payments due by 2006 because of a pension rule requiring companies to speed up their contributions to plans with large, lasting deficits. United has been operating under bankruptcy protection for almost a year, and its executives have said that the large, required pension payments are its single largest stumbling block as it works to emerge from bankruptcy.

In addition to the major airlines, a pension relief measure would also reduce pressure on companies in the steel and automotive sectors, as well as other heavy manufacturing businesses.

The Bush administration has also expressed opposition to far-reaching pension relief this year. Officials of the Treasury, and the Pension Benefit Guaranty Corporation, the agency that insures pensions, have said they would oppose any legislative break that they perceived as dangerously broad or that granted special breaks to individual companies or sectors.
But in recent months, administration officials signaled that they might find pension relief acceptable if it were limited to two years and treated all companies the same.

Opponents of the Senate's pension measure have focused in particular on a provision that would have eased a rule intended to force companies with severely eroded pension plans to shore them up quickly with large cash contributions. The Senate's compromise measure that was not adopted yesterday did not suspend these so-called deficit reduction contributions outright, but it would have allowed companies to put in only 20 percent of the required amount for the next two years.

Administration officials have warned that such an approach would allow the weakest pension plans to get even weaker for the next two years, however, and their warnings appeared to convince at least a few senators yesterday. Some of the weakest pension plans would be likely to fail if the rule were rolled back for two years, because their sponsoring companies might still be unable to come up with the needed cash when the two-year reprieve expired. In such cases, the government would end up with a bigger burden than if it simply took over the plans now.

"Giving a special break to weak companies with the worst-funded plans is a dangerous gamble," Steven A. Kandarian, executive director of the pension agency, said in a statement sent to news organizations last week. "The risk is that these plans will terminate down the road even more under funded than they are today."

Mr. Kandarian did not comment on yesterday's activity in the Senate. His agency issued projections this fall that suggested that the compromise package would have saved companies about $27 billion in pension contributions over the next two years.

The Pension Benefit Guaranty Corporation itself has a large deficit, and would be about $350 billion short if it had to pay all the pensions it is responsible for immediately.

Companies face large pension bills now because three years of declining stock prices have greatly eroded the assets in their pension funds. The unusual combination of falling stock prices and very low interest rates has made the situation even worse. Low interest rates make future pension obligations look very large because they serve as a proxy for the rate of investment return on the pension fund over time.

Even though this year's rise in stock prices will strengthen pension funds somewhat, it will not erase all of the deficits. Pension calculations involve numerous lags, and therefore many pension funds are only beginning to show the full effects of the three-year bear market.

As a result, many companies will run up against the special accelerated financing rules over the next two years.

It is impossible to predict which plans, however. Companies are not generally required to disclose whether they are facing the special accelerated pension payments.