US: pensions redux

[Eubulides <paraconsistent@xxxxxxxxxxx>]

washingtonpost.com
Senate Approves Pension Bill
By Jim Abrams
Associated Press Writer
Wednesday, January 28, 2004; 12:40 PM


The Senate on Wednesday passed legislation that could save employers tens
of billions of dollars in pension payments and help protect the pensions
of American workers.

"The retirement security of millions of workers hangs in the balance," Sen
Max Baucus, D-Mont., said before the Senate voted 86-9 to approve
legislation to reconfigure how employers must fund their defined benefit
pension plans.

The bill, the first major act of this legislative session, enjoyed wide
bipartisan support in an election year when congressional harmony is
expected to be rare.

"This is about protecting American workers and their pension benefits,"
said Sen. Norm Coleman, R-Minn.

The bill still must be reconciled with the House version and ironed out
with the administration, which is balking at a provision giving special
treatment to airlines and steelmakers with chronic pension underfunding
problems.

The legislation is a short-term, two-year fix to protect employers from
what could become artificially inflated pension contributions and allow
Congress time to work on more lasting solutions to pension funding and the
problems of companies that underfund or abandon their defined benefit
plans.

Congress must move before April, when companies will again have to
determine payments based on the 30-year Treasury bond rate. Because the
Treasury Department no longer issues the bond, its interest rate has
fallen precipitously. That in turn, under an inverse relationship, causes
required pension contributions to increase.

"Our members are already making investment plans, job-hiring retention
plans and without this fix they are going to have to divert in some cases
hundreds of millions of dollars into their pension plans unnecessarily,"
said Dorothy Coleman, vice president for tax policy at the National
Association of Manufacturers."

For the next two years, the formula would be based on a composite of
investment-grade corporate bonds. Companies will save about $80 billion
over two years under the new formula, says the Pension Benefit Guaranty
Corp., which insures the pensions of 44 million people in more than 30,000
single and multi-employer defined benefit plans.

The Senate bill separately would allow airlines, steelmakers and others
with underfunded plans who must make catch-up deficit reduction
contributions to waive large parts of their catch-up pay over the next two
years. They could waive 80 percent of those payments the first year and 60
percent the second year.

The three Cabinet secretaries who comprise the PBGC board, Elaine Chao of
Labor, John Snow of Treasury and Donald Evans of Commerce, said they would
advise President Bush to veto the bill if it should contain this provision
because they said it would worsen pension plan underfunding, now estimated
at $350 billion nationwide.

The PGGC said those who qualify for the deficit reduction contribution
waiver would save another $16 billion. Currently, underfunded plans must
make catch-up payments, including their normal contributions, to ensure
their plans return quickly to financial viability.

Business groups support the bill as do unions, even though it would
produce smaller corporate contributions to pension plans. Organized labor
fears that many financially pressed companies will otherwise opt to
dissolve their plans or declare bankruptcy and turn the plans over to the
PBGC, which may not pay the full pension that was promised.

The measure is particularly important to mature industries such as
automobiles, where retirees at some companies outnumber current employees.
General Motors Corp., for example, has 25 retirees for every 10 active
employees and will have to pay out $6 billion in pension benefits this
year.

Sen. Jon Kyl, R-Ariz., proposed an amendment that he said would make the
bill more acceptable to the administration by making taxpayers less
vulnerable if companies that get special breaks become insolvent,
transferring the pension payment to the PBGC, which last year the PBGC had
a record deficit of $11.2 billion. But is was defeated Tuesday, 67-25.