Pension Overhaul Bill Heads to Bush

The Senate passed legislation Thursday that, if signed by the president, will make U.S. corporations fund their employee pensions fully within seven years.


Advertisement



The sweeping pension reform bill aims to restore the $23 billion deficit at the Pension Benefit Guaranty Corporation (PBGC), the federal insurer for defined pension benefits that has been overburdened by corporate bankruptcies in the steel and airline sector, the Financial Times reported.

The bill provides mixed relief for airlines. Delta and Northwest had threatened to follow United and US Airways in terminating their plans and dump them on the PBGC, the Financial Times says. However, in a compromise, the legislation would allow the companies to amortize pension shortfalls over 17 years and use a discount rate of 8.85 percent to determine their contributions, cutting their annual payments to less than $150 million.

Delta CEO Gerald Grinstein said Friday that passage of the bill took a "Herculean effort," and urged President Bush to sign the bill into law promptly, the Atlanta Journal-Constitution reported.

The political maneuvering had focused on American and Continental airlines, which had continued to fund most of their pensions and will now have only 10 years—and a lower discount rate—to amortize shortfalls unless they freeze the plans, which would damage labor relations.

However, the measure affects more than the airlines. Some, including The Wall Street Journal, say “it signals the end of the old, defined-benefit pension era.”

The bill would require the 30,000 underfunded defined-benefit plans to reach 100 percent funding in seven years, according to the Seattle Post-Intelligencer. "At-risk" companies must contribute at an accelerated rate.

The American Benefits Council, which represents companies with traditional pension plans, told the Seattle PI that the measure is a "mixed bag," promoting savings but potentially making funding requirements more unpredictable, which could lead to sponsors freezing their plans.

The Congressional Budget Office has projected that companies will contribute less to their plans over the next few years but will step up contributions in five years, the PI reported.

Half the workers in private industry have no pensions, and the legislation "doesn't do anything for that," Karen Friedman, policy director of the Pension Rights Center, told the PI. The Teamsters also protested "red zone" provisions that would reduce early retirement benefits for workers in seriously underfunded multiemployer plans.

The bill should be a boon for the youngest generation of workers, thanks to provisions promoting automatic enrollment into 401(k) programs. Research by the Investment Company Institute and the Employee Benefit Research Institute found that 401(k) participation rates among low-income workers would double, from 42 percent to 91 percent.

Additional information regarding the pension bill can be found in Verbal Agreement Found in Pension Bill Negotiations.

You may like these other stories...

By Jason Bramwell Government leaders of eight of the world's largest economies pledged on June 18 to take a tougher stance on fighting tax evasion. The Group of Eight (G8) leaders, who met in Northern Ireland,...
By Jason BramwellAttorney General Eric Holder is scheduled to testify on May 15 before the House Judiciary Committee, one day after he announced the Justice Department has opened a criminal investigation of the IRS for...
By Jason BramwellPresident Barack Obama says he will not tolerate political bias at the IRS and promised to get to the bottom of the agency's admitted targeting of conservative groups, according to a May 13 article in...

Already a member? log in here.

Upcoming CPE Webinars

Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
Sep 30
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Oct 21
Kristen Rampe will share how to speak and write more effectively by understanding your own and your audience's communication style.
Oct 23
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.