Human Capital & Careers

House Passes Pension Measure

Companies must fully fund their pension plans within seven years and pay higher premiums to the PBGC. The bill also calls for better public disclos...
Stephen TaubDecember 16, 2005

The House of Representatives has passed its version of a bill that seeks to strengthen corporate pension plans.

Now House members must meet with the Senate, which passed its own bill last month, to hammer out a compromise measure. Discussions are not expected to take place until early next year, according to The New York Times.

Almost immediately, critics of the House bill argued that the proposal did not go far enough. Furthermore, President Bush promised to veto any bill that doesn’t seriously address two key issues — dealing with companies that don’t set aside enough in reserves for future payments, and adjusting premium payments to the Pension Benefit Guaranty Corp. so that the fund of last resort remains solvent.

These two critical items, which led to a PBGC financial crisis, have many observers worried that individuals without pensions will have to pay more in taxes to save the pensions of other workers.

Under the House bill, companies must set aside in a trust one dollar for every dollar they promised to their employees, reported the Times. Currently, company plans are deemed fully funded if management reserves 90 cents for every dollar they must pay out.

In addition, the bill addresses company plans that run a deficit, which happens regularly, says the Times, when benefits are increased or investment returns are low. The proposal requires that these corporations fully fund their plans within seven years. Currently, companies have 30 years to do so.

The bill also prevents companies from increasing their pension benefits if their plans are financially weak, and mandates that higher premiums be paid to the PBGC. The prevailing premium rate, set in 1994, is $19 per pension participant, and does not cover the value of the insurance provided, noted the Times.

Companies with fully funded pension plans, however, would be granted a five-year phase-in period for the premium rate increase. Companies running a deficit plan receive only three years before the higher premiums kick in.

Democratic critics of the measure, which passed 294-132, raised fears that more companies will freeze or eliminate their defined-benefit plans, a current trend that seems almost impossible to stop.

Rep. John A. Boehner (R-Ohio), chairman of the Education and Workforce Committee and a key sponsor of the legislation, acknowledged the bill’s shortcomings, but called it “a finely tuned balance” between the need for adequate funding and giving employers the flexibility they need to keep their pensions, reported The Washington Post.

Interestingly, the House bill, which was supported by a number of union groups, does not provide a plan to offer relief for the airline industry, noted The Wall Street Journal. The Senate version would give airlines 20 years to fully fund their plan. The White House, however, is opposed to providing relief for specific industries.

Several legislators hope to provide some sort of bailout for the airlines when the House and Senate finalize their compromise legislation. “Let’s give the airlines a fighting chance,” said Rep. David Scott (D-Ga.), according to the Times. Troubled Delta Air Lines is based in Atlanta.

The Journal also noted that the House bill contains a number of funding exemptions and loopholes that allow companies to defer pension contributions.