Strategy

Corporate Pension Aid Approved by Bush

Defined-benefit plans at 31,000 companies stand to gain, but many smaller, multiemployer plans will miss out.
Dave CookApril 12, 2004

On Saturday, President Bush signed into law a bill that will save U.S. companies more than $80 billion in pension contributions through the end of 2005.

The new law applies to traditional “defined benefit” pension plans, many of which have become underfunded in the past few years due to a weak stock market and low interest rates. Previously, corporate contributions had been tied to the 30-year Treasury bonds, but since new issues of these bonds were discontinued in 2001, the interest rate remains low — and contributions have remained correspondingly high.

A temporary fix enacted by Congress in 2002, which allowed companies to use a higher interest rate, expired at the end of 2003. The new legislation — which comes just days before many companies will make their next quarterly payments, on April 15 — will use a rate based on several long-term bonds, according to The New York Times.

CFO Insights on Inflation, Workforce Challenges, and Future Plans 

CFO Insights on Inflation, Workforce Challenges, and Future Plans 

Download our 2022 survey report for a high-level view of finance team projections and strategies, directly from our CFO.com executive readers.

The legislation grants relief to 31,000 companies, reported the Times. A special provision allowing steel companies and airlines with weak plans to stretch out their pension-fund payments will grant an additional $1.6 billion to the likes of United Airlines, American, Delta, and Northwest, added the paper.

The Times noted that the amount of pensions received by individuals will not be affected by the legislation.

Opponents of the bill argued that it was unfair to many smaller, multiemployer plans, which mainly cover unionized workers in industries such as construction and trucking, according to Reuters. Sen. Edward Kennedy (D-Mass.) maintained that of 1,600 multiemployer plans in the United States, which cover more than 9 million workers, only 4 percent would be helped by the newly enacted legislation, added Reuters. The Times noted that in an earlier version of the bill — before the Republican-controlled Congress had reconciled the House and Senate versions — the Senate had overwhelmingly voted to provide aid to multiemployer plans as well.

4 Powerful Communication Strategies for Your Next Board Meeting