Lawmaker's bill aims to bolster pension funding

Reuters

Lawmaker's bill aims to bolster pension funding
Wed Jun 8, 2005 7:20 PM ET

WASHINGTON (Reuters) - Legislation to ensure U.S. companies properly fund their pension plans and to bolster the agency that insures those plans will be introduced on Thursday, the chairman of the committee that oversees labor issues said.

Rep. John Boehner, an Ohio Republican, said his bill would tighten rules for funding pensions that promise a fixed payout at retirement, to try and avoid more companies defaulting on their plans as United Airlines recently has done.

The bill also aims to improve the finances of the Pension Benefit Guaranty Corp., which had a $23.3 billion deficit last year, by reducing the number of weak plans and raising the premiums paid by employers, Boehner's office said.

The premium increases would be spaced out over three to five years instead of taking place immediately as the Bush administration urged in a proposal earlier this year.

Boehner's bill, to be described in detail at a news conference on Thursday, is the first major pension bill in either chamber of Congress this year. It appeared to try to steer a middle path between stricter White House reforms and pressure from companies to relax the existing pension rules.

It lacks any provisions targeted to help airlines, despite pleas from airline executives on Capitol Hill this week for more time to catch up on their pension obligations so they could avoid joining United Airlines in bankruptcy court.


"The pension terminations at United Airlines underscore the need for fundamental pension reform to protect workers and taxpayers, and the time to act is now," Boehner said.

"Without comprehensive reform, more companies will default on their plans or simply stop offering benefits to workers altogether, and taxpayers will be at greater risk than ever of being stuck with a multibillion dollar bailout," said Boehner, who chairs the Education and Workforce Committee.

Boehner said he wanted to prevent a taxpayer bailout of the PBGC. His bill would also improve disclosures to workers about their pensions plans. Ways and Means Chairman Bill Thomas will co-sponsor the bill, Boehner's office said.

Reaction from businesses was cautiously positive.

"He clearly avoids some of the major pitfalls of the administration's proposal, which made it very difficult for companies to stay in the system," said Janice Gregory, senior vice president at the ERISA Industry Committee, whose member companies provide benefits to 25 million workers.

"The question will be: does it work when companies run the numbers," she said. "We'll have to see."

The core of Boehner's plan would seek to make pension funding more realistic by introducing a "yield curve" formula, under which companies would take into account the age of employees and when they are likely to retire when working out how much money to put into their plans.

Employers would be required to use three different interest rates when calculating pension obligations -- one for those due within five years, another for those due between five and 20 years, and a third for those obligations due after 20 years.

This appeared to be less complex than the administration proposal, which some business lobbyists feared could force companies to use a different interest rate for each year.

Boehner also omitted a White House proposal that companies at higher risk of default, as measured by their credit ratings, should be required to fund their pensions even more robustly.

Boehner's bill would raise premiums the PBGC charges employers to $30 per year for each participant in a pension plan from $19 currently.

Instead of putting the raise into effect immediately, as the White House wants, Boehner proposes phasing it in over three years for companies whose pension plans are less than 80 percent funded, and over five years if their plans are more than 80 percent funded.