House OKs Short-Term Pension Crisis Plan
By JIM ABRAMS
The Associated Press
Thursday, October 9,
2003; 8:27 AM
WASHINGTON - The House offered $26 billion in relief to companies struggling
to keep up with pension plan payments, but put off a long-term fix of a system
that has jeopardized retirement benefits for millions of workers. Industry groups say excessive pension obligations are diverting capital
needed for investment and hiring. Labor organizations are concerned that
companies will abandon or default on pension plans if not given some financial
breathing room. Both groups supported the legislation, which the House passed 397-2 on
Wednesday. The legislation would replace, for two years, the 30-year Treasury bond
interest rate that has been used a a benchmark to determine funding for defined
benefit pension plans, which promise future payments to a company's
employees. The Treasury Department discontinued the bond in 2001, causing a sharp drop
in the bond's rate and artificially inflating pension liabilities. An interim
formula to fix that problem expires at the end of this year. Under the bill, a blend of corporate bond index rates would be used through
2005. That would give lawmakers time to come up with a plan where payments more
accurately reflect eventual liabilities. The legislation helps companies that are paying too much under the current
formula. It would reduce pension payments over the next two years by about 10
percent at a time when pensions overall are underfunded by about $350
billion. The Pension Benefit Guaranty Corp., which guarantees the pensions of 44
million people, says about $80 billion of that is in plans in such severe
condition that the obligations might have to be assumed by the agency, itself
under a $5.7 billion deficit. "By strengthening the defined benefit system in the short-term, we will
reduce the likelihood that the PBGC will have to step in and pay benefits to
underfunded plans, often at lower benefit levels," said Rep. John Boehner,
R-Ohio, chairman of the House Education and the Workforce Committee. He said that once the temporary solution is in place, "We expect to proceed
immediately with efforts" to come up with a permanent solution to the pension
crisis, he said. The White House welcomed the House bill as an important first step in finding
a permanent solution. The House bill differs from a more ambitious measure that the Senate Finance
Committee approved. The measures offers a three-year reprieve to overextended
companies before putting in place a more permanent and tougher means of
calculating pension obligations. Lawmakers noted that some 20 percent of companies with defined-benefit
pension plans - the total is now about 32,500 - have either frozen or canceled
their plans in the past three years because of the costs. "Without an immediate replacement" of the current rate, wrote Bruce Josten,
executive vice president of the U.S. Chamber of Commerce, "many plan sponsors
will be forced to freeze or terminate their plans, leaving many workers without
these vital retirement benefits." Bill Samuel, legislative director for the AFL-CIO, said, "It's the minimum
step that Congress needs to take to stabilize the pension funding crisis." Norman Stein, a University of Alabama pension expert, suggested the temporary
fix would give Congress an excuse not to make hard decisions about the future of
the system. If the economy doesn't improve - if interest rates stay low and the
market doesn't rebound, "we will be putting off taking painful medicine," he
said. Voting no were Reps. Gene Taylor, D-Miss., and Bernie Sanders, I-Vt. --- On the Net: Information on the bill, H.R. 3108, can be found at http://thomas.loc.gov PBGC: www.pbgc.gov