Jobs, Taxes & Benefits

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Pension Policy: Congress Offers a Bailout

On Wednesday January 28, 2004, the Senate passed legislation that will help companies fund their pension plans, temporarily.

Since the House of Representatives has already passed a similar bill, the next step is a conference committee, where the differences between the bills will be sorted out and a final version, or, conference report, will be produced.

Assuming both houses of Congress accept the conference report, President Bush must sign the bill in order to make it law.

But Bush may not sign this legislation; he may exercise his right to check the power of Congress and veto the bill.

Bush at odds with Congress on pensions

Although the pension relief bill passed the Senate with flying colors (the vote was 86 to 9), the Bush administration is not so sure that the bill is the best solution to our country’s pension problems.

While acknowledging that large companies like Bethlehem Steel Corporation and U.S. Airways Group Inc. are on shaky financial ground because they have under- funded their pension programs, the Bush administration is against a government bail out. To Bush and the few dissenting Senators, the bill rewards companies’ risky behavior and sends the message that government will come to the rescue in financial trouble.

86 Senators disagree

Most Senators feel that the pension problem is past the point of no return. They argue that government must do something to help these companies catch up while the pension system is reformed.

The bill allows companies to calculate their pension liabilities in a new way. Currently, companies use the 30-year Treasury bond interest rate to calculate the amount they will pay out in pensions in the future. The legislation permits companies to use a higher corporate-bond interest rate, which lowers the liability. For large companies, this is a billion dollar difference. They will be required to set aside less money today for pensions to be paid tomorrow.

The Senate bill also includes an amendment that will help airlines, steel companies, and unions that have fallen behind in their pension plan payments. The provision waives 80% of catch-up payments for one year, and 60% of payments for a second year. Companies in the steel industry that do not offer pensions, but rather 401(k)s or other plans, feel that this measure is unfair. They complain that government is offering some companies subsidies and not others.

This argument brings up an important question: Should government interfere with market competition to bail out huge companies that employ millions, companies that, if they were to fail, would cause an economic downturn?

The next step

The bill offers a temporary solution only. The relief described above will last for just two years, but lawmakers hope that this is enough time for companies to recover and for Congress to come up with a long-term solution to the problem of pension under-funding.

Pension coverage is likely to become a big issue in coming years. Companies like General Motors now have more retirees than employees and will pay out $6 billion in pension benefits this year.

In addition, the Pension Benefit Guaranty Corporation (PBGC), the government agency that insures pensions, is now in deep deficit. Because of pension under-funding, the PBGC has gone from a $9.7 billion surplus in the late 1990s to an $11.2 billion deficit last year.

What to do

Check back with WomenMatter for continuing coverage of this issue. You can read more about pensions and discuss what you read with others in one of our online forums. The first step is to educate yourself, then, when you’re ready, contact your representatives and let them know what you think.

Article Posted on: 2/3/2004

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