(The Associated Press circulated the following story by Jim Abrams on October 9.)
WASHINGTON, D.C. — The House voted Wednesday to allow businesses to pay less into workers’ pension plans over the next two years, saying companies needed the $26 billion in relief to keep plans afloat and protect benefits for future retirees.
Supporters said the bill, approved by a 397-2 vote, would give breathing space to companies and defined-benefit pension plans that have been hurt by a combination of low interest rates, a poor economy, stockmarket losses and an increase in retirees.
Rep. John Boozman, R-Ark., and Reps. Marion Berry, Mike Ross and Vic Snyder, all D-Ark., voted with the majority. Voting no were Reps. Gene Taylor, DMiss., and Bernie Sanders, I-Vt.
Unions, fearing some companies might otherwise terminate or default on their pension plans, supported the bill. “It’s the minimum step that Congress needs to take to stabilize the pension-funding crisis,” said Bill Samuel, legislative director for the AFL-CIO.
Analysts, meantime, expect businesses to keep switching to 401 (k) accounts, which rely on employee contributions, from plans that promise post-employment payments, or to drop retirement benefits altogether.
The Pension Benefit Guaranty Corp., an agency financed primarily by pension-fund premiums that guarantees the pensions of 44 million Americans, has estimated the entire system is underfunded by $350 billion. The agency says about $80 billion of that is in plans in such severe condition that it might have to assume those obligations. And that’s with the Pension Benefit Guaranty Corp., itself, bearing a $5.7 billion deficit.
While allowing a temporary 10 percent reduction in corporate contributions to pension plans in 2004 and 2005, the House bill also commits Congress to come up with a permanent long-term solution that more accurately matches plan contributions to long-term liabilities.
Backers said the bill, while putting off a solution to the underfunding problems, will give two years of relief both to companies having trouble meeting their payment obligations and businesses that, because of the current payment formula, are paying more than needed.
If Congress fails to act, Rep. Paul Ryan, R-Wis., said, “Billions of dollars, instead of creating jobs and hiring people, will go into artificial pension payments.”
Without the temporary measure, said Rep. John Boehner, ROhio, chairman of the House Education and the Workforce Committee, “The benefits of millions of workers could be jeopardized.”
The White House welcomed the House bill, calling it “an important first step toward providing a permanent replacement for the interest rate now used to determine pension liabilities.”
However, 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 — interest rates stay low and the market doesn’t rebound — “We will be putting off taking painful medicine,” he said.
Rep. Earl Pomeroy, D-N. D., noted that about 20 percent of companies with defined-benefit pension plans — the total is now about 32,500 — either have frozen or canceled their plans in the past three years. “It’s a staggering problem,” he said.
The 30-year Treasury bond once served as the basis for calculating future pension obligations. But the government stopped issuing new 30-year bonds in 2001, followed by a dramatic fall in interest rates. A temporary replacement will expire at year’s end.
The bill gives the Treasury Department flexibility to establish the interest rate for pension plans using a mix of corporate bond indexes.
The House bill is less sweeping than a measure approved by the Senate Finance Committee last month. The Senate version would give corporations three years of reduced contributions before putting in place a more permanent and tougher system for calculating payments.
The Senate bill also contains beneficiary protections, such as phasing out the ability of companies to lock workers into company stock in their retirement plans. The House has addressed this issue, a response to the collapse of Enron Corp. and other corporate scandals, in separate legislation.