This will be the final nail in the coffin for ol' Delta
UPDATE 2-U.S. House panel approves pension reform
Thu Jun 30, 2005 06:53 PM ET
(Adds quotes, details of bill)
By Susan Cornwell
WASHINGTON, June 30 (Reuters) - Legislation to repair huge underfunding of U.S. corporate pensions and avoid a possible taxpayer bailout of the agency that insures them cleared the U.S. House Education and the Workforce Committee on Thursday.
Traditional pensions are underfunded by $450 billion, and the federal agency that insures them, the Pension Benefit Guaranty Corp. (PBGC), is itself $23.3 billion in the red, swelled by recent pension defaults at bankrupt United Airlines(UALAQ.OB: Quote, Profile, Research) and others.
Lawmakers said they should impose stricter pension funding rules before more pensions default and the PBGC collapses.
"I think the effect of this bill over the next 10 to 20 years will prevent a meltdown at the PBGC," said Ohio Republican Rep. John Boehner, the bill's co-sponsor.
Modeled after a Bush administration measure, the bill requires companies to erase the shortfalls in their "defined benefit" pension plans and pay higher premiums to the PBGC.
But unlike the White House plan, the bill would phase in the funding requirements and premium increases over five years. Defending the differences, Boehner said he did not want to drive employers out of the pension system.
Defined benefit pensions, which have a fixed payout at retirement, cover 20 percent of workers, mainly in older industries like automobiles and airlines.
Lawmakers declined to include any specific aid for U.S. airlines, some of which say they may also default on their pensions if they do not get more help. But Boehner left the door open to add such relief later.
The measure could go to the floor of the House for a vote, but it could also be wrapped into a larger retirement package being drafted that includes changes to Social Security.
Democrats in both chambers have warned against combining corporate pension reforms, which have some bipartisan support, with the volatile Social Security issue.
The House pension bill seeks to eliminate the legal limbo around "cash balance" plans, a portable type of pension. These have faced legal uncertainty since a federal court ruled in 2003 against the plan of IBM (IBM.N: Quote, Profile, Research) , saying it discriminated against older workers.
The bill set an age discrimination standard for all defined benefit pensions, and a new cash balance pension plan that embraces it would not be considered age discriminatory.
It also sets up a system for improving troubled pension plans that are maintained by more than one employer. It allows plan trustees to levy a surcharge of up to 10 percent on employers' contributions, and pare workers' benefits.
The legislation also allows pension plan administrators to provide investment advice to workers, as long as any potential conflicts of interest are disclosed.
