House OKs cutbacks on pension payments

WASHINGTON -- The House voted Wednesday to allow businesses to pay less into workers' pension plans over the next two years, saying the $26 billion in relief was needed to enable companies to keep plans afloat and protect benefits for future retirees.

Supporters said the bill, approved on 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, the poor economy, stock market losses and an increase in retirees.

Unions, fearing that some companies might otherwise terminate or default on their pension plans, supported the bill.

The Pension Benefit Guaranty Corp., a taxpayer-funded agency that guarantees the pensions of 44 million Americans, estimates that the entire system is now underfunded by $350 billion. The agency says about $80 billion of that is in plans in such severe condition that the obligations might have to be assumed by the PBGC, which itself is bearing a $5.7 billion deficit.

While allowing a temporary 10 percent reduction in corporate contributions to pension plans in 2004 and 2005, the measure commits Congress to come up with a permanent long-term solution that more accurately matches plan contributions to long-term liabilities.

Without the temporary measure, said Rep. John Boehner, R-Ohio, 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, saying it was "an important first step toward providing a permanent replacement for the interest rate now used to determine pension liabilities."

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."

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 -- if 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 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. "It's a staggering problem," he said.

The 30-year Treasury bond used to serve 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 Enron and other corporate scandals, in different legislation.