House moves to aid overextended pension plans

By Jim Abrams
Associated Press

WASHINGTON — The House voted yesterday 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.

Hawai'i U.S. Reps. Neil Abercrombie and Ed Case voted for the measure.

The Pension Benefit Guaranty Corp., an agency financed primarily by pension fund premiums that guarantees the pensions of 44 million Americans, estimates that the entire system is now underfinanced 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.

Backers said the bill, while putting off a solution to the underfinancing 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 they need to. If Congress doesn't act, said Rep. Paul Ryan, R-Wis., "billions of dollars, instead of creating jobs and hiring people, will go into artificial pension payments."

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.

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.