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The Honolulu Advertiser
Posted on: Thursday, November 10, 2005

Pension protection plan makes headway in House

By JIM ABRAMS
Associated Press

WASHINGTON — Legislation to protect workers' pensions was approved by a key House committee yesterday, advancing what could be the most important retirement issue that Congress will address this year as Social Security's overhaul fades into the background.

Supporters said the bill would tighten controls over employers that underfund pension plans; safeguard the financial future of the federal agency that insures plans; and ensure that millions of people with defined-benefit plans will get their promised benefits.

The bill passed the House Ways and Means Committee by a 23-17 vote.

The committee chairman, Rep. Bill Thomas, said swift action was needed because employer-run defined-benefit plans, which give retirees a fixed amount based on salary and years of service, are now underfunded by up to $450 billion.

That "leaves vulnerable the retirement security of millions of Americans," said Thomas, R-Calif.

The full House could take up the legislation as early as next week.

Democrats generally opposed the bill. They said it could lead some employers to drop their pension programs or switch from traditional defined-benefit plans to less expensive defined-contribution programs.

In the latter, employers contribute to workers' accounts based on a percentage of annual income.

The legislation adopts much of a bill approved in June by the House Committee on Education and the Workforce while adding several related provisions to promote retirement savings.

It takes steps to encourage employers to offer automatic enrollment in 401(k) plans and allows taxpayers due an income tax refund to ask the Internal Revenue Service to deposit a portion of that refund in a retirement account of their choosing.

The measure would also modify the "use it or lose it" rule for flexible savings accounts. They permit workers to set aside untaxed wages, deducted from their paychecks, that can be used to pay for healthcare and childcare costs not covered by insurance.

The accounts have drawn criticism because workers have to forfeit unspent money at the end of the year; the bill would allow $500 to be carried over every year.

The legislation does not address Social Security. Thomas had suggested that Social Security could be part of a broad retirement protection bill. But the issue, a priority for the Bush administration this year, never gained momentum in Congress or among voters.

Senate Finance Committee Chairman Charles Grassley, R-Iowa, in a speech to the U.S. Chamber of Commerce on Tuesday, said he is "very pessimistic" that Congress can overhaul Social Security during the president's second term.

The pensions aspect of the bill requires employers with underfunded plans to meet a 100 percent funding target, phased in over five years starting in 2007.

It provides a permanent interest rate, based on a modified yield curve, to more accurately measure a company's pension liabilities and triggers accelerated contributions if a plan's funded status falls below 60 percent.

The annual premiums that companies pay the Pension Benefit Guaranty Corp., the federal agency that insures pensions, would climb from $19 to $30 a participant.

The PBGC, which operates solely on premiums and interest earnings, has seen its financial obligations soar in recent years as it takes over the pension plans of bankrupt companies, particularly in the airline and steel industries.

The concern is that mounting liabilities, currently some $23 billion, will eventually lead to a taxpayer bailout.

The Ways and Means bill also would require employers that terminate their plans through bankruptcy to pay an annual $1,250 premium per participant for three years after emerging from bankruptcy.

The Senate was close to passing its version of pension reform last month, but was stymied by the objections of two senators to a provision requiring companies with poor credit ratings to contribute more into their pension funds.