Congressmen Move to Slow Pension Shifts to PBGC
>HR 2327, introduced late last week by Representatives George Miller (D-California) and Jan Schakowsky (D-Illinois) temporarily bars the transfers from companies in US Bankruptcy Court to the Pension Benefit Guaranty Corporation (PBGC), The PBGC insures private-sector defined benefit programs.
>According to a Miller news release , the six-month hiatus in transferring bankrupt companies’ pension plans to the PBGC would give Congressional lawmakers time to enact pension system changes.
>The Miller-Schakowsky proposal comes after a Chicago US Bankruptcy Court judge approved a deal to allow United Airlines to transfer $6.6 billion in pension liabilities to the pension insurance agency (See United Pension Hearing Delayed, But Okayed By Court ).
Raw Deal
“One hundred and twenty thousand United employees have just watched their retirements get deeply slashed,” said Miller, in the news release.. “The bill we are introducing today would stop this raw deal for United workers – and similarly unfair deals for workers at other major companies – for the next six months, until Congress can find a way to shore up the private pension system.”
>Miller asserted in the news release that if the PBGC takes over United’s plans within the next ten days, it will result in an average 25% to 50% benefit cut for most active and retired United employees.
>Miller warned that other companies will soon follow suit unless Congress acts. “All the major carriers will look to the United agreement to see if they can cut their own costs by dumping their workers’ pensions,” the lawmaker said in the news release. “And after the airlines, other industries will look to do the same thing. How much worse does the problem have to get before Congress wakes up?”
>The fiscal year 2006 federal budget recently passed by the House and Senate includes a provision to increase insurance fees charged by the PBGC to covered companies, which Miller and other critics have complained will put too much of a financial burden on plans that are already shaky (See ERIC: Say ‘No’ to PBGC Premium Hike ).
>A recent independent analysis also found that financially strong companies’ PBGC premiums would increase by more than twice those of their weaker counterparts under the Bush administration’s pension reform proposal. (See WWW: PBGC Premium Hikes Would Hit Strong Companies Hardest ).The administration’s proposal, announced earlier this year (See Chao Releases Administration DB Reform Proposal ), is designed to ensure that employers keep pension benefit promises and to protect the PBGC from a taxpayer bailout, according to officials. The proposal would overhaul pension funding rules and restructure premiums that employers pay to the PBGC.
Tying Executive Comp to PBGC Transfers
>Miller and Schakowsky and US Senator Ted Kennedy (D-Massachusetts) also recently introduced other legislation
– the Pension Fairness and Full Disclosure Act – to require companies to fully disclose to their workers the companies’ executive compensation plans and link the fate of benefits in executive compensation plans to those of rank-and-file workers.
>According to a Miller legislative summary about the disclosure proposal, the bill has three primary provisions:
- Corporations that file for Chapter 11 bankruptcy and shift unfunded pension liabilities to the PBGC, or convert their traditional pension plans to cash balance plans in a way that does not protect older workers, would not be permitted to increase executive deferred compensation for directors and officers for a fiver period without incurring a 100% excise tax.
- Corporations with underfunded rank-and-file pension plans would be prohibited from providing any funding for executive pension plans unless and until their rank-and-file plans are at least 75% funded.
- Corporations would have to disclose the full value of their executive compensation plans when they move to terminate the plans in bankruptcy or make amendments to the plan to freeze benefits or reduce future accruals.