House Approves Pension Relief Bill

November 21, 2003 ( - The US House of Representatives has approved a pension relief bill for airlines and other companies struggling to meet the pension obligations of their employees.

>The legislation would give two years of relief to airlines that are having trouble meeting the extra contributions required of companies with seriously underfunded pension plans.   Airlines next year and in 2005 would pay only 20% of what they are currently required to contribute under the program affecting chronically underfunded plans, according to an Associated Press report.

>Reaction about the potential impact of the measure is mixed.   Opponents, such as the Pension Benefit Guaranty Corporation (PBGC) caution that by delaying pension funding rules designed to speed up cash contributions to severely underfunded pension plans, the shortfall in these plans would grow by $40 billion over the next three years (See  PBGC Warns of Deficit Reduction Contribution Suspension Impacts ).

“Giving a special break to weak companies with the worst-funded plans is a dangerous gamble,” said PBGC Executive Director Steven Kandarian in a news release (See Steve Kandarian ). “The risk is that these plans will terminate down the road even more underfunded than they are today. If that happens, workers will lose promised benefits and the pension insurance program will suffer additional multibillion-dollar losses.”

>On the other side of the aisle, Fitch Ratings said in a research report that the bill would “help ease airline liquidity pressures” by delaying the deficit reduction contributions starting in 2005. Fitch estimated that the largest US air carriers collectively face an unfunded pension liability of more than $20 billion (See  Fitch: Pension Bills Could be Big Help for Airlines ).

Pension relief has been a popular theme for the House this session.   In October the body approved a bill to temporarily replace the current30-year Treasury bond rate with a blend of corporate bond index rates through 2005 (See  US House Solidly Approves Pension Funding Bill ).