>Beleaguered airlines, steel companies, and Greyhound bus lines get an additional break from pension contributions of at least $1.6 billion under the bill, which is expected to get President George Bush’s signature enacting it into law, the Wall Street Journal reported.
The measure, which has been closely monitored by the retirement services industry, allows businesses to use until 2006 a blend of long-term corporate bonds as an important benchmark in calculating future pension liabilities. The new benchmark replaces the lower rate set by the 30-year Treasury bond, which the government stopped issuing in 2001. The eventually used rate was made more generous than one originally proposed by the Senate by allowing upper-medium-grade bonds, instead of only high-grade bonds, in the index.
As of Wednesday, Moody’s Investors Services’ unweighted average of long-term corporate yields on AAA, AA and A bonds was 5.89%, compared to its unweighted average of long-term corporate yields on AAA and AA bonds of 5.78%.The rate on the 30-year bond Wednesday was 5.01%.
The bill’s prospects got a substantial boost Wednesday when Senate Minority Leader Tom Daschle (D-South Dakota) promised not to block its consideration on the Senate floor. (See Daschle Clears Way for Pension Funding Vote ).
Earlier this year, the Pension Benefit Guaranty Corporation (PBGC), the federal private pension insurer, estimated that allowing businesses to use the high-grade corporate bond index would save $80 billion in pension contributions over the next two years.
The legislation split Democrats. Some backed the bill, while others argued that it had done too little to help union-sponsored pension plans hit by sagging interest rates and market losses. Multiemployer plansare jointly managed by unions and employers and typically cover people who don’t work for the same company on a day-to-day basis, such as carpenters and truckers. Multiemployer plans are covered by different funding rules than single employer plans and wouldn’t benefit from the move away from the 30-year Treasury bond as a benchmark.
The bill would allow a small percentage of multiemployer plans to put off for two years increased contributions required to make up for market losses in 2002. But after that, they would be required to make up those foregone contributions with a lump sum payment. Democrats wanted the break to go to 20% of multiemployer plans, but the White House objected and Congressional Republicans used their majority clout to override Democratic objections.
The bill will also give added relief to the single-employer pension plans sponsored by the troubled airline and steel industries, which have been extraordinarily hard hit by pension troubles. Those industries will be given a two-year holiday from the steeply accelerated pension contributions required of seriously underfunded pension programs.
Unlike the break for multi-employer plans, businesses that use the holiday wouldn’t be required to make a lump sum payment of the foregone contributions. Those beneficiaries include:
- Inland Steel, AK Steel Holding Corp. and iron ore miner Cleveland-Cliffs Inc. The PBGC estimates the break will save the companies about $300 million over the next two years.
- UAL Corp. parent of United Airlines, American Airlines parent AMR Corp., Delta Air Lines Inc., Northwest Airlines Corp. and Continental Airlines Inc. Those companies stand to save about $1.3 billion, PBGC estimates.
- The bill would also give Greyhound Lines Inc., a wholly owned subsidiary of Laidlaw International Inc., a break on pension contributions to the Amalgamated Transit Union Plan.
Industry groups were quick to weigh in Thursday after the Senate vote was announced:
- “The Senate and the House of Representatives have finally fulfilled their responsibility to American employers and employees with the passage of critical pension interest rate reform legislation,” said American Benefits Council President James Klein in a statement. “Congress’ approval of this important measure is long overdue. Now it is time for President Bush to sign H.R. 3108 into law, providing relief for beleaguered plan sponsors and security for millions of plan participants saving for retirement.”
- “This legislation immediately helps American workers by alleviating the uncertainty their employers have experienced over the past three years in trying to fund their pension plans based on a benchmark that doesn’t exist. Had the bill not passed, many companies would have been forced to freeze their plans. Moreover, the bill ensures that companies won’t have to choose between the pension plan and investing in jobs, plants, and equipment that will provide a major boost to the economy,” said Mark Ugoretz, president of The ERISA Industry Committee (ERIC) in a statement.