The Pension Security and Transparency Act, (S 1783), is co-sponsored by Senator Edward Kennedy (D-Massachusetts), the ranking Democrat on the Senate Health, Education, Labor and Pensions Committee (HELP), Senator Charles Grassley (R-Iowa), chair of the Senate Finance Committee, and Senator Max Baucus (D-Montana), ranking Finance Committee Democrat.
A news release from Senator Mike Enzi (R-Wyoming), HELP Committee chairman, said the version finally passed out of the Senate on a 97 to 2 vote represented a merged version of separate legislation approved by the two panels.
“Hard-working Americans who spend a lifetime earning their pensions deserve to reap the benefits they were promised in retirement. Today, we’ve made a breakthrough in curing the nation’s pension deficit disorder,” Enzi said in a statement.
Grassley said the reform measures would primarily affect employers who created a pension plan and then failed to properly fund it. “If you make a promise, you are responsible for your own promise,” he said in a statement. “Unfortunately, there are a few … bad apples who have abused loopholes … to avoid funding pensions in a way that shows they are responsible for their own promises.”
House Vote Seen after Thanksgiving
After the late-afternoon Senate vote, a key US House Republican who has been at the center of the pension reform debate in that chamber, said that the Pension Protection Act (HR 2830) – the House companion bill – should come up for a vote after the upcoming Thanksgiving holiday.
“The Senate vote represents another important step toward enacting the first comprehensive reforms to the traditional worker pension system in more than a generation,” said Representative John Boehner (R-Ohio), chairman of the House Education & the Workforce Committee. “I remain hopeful we can send a final bill to President Bush very soon. The Pension Protection Act strikes the right balance of establishing tougher funding requirements for employers, enhancing disclosure on behalf of workers, and protecting taxpayers from a possible multi-billion dollar bailout.”
In what could prove to be a particularly controversial part of the bill, the final version includes an amendment by Senator Johnny Isakson (R-Georgia) that gives airlines 20 years to fix funding shortfalls in their pension plans.
The amendment allows struggling airlines with underfunded plans to qualify for pension relief without freezing their plans, as long as they immediately fund any future pension benefit promises. By comparison, the measure gives most employers seven years to make up shortfalls in their pension funding. The House version has a similar funding provision, but provides no special relief for airlines.
The Senate bill would let firms continue using a mix of corporate bonds in determining their pension liability calculations through 2006. Without congressional action, businesses would be required to calculate contributions using the 30-year Treasury bond interest rate. The lower rate would force them to significantly increase their contributions.
The House and Senate bills would require companies to use a modified bond yield curve in its calculations, an approach designed to ensure that firms with larger numbers of older workers raise accordingly their pension contributions.
The approved version of the Senate bill also boosts the insurance premiums paid by firms with private-sector defined-benefit plans to the deficit-ridden Pension Benefit Guaranty Corporation (PBGC) to $30 per plan participant a year, up from $19. A long string of high-profile pension defaults by airline and steel companies - among others - has raised worries that the PBGC's financial condition.
The bill that would require companies with junk-rated debt and pension plans that are less than 93% funded to fully fund their plan within a year.
In reacting to the Senate passage, American Benefits Council President James Klein called for four primary changes when House and Senate conferees hammer out a final bill to send to the White House.
Klein said his trade group objected to the interest rates used for calculating pension obligations and valuing assets which the group said introduces too much unpredictability and cost volatility into pension funding. "The one-year period over which both assets and liabilities would be averaged is completely inappropriate for a long-term obligation such as a pension plan," said Klein. "Instead, we urge that three-year averaging, which is a substantially shorter period than current law, be included in the final bill."
Klein said his organization also wanted to change the credit-rating provision. "Linking funding to credit rating is ill-advised when the method by which ratings are determined is also under scrutiny in Congress," said Klein
He insisted that companies must have enough time to adjust to the new standards and that the final bill had to provide for a longer transition. The bill passed today by the Senate would impose a new 100% funding standard and provides a three-year transition to the new threshold for large employers and a five-year transition period for small companies.
Klein also called for "improvements" to the sector on hybrid plans including "a comprehensive recognition of the legitimacy of the plan design, including application of the clarification to existing plans under current law, without onerous burdens being placed on employers."
Information about the Bush Administration's pension reform proposal is here .