Senate Pension Reforms Won't Give Airlines Enough Time

July 22, 2005 (PLANSPONSOR.com) - Though negotiations are still continuing, it is expected that the US Senate pension reform legislation will provide airlines with no more than 15 years to make up their pension payments, according to a Reuters report.

Airlines such as Delta, Northwest and United asked for 25 years to rebuild their pension plans (See  Airline Pension Payment Deferral Legislation Proposed in Senate ).   But, that proposed legislation was not backed by US Senator Charles Grassley (R-Iowa) (See  Grassley to Back Shorter Airline Funding Delay ).   Grassley is the Senate’s Finance Committee Chairman and co-sponsor of the new legislation.

Aides told Reuters that the new Senate legislation will be tougher on poorly funded pension plans than a bill approved by the House of Representatives last month (See  Latest GOP Pension Reform Bill Includes Advice ), but less tough than the proposal by the Bush administration (See  Chao Releases Administration DB Reform Proposal ).  

The Senate bill would require companies to repair their pensions within seven years, with a 15 year provision for airlines, according to Reuters.   The bill will allow companies to use a wide range of interest rates in their pension calculations, the House bill only allows three.   The Senate bill will include tougher funding requirements for companies with junk bond status, a provision not in the House bill.   But, the tougher requirements would start with the second year a company has this status and not the first, as the Bush administration has proposed.

The special provision for airlines is considered for fear that more airlines will have to file bankruptcy and default on their pensions.    United has already filed for bankruptcy and worked out an agreement to turn its pension plans over to the Pension Benefit Guaranty Corporation, the nation’s private-sector pension insurer. The US House of Representatives last month approved a bill that would block the turnover (See  Law to Prohibit Default of United’s Pension Plans Clears the US House ).

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