The negotiation provision, part of a sweeping pension overhaul bill, is designed to keep employers from going into US Bankruptcy Court and then dumping their defined benefit plans onto the Pension Benefit Guaranty Corporation (PBGC), Reuters reported. A move by United Airlines to do that raised a political firestorm earlier this year (See United, PBGC Hammer Out Plan Takeover Pact ).
In another significant aspect of the bill, co-sponsored by Senator Mike Enzi (R-Wyoming) and Senator Edward Kennedy (D-Massachusetts), the measure also attempts to eliminate the legal limbo around cash balance plans, which are seen in some quarters as being discriminatory towards older workers (See Murphy Approves Partial IBM Cash Balance Proposal ). The Senate Health, Education, Labor and Pensions Committee approved the bill on an 18-2 vote. Enzi is committee chairman.
Enzi said he will move quickly to merge the bill with the version approved by the Senate Finance Committee so one bill can move to the floor (See Pension Bill Gets by US Senate Finance Panel ). The US House of Representatives also has a pension bill.
“This program will prevent pension failures and the incredible suffering they cause for workers and retirees,” Kennedy said of the provision. At the same time, he said, it would help protect the solvency of the pension system.
Under current law, the PBGC is not authorized to work out alternative pension funding plans with companies, a PBGC spokesman told Reuters.
Those companies wanting major exceptions from the pension funding rules must ask Congress for them under current law, as the airlines have done recently. The bill would give the PBGC the flexibility to negotiate these changes instead.
The bill also includes a break for airlines struggling now, giving them 14 years to stretch out their pension contributions.
Other companies would have 10 years to fully fund their pension plans. The Enzi-Kennedy bill also would raise the insurance premiums companies pay to the PBGC.
The bill’s cash balance provision, in particular, drew the ire Thursday of the American Benefits Council (ABC), a Washington, DC trade group. The group said the cash balance provisions in the bill would effectively force plan sponsors to close their DB plans instead of trying to design an allowable cash balance design.
“Many of the current hybrid plans – of which there are more than 1,500 – will face substantial liabilities if this proposal is enacted, ” said ABC President James Klein. “The effect of the proposal is to treat a plan sponsor that simply froze or terminated its plan better than a plan sponsor that was willing to continue to provide benefits and stay in the defined benefit system. The hybrid rules would undermine the efforts behind the bill’s funding reform rules intended to encourage plan sponsors to stay in the defined benefit plan system.”