WASHINGTON - Millions of workers and retirees worried that their companies will renege on pension promises got assurances from Congress that it is moving to protect their future benefits.
The Senate, in an unusually bipartisan 97-2 vote Wednesday, approved legislation to tighten rules for companies that underfund defined-benefit pension plans - a shortfall currently estimated at $450 billion. The bill also shores up the financial viability of the federal agency that insures pension plans for some 44 million Americans.
"The stakes in this battle are far higher than most of us can conceive," said Sen. Mike Enzi, R-Wyo., chairman of the Senate Health, Education, Labor and Pension Committee. About $120 billion in pension benefit checks are issued every year, he said, and "any shortfall in those amounts will result in a decrease in the standard of living" of some 20 million retirees.
On the House side, Labor and the Workforce Committee Chairman John Boehner, R-Ohio, said he expected the House to vote on its version after the Thanksgiving recess, with the hope of sending a bill to President Bush "very soon."
The White House on Wednesday applauded passage of the Senate bill while saying it opposed certain provisions, including special relief for the airline industry. It warned that the president might veto any legislation that results in weakening pension funding requirements.
But pension reform could also be the crowning achievement for the administration this year in the area of retirement security, following its abortive attempt to overhaul the Social Security system.
The legislation would encourage companies to put more money into their pension plans when times are good. It would clarify the law governing hybrid plans, such as cash balance plans, that are gaining in use.
Business groups generally praised the goals of the Senate bill while urging changes when the House and Senate negotiate a final bill. The American Benefits Council, which represents companies with pension plans, said the interest rates used for calculating pension obligations introduce too much unpredictability into funding.
It also questioned Senate language that would require companies with poor credit ratings to pay more into their pension plans, saying this could force financially weak companies to terminate their plans.
The Senate vote came a day after the Pension Benefit Guaranty Corp., the federal agency that insures pension plans, announced it had liabilities of $22.8 billion and its future financial situation was clouded by the prospects of more bankruptcies among major corporations. Bankrupt steel and airline companies that have transferred pension responsibilities to the PBGC have been a major factor in the agency's mounting debts.
The PBGC is financed entirely by premiums and interest on investments, but there is growing concern that the agency may one day have to turn to taxpayers for a bailout that could rival the savings and loan crisis of the 1980s.
The broad support for the Senate bill reflected both a sense of urgency toward the problem and the bipartisan cooperation in crafting it. The main sponsors were Enzi, the top Democrat on his committee, Sen. Edward Kennedy of Massachusetts, and the leaders of the Senate Finance Committee, chairman Charles Grassley, R-Iowa, and Max Baucus, D-Mont.
The Senate bill would give companies seven years to pay off their unfunded liabilities while changing the interest rate formula to better reflect what those liabilities toward future retirees will be.
Annual premiums that companies pay the PBGC would go from $19 to $30 per participant.
PBGC-covered single-employer defined-benefit plans, under which workers receive monthly benefits based on their salaries and length of service, fell from 95,000 in 1980 to 30,000 in 2004 as more companies either stopped offering plans or switched to 401(k)-type programs.
Some companies seeking to switch to cash balance plans, which award benefits at a steady rate during a worker's tenure, have been thwarted by court rulings that some such programs discriminate against older workers.
The Senate accepted an amendment by Sen. Johnny Isakson, R-Ga., that extended from 14 years to 20 years the time allowed for airlines to stabilize their pension plans. The House bill does not contain airline relief provisions.
Also approved was an amendment by Sen. Daniel Akaka, D-Hawaii, to protect the pensions of airline pilots, who are required to retire at age 60.
The PBGC imposes ceilings on how much it pays out to retirees. Baucus cited estimates that almost 7,000 United Airlines workers will lose 50 percent or more of their promised benefits.
Voting against the bill were the two Democratic Michigan senators, Debbie Stabenow and Carl Levin.