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House Pushes Through Pension Reform Bill

The stabilization plan gives airlines leeway but requires other firms to pay their pledges. The vote follows a breach on strategy with the Senate.

July 29, 2006|Jonathan Peterson | Times Staff Writer

WASHINGTON — The House voted 279 to 131 late Friday to approve a far-reaching plan to stabilize the nation's pension system, which is underfunded by hundreds of billions of dollars and has been shaken in recent years by high-profile defections of major companies.

The bill provides some leeway for beleaguered airlines to shore up their retirement plans. But for most employers who offer traditional pensions, it imposes stiff requirements to pay 100% of their pledges.

The legislation also takes major steps to bring more workers into 401(k) savings plans, which already cover many more employees than traditional pensions and will be increasingly influential in the future. In addition, the legislation makes permanent an array of temporary tax provisions -- such as the contribution limits for individual retirement accounts.

"Simply put, these reforms represent the most sweeping changes to America's pension laws in more than 30 years," House Majority Leader John A. Boehner (R-Ohio) said in a statement for House members. "And they will ensure that workers and retirees can continue to count on their hard-earned pension benefits."

But the House decision to push ahead with a vote came only after an angry breach with the Senate over legislative strategy that raised questions about the pension bill's short-term prospects. If the Senate were to completely accept the House bill, the matter could be resolved in days. Otherwise, the outlook is uncertain.

The view from the Senate was hardly enthusiastic.

"This plan throws months of work in the trash, throws Senate procedure out the door and puts us back at square one," said Sen. Max Baucus (D-Mont.), the senior Democrat on the Senate Finance Committee, who has helped broker bipartisan deals in the past.

A Republican Senate staffer, speaking on condition of anonymity because of the political sensitivity of the issue, suggested that chamber would not be eager to rubber-stamp the House bill. Senate members had wanted to include a package of tax measures in the pension deal.

"We could take up what they send, amend it and send it back to them," the staffer said. If the Senate follows such a course, lawmakers may have weeks or months of work ahead of them.

Lawmakers had haggled for several months over the terms of legislation aimed at strengthening the nation's system of traditional pensions.

Increasingly, employers decline to offer such benefits, which guarantee steady income in old age and do not require worker contributions.

In recent months, a procession of truck drivers, airline employees, high-tech engineers and others have come to Capitol Hill, making cases to preserve their benefits.

The House bill takes a series of steps aimed at closing the long-term gap in pension funding, projected at more than $450 billion, and makes other technical fixes to the pension system. An estimated 30,000 companies would have to pay more into their plans.

Advocates argued that stricter funding requirements would put pensions on a firmer footing and protect the federal Pension Benefit Guaranty Corp. -- which has a deficit of more than $22.8 billion -- from an avalanche of new claims. But critics warn that companies could get out of the pension business altogether if they have to pay more, possibly forcing a taxpayer bailout of the PBGC.

Under the legislation:

* Beleaguered airlines would be singled out for special leniency. Northwest and Delta airlines, both going through bankruptcy reorganizations, would get 17 years to fully fund their plans. Continental and American would get 10 years.

* Other kinds of companies would be expected to fully fund their pension commitments in seven years. Full funding would represent a significant increase from the current requirement for 90% financing. A practice of allowing reduced contributions by firms that made extra contributions to their plans in the past would be restricted.

* Companies would get some legal protection enabling them to shift traditional pension plans to an arrangement known as hybrid or cash balance plans, which grow with contributions but promise a specific benefit like the old-style plans. Older workers would get some legal protection of their benefits. IBM and others have been sued by long-tenured workers, whose benefits decreased after such shifts.

* Employers and unions would be restricted from increasing benefits to plans that are less than 80% funded. Such increases have been criticized as weakening the pension system.

The bill also includes provisions aimed at strengthening the 401(k) retirement savings plans. More than 64 million workers were covered by retirement savings plans in 2001, compared with 44 million beneficiaries of traditional pension plans -- which do not require workers to save or manage investments.

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