WASHINGTON – The Senate sent to the president Thursday legislation that could save employer sponsors of pension plans $80 billion over the next two years, money that could provide a substantial boost to business investment and hiring around the country.
The 78-19 vote on the pension relief bill came just a week before many contributors to single employer plans have to make quarterly payments, and means that millions of dollars that would have had to go into pension funds can be diverted to more immediately productive activities.
"Failure to pass this bill would have devastating consequences for workers and the economy," said Senate Finance Committee Chairman Charles Grassley, R-Iowa.
"This is tremendous news for our members," said Dorothy Coleman, vice president for tax policy at the National Association of Manufacturers (search). "Averting this potential disaster is going to be a real help."
The legislation, supported by the White House, would reformulate over the next two years how companies calculate their pension contributions, replacing an outdated formula with one that more accurately reflects current interest rates. It is backed by both companies struggling to keep up with artificially high payments and unions concerned that companies will abandon their retirement plans.
It would also reduce by some $1.6 billion the amount financially struggling airlines and steel companies, as well as Greyhound, must pay to replenish underfunded pension plans.
Passage of the legislation was assured Wednesday when Senate Democrats, led by Sen. Edward Kennedy, D-Mass., made clear they would not use procedural roadblocks to delay a final vote. The House passed the measure last week.
Democrats were upset that the White House, joined by House Republicans, succeeded in nearly eliminating from the final bill any help for multiemployer plans, a smaller group of pension plans jointly managed by labor and management often covering construction, hotel and restaurant workers and truckers.
Democrats said multiemployer plans, while generally more stable than single-employer plans, have also taken a hit in recent years because of falling stock market prices and the declining economy. "Nothing better illustrates the attitude of this administration," Kennedy said. "The big guys get the bailout, and the little guys get nothing."
Administration officials had threatened a veto of the original Senate bill because it extended relief to multiemployer plans, saying it would encourage underfunding. They also argued that the original Senate version would further put at risk the financial viability of the Pension Benefit Guaranty Corp. (search), the government agency that insures benefits for 44 million Americans enrolled in about 30,000 plans, including 9 million in 1,700 multiemployer plans.
Many single-employer plans face an April 15 deadline for making their quarterly payments. Without immediate action by Congress, they would be required to use an equation that critics said would have forced them to pay billions of dollars more into the plans.
The bill changes the formula to more accurately reflect current interest rates, and give Congress two years to work on longer-term reforms to the pensions system. It replaces a contribution formula based on the 30-year Treasury bond (search), which the government stopped issuing in 2001.
Kent Mason, counsel for the American Benefits Council (search), a national trade association representing the private employee benefits community, said there were "some real horror stories" of companies confronting huge payments that threatened the future of their businesses and their retirement plans.
He said one company, which he did not name, would owe $200,000 on April 15 if the bill becomes law, but $7.1 million if it does not. The problem, he said, is that the old formula would result in many companies with sound programs being classified as underfunders, forcing them to make catch-up payments in addition to unnecessarily high contributions.
Hewitt Associates, a global consulting firm, found in a recent survey that without relief from Congress, 39 percent of employers with defined benefit plans intend either to freeze them or move to a defined contribution plan, where employers contribute to workers' accounts based on a percentage of annual income.
"When companies freeze their plans they rarely thaw them out," said Mark Ugoretz, president of ERISA Industry Committee (search), which represents worker benefits plans for larger employers. He said money needlessly going into pension plans will now be used to create jobs, build plants and buy equipment.
The Pension Benefit Guaranty Corp. has been designated a "high risk" federal program mainly because of problems among single-employer plans. Through the end of 2003 it compiled a record $11.2 billion deficit from covering failing plans.
The PBGC also reported a much smaller deficit for multiemployer plans, $261 million. Multiemployer plans are now underfunded by $100 billion, up from $21 billion in 2000. At the end of 2003, the agency said, single-employer plans were underfunded by $350 billion.
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