Congress Considers Overhaul of Pension Fund Rules

Lax reporting rules created by Congress, coupled with corporate America's eagerness to take advantage, have left millions of workers' and retirees' pension plans underfunded without their knowledge, senators were told Tuesday.

United Airlines (search) may have set an unsavory example for others in the airline industry, Senate Finance Committee members were told during a hearing on Capitol Hill. After declaring bankruptcy in 2002, the airline won court approval last month to shed $9 billion in pension obligations -- shifting responsibility to the federal Pension Benefit Guaranty Corp.

That has contributed to a $23.3 billion deficit at the agency, which insures private pension plans, and triggered fears of another massive taxpayer bailout similar to the 1980s S&L crisis. The agency's head told senators the number of pension plans that are more than $50 million short of promised benefit levels has risen from 221 in 2000 to 1,108 in 2004. Those funds have an average of just 69 percent of promised benefits on hand.

"The law represents the floor of acceptable behavior, not the desired state," David Walker, head of the nonpartisan Government Accountability Office, told the committee. "Unfortunately, when it comes to pension funding, too many high-risk companies do what is legally permissible -- rather than what is right -- when deciding how much money to put into their pension plans."

The statistics and comments prompted calls for swift legislative action this year, adopting bills pushed by President Bush, Sen. Jay Rockefeller, D-W.Va., or Rep. John Boehner, R-Ohio. In general, the bills create schedules to eliminate the funding shortfalls and revise rules that allow companies to mask underfunding. They also provide greater transparency so that information about the funds now available only to the PBGC is shared with the general public.

"The facts are alarming. The time to act is now. Tinkering with the current rules won't do. Another temporary Band-Aid won't do," said Sen. Charles Grassley, the Iowa Republican who chairs the Finance Committee.

The hearing took place against the backdrop of the high-profile debate in Washington about overhauling Social Security. The federal retirement program is one-third of the so-called three-legged stool that financial planners suggest workers erect for their retirement.

The other "legs" are money invested by workers in 401(k), IRA or other tax-preferred investment plans, as well as corporate pension plans in which an employer typically pays a defined benefit to a worker during his retirement.

About 34 million people -- roughly 20 percent of the nation's work force -- expect to receive payments from their employers through defined benefit plans.

The risk those workers face was highlighted by the United ruling, in which the PBGC assumed responsibility for paying pensions to 120,000 current and former airline employees. While they were owed more than $9 billion in pension benefits, they will receive only about two-thirds of that amount -- $6.6 billion -- because of the agency's insurance limits.

A PBGC report released Tuesday showed that pension rules allowed United to underfund its plan without notifying its employees, paying extra insurance premiums or accelerating its pension payments.

United Chairman Glenn Tilton, the focus of most of the day's sharp questions, said the airline was forced to seek pension relief when the government refused to grant it a $1.1 billion loan guarantee. While conceding the ruling has caused employee pain, he added: "From the outset of the bankruptcy process, our mission has been to enable United Airlines to succeed as an enterprise. Without success for the enterprise, the rest is an academic exercise."

Two other airline executives, Douglas Steenland, president of Northwest Airlines, and Gerald Grinstein, chief executive officer of Delta Air Lines, lobbied for the bill sponsored jointly by Rockefeller and Sen. Johnny Isakson, R-Ga.

"In short, the current funding rules are too volatile, unpredictable, inflexible and too expensive for our company to survive and compete in the modern, deregulated airline industry that demands we deliver service to our customers at a competitive price," Steenland said.

That testimony was challenged by airline machinists and flight attendants who testified at the hearing, as well as Sen. Jim Bunning, R-Ky., a committee member with 8,000 constituents who work for Delta. He was critical of bailout money provided to the airlines last year that was not spent to bolster pensions but used to pay other debts.

"I want to know why we should reward lousy management," Bunning said, his voice rising in anger.

Walker, the Government Accountability official, replied: "I don't want to reward anything. I think we have some very perverse incentives under the current system."