WASHINGTON – The Senate brushed aside warnings of a presidential veto Tuesday and advanced toward passage of legislation to ease pension plan payments for thousands of companies and to give special relief to a few.
Senators voted 67-25 to reject an amendment proposed by Sen. Jon Kyl (search), R-Ariz., that he said could make the bill more acceptable to the Bush administration by making taxpayers less vulnerable should companies that get special breaks become insolvent.
With that vote, the Senate moved a step closer toward passage, possibly on Wednesday, to send the legislation into negotiations with the House. Lawmakers are moving with some urgency because companies could see significant jumps in their pension plan obligations if Congress fails to act by April 15.
"The security of our private pension system basically is at stake," said Sen. Max Baucus, D-Mont., a lead sponsors of the bipartisan bill. "Almost daily we hear that employers are dropping out of the defined benefit plan system" because of the costs.
The main component of the bill would replace, for the next two years, the 30-year Treasury bond rate (search), which has been the benchmark for determining annual contributions to employer defined benefit pension plans. Because the Treasury Department no longer issues the bond, its interest rate has fallen and, inversely, pension contribution levels have inflated.
By switching to a rate based on a mix of corporate bonds over the next two years, during which Congress would work on a long-term solution, companies would save $80 billion, according to the Pension Benefit Guaranty Corp. (search), the agency that insures the pensions of 44 million people.
In addition, the bill would provide two years of relief, worth about $16 billion, for companies making deficit reduction contributions, payments above normal pension obligations to catch up with past underpayments. This relief targets financially struggling airlines and steelmakers, although other companies also could apply for the waiver of 80 percent of catch-up pay the first year and 60 percent the second.
The three Cabinet secretaries who comprise the PBGC board, Elaine Chao of Labor, John Snow of Treasury and Donald Evans of Commerce, said they would advise President Bush to veto the bill if it should contain this provision because they said it would worsen pension plan underfunding, now estimated at $350 billion nationwide.
Kyl and others argued that the provision increased the risk that these plans would collapse in the future with even more underfunding than they have today, depriving workers of benefits and adding to the burden of the PBGC, which last year had a record deficit of $11.2 billion.
Sen. John McCain, R-Ariz., said it was "grossly unfair" that the Senate was "once again lavishing federal largesse on selective industries and companies." Besides the airlines and steelmakers, the Senate bill singles out for relief Greyhound Lines Inc. (search) and the Transportation Communications International Union (search).
Kyl's amendment would have freed the PBGC from responsibility for benefit increases occurring during the waiver period and two years afterward. If a plan should fail, the PBGC would cover only benefits accrued before the waiver was claimed.
Sen. John D. Rockefeller, D-W.Va., said the Kyl amendment increased the risk that shaky companies would fail and abandon pension obligations. "It's absolutely essential that we not erode the already inadequate guarantee that protects these workers in their old age," he said.
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