WASHINGTON – Hoping to reverse the deterioration of pension plans covering 44 million Americans, the Senate voted Wednesday to force companies to make up underfunding estimated at $450 billion and live up to promises made to employees.
The action came a day after the federal agency that insures such plans reported massive liabilities and predicted a troubled future.
The Senate legislation, passed 97-2, takes on the daunting task of compelling companies with defined-benefit plans to live up to their funding obligations — without driving those companies into abandoning the plans and further eroding the retirement benefits of millions of people.
"This bill honors a promise that we made way back in 1974" when Congress passed legislation to protect pensions, said Finance Committee Chairman Charles Grassley, R-Iowa. "If you've been promised a pension, we are going to make sure that you receive it."
Broad support of the bill reflected its bipartisan origins. Grassley and the top Democrat on the committee, Max Baucus of Montana, crafted it with Sens. Mike Enzi, R-Wyo., and Edward Kennedy, D-Mass.
The White House, in a statement, said it supported passage of the Senate bill but opposed some provisions, including extended relief for the airline industry. It warned that the president would be advised to veto any bill that resulted in weakening pension funding requirements.
The House could take up a companion bill in early December, although it remains to be seen whether the two chambers can reach a compromise on the legislation, which runs hundreds of pages, by the end of the year.
The vote came a day after the Pension Benefit Guaranty Corporation, which insures defined-benefit plans of 44 million people and takes over the plans of bankrupt companies, reported a deficit of $22.8 billion at the end of the 2005 fiscal year on Sept. 30.
The PBGC said it assumed responsibility for the pension benefits of an additional 235,000 workers and retirees in 2005, bringing the total to 1.3 million, and paid benefits of $3.7 billion, up from $3 billion in 2004.
Premiums per participant, paid by companies, totaled $1.5 billion. Those premiums would increase from $19 to $30 a year under the Senate bill.
That legislation, unlike the House version, also would extend special relief for debt-ridden airlines. Bankrupt steel and airline companies have been a major source of the PBGC's mounting financial problems.
The PBGC is now 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 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. Companies with poor credit ratings would be required to make additional payments into their plans.
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.
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 to 20 years the time allowed for airlines to stabilize their pension plans. It also would expand the number of airlines that qualify for the payment relief.
Also approved as an amendment by Sen. Daniel Akaka, D-Hawaii, to protect the pensions of airline pilots, who are required to retire at age 60.
"Had the airlines not had a crisis, I'm not sure we would have been here today debating pensions," Enzi said.
United Airlines and US Airways used bankruptcy earlier this year to dump their employee pension liabilities — a combined $9.6 billion — onto the PBGC. Delta Airlines and Northwest Airlines, which both filed for Chapter 11 bankruptcy protection in September, could do the same.
The PBGC imposes ceilings on how much it pays out to retirees. Baucus cited estimates that almost 7,000 United 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.