The Senate, acting with rare election-year concord, passed a bill Wednesday to reduce by $96 billion the payments companies will have to make into their pension plans (search) this year and next.

Sponsors said the measure, passed 86-9, will help preserve pension benefits for millions of workers by discouraging financially strapped companies from terminating plans as no longer affordable.

"Our pension plans are being battered by a perfect storm of declining interest rates (search), stock market declines and a weak economy," said Sen. Edward Kennedy, D-Mass. The bill, he said, "will help the hard-earned pensions of millions of Americans to weather this storm."

The Senate must still work out differences with the House, which passed similar legislation late last year, and answer administration objections to a provision that would excuse airlines and steelmakers with chronic pension underfunding problems from $16 billion in catch-up payments.

For thousands of companies, speed is crucial. They face huge increases in payments to their pension funds if the measure doesn't become law by April.

"A lot of companies have suffered" already as a result of congressional delay, said Lynn Dudley, vice president of the American Benefits Council (search), a business group representing employers and retirement-plan providers.

She said her group's "members are withholding opening plants, not increasing new hires and avoiding improvements to their programs until they know what their liabilities are."

Unions have also lobbied for the legislation. Although the legislation will result in smaller payments to pension funds over the short run, it gives some financial breathing space to companies that might otherwise go bankrupt, lay off workers, freeze their pension plans or renege on the promised benefits.

Failed pension plans are turned over to the Pension Benefit Guaranty Corp. (search), a government agency that insures pensions for some 44 million people in more than 30,000 defined-benefit pension plans.

The PBGC finances itself with premiums it assesses pension plan sponsors, in much the same way the Federal Deposit Insurance Corp. (search) collects premiums from banks and thrift institutions to insure their depositors. Last year the PBGC took over 152 bankrupt single-employer pension plans covering 206,000 people, and saw its deficit rise to a record $11.2 billion.

Workers may lose a portion of their benefits when the PBGC becomes trustee of a plan. For example, the agency announced Wednesday it was taking over the plan of a bankrupt North Carolina construction company with 6,300 workers, pension plan assets of $95 million and benefit promises totaling $215 million. The PBGC estimated it will end up assuming $104 million of the $120 million shortfall, with the rest made up by lower retiree benefits.

Pension plans are in crisis partly because contributions have been tied to the interest rate on 30-year Treasury bonds. But the Treasury Department stopped issuing the bonds in 2001 and interest rates fell precipitously, producing smaller returns on pension plan investments. Underfunding of pension plans is now estimated to total $350 billion nationwide.

The Senate bill would establish a new formula that would make contributions dependent on the investment return from a blend of corporate bond index rates. The PBGC says that will save companies $80 billion over the next two years while Congress and the administration work on long-term overhaul of the pension system.

The measure is particularly important to mature industries such as automobiles, where retirees at some companies outnumber current employees. General Motors Corp., for example, has 25 retirees for every 10 active employees and will have to pay out $6 billion in pension benefits this year.

The bill also gives relief and requires greater transparency for unions and others involved in multi-employer pension plans.

Its most controversial provision singles out airlines and steelmakers, among others who have chronically underfunded plans, for special breaks.

Currently, such companies must make deficit reduction contributions, above their normal payments, to reduce their underfunded amounts. The bill would allow these employers to pay only 20 percent of their required catch-up pay in 2004, and 40 percent in 2005.

The three Cabinet secretaries who make up the board of the PBGC, Elaine Chao of Labor, John Snow of Treasury and Donald Evans of Commerce, said last week they would recommend a presidential veto if this provision remained in the bill. They said the measure could worsen the underfunding problem.