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The Battalion

The Student News Site of Texas A&M University - College Station

The Battalion

The Student News Site of Texas A&M University - College Station

The Battalion

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Texas A&M pitcher Ryan Prager (18) delivers a pitch during Texas A&M’s game against Kentucky at the NCAA Men’s College World Series at in Omaha, Nebraska on Monday, June 17, 2024. Prager went for 6.2 innings, allowing two hits and zero runs. (Chris Swann/The Battalion)
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Congress takes action to save companies billions in pension payments

WASHINGTON – Lawmakers call it a perfect storm, a confluence of events that is forcing financially weak companies to pay billions of dollars more into pension plans and threatening the retirement security of millions of Americans.
So serious is the situation that business groups have joined with organized labor and Republicans have allied with Democrats behind a Senate bill to change the formula that determines pension contributions. The measure also provides relief to airlines and steelmakers lagging in their pension payments.
The Bush administration has issued a veto threat over any bailouts to underfunded plans that would only worsen pension financial woes. But the likelihood is that the House and Senate will move quickly to come up with a bill the president can sign.
The House acted on the measure late last year; the Senate is expected to vote on its version this week.
”We have a pension time bomb in this country,” said Senate Democratic leader Tom Daschle of South Dakota.
Added Senate Finance Committee Chairman Charles Grassley, R-Iowa, a sponsor of the legislation: ”Just when you think things can’t get any worse, they do.”
Conditions contributing to the perfect storm include a weak job market, particularly in manufacturing, a slowly recovering stock market and historically low interest rates that have driven up what companies are required to pay annually into their pension plans.
Sen. Ted Kennedy, D-Mass., also a sponsor of the bill, said pensions are underfunded by $350 billion and that as many as 20 percent of defined benefit pension plans are at risk of being terminated or frozen.
The Pension Benefit Guaranty Corp., the federal agency that insures the pensions of 44 million Americans, saw its deficit expand to a record $11.2 billion at the end of last year. Its ”reasonably possible exposure” from financially weak employers more than doubled last year to $85.5 billion.Workers currently enrolled in pension plans are protected by the agency, but ”all the trends are away from defined benefit plans,” said Norman Stein, professor at the University of Alabama law school and an expert on pensions. In the future employees ”are going to have to do a lot of their savings on their own, using things like 401(k) plans.”
The immediate problem is that companies have been forced to invest in their plans based on the rate of return they could expect from 30-year Treasury bonds, which the government stopped issuing in 2001. Plunging interest rates have meant sharply increased payments.
According to Watson Wyatt Worldwide, a consulting agency that studies employee benefits, Fortune 1000 companies saw their contributions rise from $11 billion in 1999 to $44 billion in 2002.
The government has made adjustments in the payment formula the past two years, but without legislation, companies will return to the 2001 rate scale this April.
The Senate bill would impose a two-year formula based on a corporate bond index that the pension agency said would save companies $80 billion over the two years compared with the 2001 rate. The idea is that within that two-year hiatus, Congress will come up with a permanent solution.
The Senate legislation also provides tax and other relief for multi-employer pension plans, which mainly affect lower wage workers in construction and service industries.
Opponents of the idea say it rewards companies that have mismanaged their plans; supporters say the relief will give breathing room to struggling companies that otherwise might shift to the pension agency the burden of paying benefits to their retirees.

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