Wednesday, August 02, 2006

MUCH TO LOVE & HATE IN HOUSE PENSION BILL --
The bill's main focus is defined-benefit retirement plans. Employers are not putting enough money into these plans to fund the pension promises they've made: The gap is estimated to be $450 billion. When firms go into bankruptcy, they often terminate their underfunded pension plans and hand the wreckage over to the federal Pension Benefit Guaranty Corp. This agency is supposed to keep paying the pensions with the insurance premiums that it collects from healthy pension plans. But these premiums are inadequate, and one day the pension guarantor may require a taxpayer bailout.

The House bill offers some remedies. It tells companies to close their pension funding gaps, though it gives them seven years to do so. It lays down that underfunded pension plans should pay extra premiums to the PBGC to reflect the extra risk that they pose to the system. It also requires companies to make realistic assumptions about the life expectancy of their workers and the investment returns on pension-fund assets, thus making it harder for corporations to dream up scenarios that minimize the amount of money they must put into their pension plans.

Unfortunately, the House phases these reforms in slowly, and it has been especially lenient toward airlines. Northwest and Delta are getting an astonishing 17 years in which to fund their pension promises, and they are allowed to assume that the investment returns on their pension assets will be 8.85 percent -- about a third higher than other companies are permitted to assume. American and Continental are being treated less generously, though they still get away with looser provisions than companies in other industries.