Senate Passes Pension Fix

Bill Will Allow Companies To Avoid Paying $80B Into Pension Plans

(CBS/AP)  The Senate sent to the president Thursday legislation that could save employer sponsors of pension plans $80 billion over the next two years, money that could provide a substantial boost to business investment and hiring around the country.

The 78-19 vote on the pension relief bill came just a week before many contributors to single employer plans have to make quarterly payments, and means that millions of dollars that would have had to go into pension funds can be diverted to more immediately productive activities.

"Failure to pass this bill would have devastating consequences for workers and the economy," said Senate Finance Committee Chairman Charles Grassley, R-Iowa.

"This is tremendous news for our members," said Dorothy Coleman, vice president for tax policy at the National Association of Manufacturers. "Averting this potential disaster is going to be a real help."

The legislation, supported by the White House, would reformulate over the next two years how companies calculate their pension contributions, replacing an outdated formula with one that more accurately reflects current interest rates. It is backed by both companies struggling to keep up with artificially high payments and unions concerned that companies will abandon their retirement plans.

Senate Minority Leader Tom Daschle, D-S.D., was among those who opposed the bill. He said it offered little aid to multiemployer pension plans, managed jointly by management and unions in construction, trucking and other trades.

"It didn't have to leave out all of these pension plans that now have absolutely no hope and will be lost," he said. "We are going to see insolvencies, bankruptcies, incredible fallout economically as a result of this."

Democrats weren't united against the pension bill, however, because several large unions pushed for passage, including the United Autoworkers Union and the Airline Pilots Association.

The lower pension contributions will "free up money to invest in production and creating jobs and paying wages, benefits" said Alan Reuther, legislative director of the UAW.

The pension bill replaces a contribution formula based on the 30-year Treasury bond, which the government stopped issuing in 2001. Unable to agree to a long-term fix, lawmakers decided to replace the formula for two years with a calculation based on high-quality corporate bonds.

James Klein, president of the American Benefits Council, said the new formula relieves businesses from making larger contributions than necessary, but that businesses suffer from the "uncertainty that shrouds this issue." The would benefit as much from a permanent solution, he said.

Some lawmakers worry that large pension plans might fail and increase the pressure on the Pension Benefit Guaranty Corp., the government agency that insures pension plans of some 44 million workers.

Federal auditors have tagged the program a "high risk" because of problems facing corporate pension plans. It compiled a record $11.2 billion deficit from covering failing plans through the end of 2003.