Posted on Sat, Aug. 05, 2006
RETIREMENT
Older employees, as well construction workers hoping to retire
early, might not come out as well as other groups if pension changes
take effect.
BY JIM ABRAMS
Associated Press
WASHINGTON
- Young workers, Wall Street, a couple of airlines and U.S.
taxpayers could come out as winners in the pension changes made by
Congress.
Some older employees, as well as truck drivers and construction
workers hoping to retire early, might not fare as well.
The legislation passed by the Senate late Thursday and sent to the
president will, if successful, prod companies to fund their pension
plans properly and ensure that workers get the retirement benefits they
deserve.
But the bill also reflects the reality that the traditional
defined-benefit pension plan system is in decline, and the transition to
new defined-contribution-style savings plans won't be easy.
President Bush, in a statement Friday, praised the bill as the ''most
comprehensive reforms to America's pension system in over 30 years.'' He
said he planned to sign it into law soon.
Here's how some of the major players in the legislation may be
affected:
EMPLOYERS
The 30,000 defined-benefit plans run by employers are now underfunded
by $450 billion, and the bill requires plans to reach 100 percent
funding levels in seven years. Seriously underfunded ''at-risk''
companies must contribute at an accelerated rate.
The American Benefits Council, which represents companies with
traditional pension plans, said the bill was a ''mixed bag,'' that
promotes saving but could make funding requirements more unpredictable.
The council's vice president, Lynn Dudley, said the bill shifts
saving responsibilities onto the individual by promoting 401(k) and
other defined-contribution plans. ``Defined-benefit plans were
sacrificed in the process and for that we are disappointed.''
Frank McArdle, manager of the Washington office of Hewitt Associates,
a human resources consulting firm, didn't think the funding rules would
of themselves contribute to more ditched plans. ``We think in the end
companies will figure out a way to work with them.''
The Congressional Budget Office concluded that companies will
actually contribute less to their plans over the next few years as the
new funding rules are phased in, but will start making higher
contributions in about five years.
Two companies pleased about the legislation are Delta Air Lines and
Northwest Airlines Corp., which have filed for bankruptcy and have
frozen their defined benefit pension plans. Delta filed a request with
the bankruptcy court Friday to end its pilots' pension plan. Concerned
that the two airlines would dump their plans, underfunded by a total of
more than $10 billion, on the government, lawmakers gave them an extra
10 years beyond the seven years that other companies get to catch up.
Not quite as pleased were American Airlines and Continental Airlines
Inc., the only major airlines with active defined-benefit plans. Unless
they freeze their plans, entitling them to the full 10-year extension,
they will get three years on top of the seven-year payback time.
Lawmakers from Texas, where the two airlines are based, said Congress
shouldn't give advantages to one company over another. Of the 16 House
Republicans who voted against the bill, 15 were from Texas.
WORKERS
The bill, while stabilizing a shaky system, does not ensure there
will be a defined-benefit plan in a worker's retirement future. Half the
workers in private industry have no pensions, and the legislation
''doesn't do anything for that,'' said Karen Friedman, policy director
of the Pension Rights Center.
A Hewitt Associates survey of 227 employers last year found 29
percent were very or somewhat likely to close participation in
defined-benefit plans during the year.
The AARP said workers get shortchanged in a provision that adds legal
certainty to cash balance plans, ''hybrids'' currently in legal limbo
because of a lawsuit against IBM filed by employees claiming age
discrimination. The bill, said the AARP's David Sloane, ``may lead to
discriminatory plan designs that stop or reduce benefits for older
workers.''
The Teamsters were also protesting ''red zone'' provisions that would
reduce early retirement benefits for workers in seriously underfunded
multiemployer plans. Some construction trade unions argue that they need
more flexibility to restore health to these joint employer-union plans.
Experts agree that young workers in particular will be big winners
from provisions promoting automatic enrollment into 401(k) programs.
Research by the Investment Company Institute and the Employee Benefit
Research Institute found that 401(k) participation rates among
low-income workers would more than double, from 42 percent to 91
percent, under automatic enrollment plans.
The bill also encourages savings by making permanent a 2001 law
allowing for increased contributions to IRAs, a benefit to higher-income
households.
All this will be a boon to Wall Street firms, which will see a rise
in investors.
TAXPAYERS
The Pension Benefit Guaranty Corp., the federal agency that insures
pension plans, has racked up deficits of $22.8 billion, mainly from
taking over defunct steel and airline plans. The PBGC now operates on
premiums and interest earnings, but the concern is thatterminations
could mean a taxpayer bailout.
But most experts discount comparisons to the bailout for the savings
and loan industry in the 1980s .
If the legislation just keeps the airline pensions afloat, the PBGC,
and the taxpayer, come out winners.