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 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, 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, 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., 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. 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.
Sears ends pensions,
cuts other benefits
Sears, Roebuck & Co. will phase out its pension plan, eliminate most stock options and reduce bonuses to be more competitive with retailers such as Wal-Mart Stores Inc. that offer less costly benefits to employees.
Workers under 40 years old will be shifted to self-funded 401(k) plans and stock option grants will be dropped in 2005 for salaried employees excluding directors and vice presidents. Chris Brathwaite, a spokesman for Sears declined to comment on the expected cost savings.
Sears' sales at stores open at least a year have dropped in 22 of the past 24 months as more customers shop at discounters such as Wal-Mart, the world's biggest retailer. Sears Chief Executive Alan Lacy is cutting expenses while spending more to remodel stores and add clothing brands such as Lands' End to win back shoppers.
Sears also plans to end health-care coverage subsidies for future retirees. They'll be able to purchase coverage through Sears's group plan when they retire. The company will cap the health-care plan subsidies at 2004 levels for future retirees who are now 40 or older.
_ Bloomberg News