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Agreement Reached On Pensions
Senate Bill Would Ease Companies' Liabilities
By Albert B. Crenshaw
Washington Post Staff Writer
Friday, January 23, 2004; Page E01
Key senators reached agreement yesterday on a bill that would grant major pension-funding relief to the airline and steel industries, and ease the formula by which all companies with traditional pension plans calculate their obligations.
Under terms of an amendment to a bill passed by the House, airlines and steel companies, some small businesses and a railway workers' union would be able to avoid making special payments that would otherwise be required to shore up their underfunded pension plans.
The relief , worth an estimated $16 billion to the companies, would be for two years, and companies would be required to pay only 20 percent of the amount that would otherwise be due in the first year, and 40 percent in the second year. If still underfunded after the two-year relief period, those plans would have to resume making up the difference.
The measure also would substitute for two years a higher corporate-bond interest rate for the now-required 30-year Treasury bond rate used in computing pension liabilities for all companies. In these calculations, the lower the interest rate used the higher the liabilities work out to be. The change would mean that companies who sponsor traditional pension plans for about 35 million workers would have to have $25 billion less than they would have under a relief provision that just expired, and as much as $80 billion less than under current law.
Funding, or underfunding, of private pensions has become a major issue in the wake of the stock market decline of 2000-02 and the bankruptcies of such companies as Bethlehem Steel Corp. and U.S. Airways Group Inc. The government's pension insurance agency, the Pension Benefit Guaranty Corp., has gone from a $9.7 billion surplus in the late 1990s to an $11.2 billion deficit last year. Officials at PBGC and elsewhere in the government fear that unless pension funding is strengthened, the government could be called upon to bail the agency out.
The Bush administration said yesterday it "will strongly oppose" the sort of special relief for badly underfunded plans contained in the senators' amendment, on the grounds that that allowing the weakest plans to grow weaker could exacerbate the problem.
The amendment was worked out by Sens. Charles E. Grassley (R-Iowa), Judd Gregg (R-N.H.), Max Baucus (D-Mont.) and Edward M. Kennedy (D-Mass.).
Kennedy, in a Senate floor statement, defended the proposal as "immediate short-term measures needed to deal with [a] temporary crisis."
A provision in the Senate agreement also would give special relief to bus company Greyhound Lines Inc., by deeming it to be better funded than it is.
The senators' plan also would aid multi-employer pension plans, such as those common in the trucking and construction industries, by allowing them to defer recognition of up to two years of investment losses. That provision is meant to allow the plans to bargain for new contracts to keep them afloat.
Companies not included in those provisions could apply to the Secretary of the Treasury for relief. Firms whose funding level is below 75 percent -- that is, assets are less than 75 percent of the present value of their liabilities -- could not increase benefits during the relief period.
The Senate is expected to continue debate on the issue today, but no votes are scheduled until next week.
Look Up Tables | Portfolio | Index
Agreement Reached On Pensions
Senate Bill Would Ease Companies' Liabilities
By Albert B. Crenshaw
Washington Post Staff Writer
Friday, January 23, 2004; Page E01
Key senators reached agreement yesterday on a bill that would grant major pension-funding relief to the airline and steel industries, and ease the formula by which all companies with traditional pension plans calculate their obligations.
Under terms of an amendment to a bill passed by the House, airlines and steel companies, some small businesses and a railway workers' union would be able to avoid making special payments that would otherwise be required to shore up their underfunded pension plans.
The relief , worth an estimated $16 billion to the companies, would be for two years, and companies would be required to pay only 20 percent of the amount that would otherwise be due in the first year, and 40 percent in the second year. If still underfunded after the two-year relief period, those plans would have to resume making up the difference.
The measure also would substitute for two years a higher corporate-bond interest rate for the now-required 30-year Treasury bond rate used in computing pension liabilities for all companies. In these calculations, the lower the interest rate used the higher the liabilities work out to be. The change would mean that companies who sponsor traditional pension plans for about 35 million workers would have to have $25 billion less than they would have under a relief provision that just expired, and as much as $80 billion less than under current law.
Funding, or underfunding, of private pensions has become a major issue in the wake of the stock market decline of 2000-02 and the bankruptcies of such companies as Bethlehem Steel Corp. and U.S. Airways Group Inc. The government's pension insurance agency, the Pension Benefit Guaranty Corp., has gone from a $9.7 billion surplus in the late 1990s to an $11.2 billion deficit last year. Officials at PBGC and elsewhere in the government fear that unless pension funding is strengthened, the government could be called upon to bail the agency out.
The Bush administration said yesterday it "will strongly oppose" the sort of special relief for badly underfunded plans contained in the senators' amendment, on the grounds that that allowing the weakest plans to grow weaker could exacerbate the problem.
The amendment was worked out by Sens. Charles E. Grassley (R-Iowa), Judd Gregg (R-N.H.), Max Baucus (D-Mont.) and Edward M. Kennedy (D-Mass.).
Kennedy, in a Senate floor statement, defended the proposal as "immediate short-term measures needed to deal with [a] temporary crisis."
A provision in the Senate agreement also would give special relief to bus company Greyhound Lines Inc., by deeming it to be better funded than it is.
The senators' plan also would aid multi-employer pension plans, such as those common in the trucking and construction industries, by allowing them to defer recognition of up to two years of investment losses. That provision is meant to allow the plans to bargain for new contracts to keep them afloat.
Companies not included in those provisions could apply to the Secretary of the Treasury for relief. Firms whose funding level is below 75 percent -- that is, assets are less than 75 percent of the present value of their liabilities -- could not increase benefits during the relief period.
The Senate is expected to continue debate on the issue today, but no votes are scheduled until next week.
jimntx
Veteran
They have to try to change/drop/reduce the pension plans. There are massive payments coming due and the underfunding liability just continues to grow. AMR and other major corporations who have played the game of delaying payments (a game which Congress allowed them to play) are lobbying Congress hard to give them another delay on paying their pension obligations. They are also still trying to find a way to make conversion to cash balance plans acceptable to the courts.
A/C FIXER
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Also, lets not forget about the unrealistic rates of return the company continues to use in order to make the books look better, eventually all this will turn to bite the company in the buttocks, and we/employees/ will end up taking it in shorts, as usual and without the aid of vaseline or k-y jelly. 😱 
I definetly think AMR will try to work out a less expensive ones with the employees since it is getting out of control and it will become more challenging to meet those obligations on an annual basis. Their major competitors such as UA and U is looking at or had already transferred their pensions to cheaper alternatives and also the LCCs use cheapers pension plans.
Can you say . . . . . . 401k with 10% matching? Of course, Arpey's coming after the pensions. With the company put on the ropes by management's failure to strategically plan, a lousy economy, and attacks by muslim fundamentalists, now is the time for management to come after all the long term stuff! Once lost it would take 20 years just to try unsuccessfully to get back a defined pension or B fund.
LiveInAHotel
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WINGLET was trying to say -10%! You still wonder why people call AA the "Sky Naazis."Hopeful said:
Hopeful
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What amazes me is that this poll has been viewed 251 times and only 15 people voted. I guess people don't care about their pensions!
Will Pension Monitor Need a Bailout?
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By Kathy M. Kristof
LOS ANGELES TIMES; The Los Angeles Times is a Tribune Co. newspaper.
January 25, 2004
The federal agency that backstops the retirement plans of more than 45 million U.S. workers reported a record $11.2 billion deficit recently, reinforcing concerns that the program may require a taxpayer bailout.
The Pension Benefit Guaranty Corp.'s deficit for fiscal 2003 is more than triple the $3.6 billion shortfall of a year ago.
"The growing gap between our assets and liabilities puts at risk the agency's ability to continue to protect pensions in the future," said Steven Kandarian, the agency's executive director, although he added that it "has sufficient assets to pay benefits to workers and retirees for a number of years." The agency, which reported a net surplus of $7.7 billion in 2001, was created in 1974 to guarantee that workers covered by traditional corporate pension plans receive at least some benefits if their employers go bankrupt and can no longer fund their retirement plans.
The agency is financed by insurance premiums paid by companies that sponsor pension plans and by its investment returns.
The three-year bear market on Wall Street and the lowest interest rates in 40 years took a toll on the agency's financial reserves and hammered many corporate pension plans. In addition, bankruptcies in the airline and steel industries contributed to the agency's $7.6 billion loss last year. All told, the agency said it recorded net assets of $34 billion versus liabilities of more than $45 billion in fiscal 2003, which ended Sept. 30.
Although existing payments to pensioners are not at risk, the rising tide of red ink at the agency raises the specter of a taxpayer bailout, officials said, unless Congress acts to require companies to pay more to the beleaguered agency.
Congressional leaders have pledged to put pension reform at the top of the legislative agenda, and the Treasury Department is planning to introduce its own pension-reform plan in the coming weeks.
A series of pension-reform bills died late last year after partisan bickering and heavy lobbying by the industry, which maintained that some of the measures would have caused more problems than they solved.
Industry leaders were already blasting the higher payments that Kandarian is recommending, saying they could push dozens of companies with teetering plans over the edge.
"The worst thing lawmakers could do would be to enact legislation that makes the termination of seriously underfunded plans a self-fulfilling prophesy," said James A. Klein, president of the American Benefits Council, a Washington group that represents many of the nation's largest employers. "Any effort to impose unduly burdensome new funding rules on plans could unintentionally backfire and make it impossible for those sponsoring companies to continue their plans."
Added Steve Kerstein, managing director of the global retirement practice at Towers Perrin: "Do we need funding reform? Absolutely. Do we need to get contributions in to improve funding levels? No question. But we need to find a formula for funding reform that companies can afford."
The agency, which is paying monthly pension benefits to 459,000 retirees, has been on a government watch- list for high-risk programs since last summer, when a General Accounting Office report noted that structural problems within the traditional corporate pension system were jeopardizing the agency's health.
In addition to losses already incurred, the PBGC calculates "reasonably possible" exposure, an estimate of the amount of vested benefits in pension plans sponsored by financially weak employers.
The agency estimates that its potential exposure is $85.5 billion, nearly 2 1/2 times as high as the previous year's estimate of $35.4 billion. Two industries - airlines and metals, including steelmakers - account for nearly 40 percent of that total.
Copyright © 2004, Newsday, Inc. | Article licensing
Will Pension Monitor Need a Bailout?
Email this story
Printer friendly format
Top Stories
Hire Ambitions
First Marcos, Then Martha/ Juror who served at ex-Philippine first lady's trial picked for jury pool
Wall St. Journal to Launch Indian Edition
U.S. Shuts Down Web Site, Probes Scam
Parmalat Figure in Apparent Suicide
By Kathy M. Kristof
LOS ANGELES TIMES; The Los Angeles Times is a Tribune Co. newspaper.
January 25, 2004
The federal agency that backstops the retirement plans of more than 45 million U.S. workers reported a record $11.2 billion deficit recently, reinforcing concerns that the program may require a taxpayer bailout.
The Pension Benefit Guaranty Corp.'s deficit for fiscal 2003 is more than triple the $3.6 billion shortfall of a year ago.
"The growing gap between our assets and liabilities puts at risk the agency's ability to continue to protect pensions in the future," said Steven Kandarian, the agency's executive director, although he added that it "has sufficient assets to pay benefits to workers and retirees for a number of years." The agency, which reported a net surplus of $7.7 billion in 2001, was created in 1974 to guarantee that workers covered by traditional corporate pension plans receive at least some benefits if their employers go bankrupt and can no longer fund their retirement plans.
The agency is financed by insurance premiums paid by companies that sponsor pension plans and by its investment returns.
The three-year bear market on Wall Street and the lowest interest rates in 40 years took a toll on the agency's financial reserves and hammered many corporate pension plans. In addition, bankruptcies in the airline and steel industries contributed to the agency's $7.6 billion loss last year. All told, the agency said it recorded net assets of $34 billion versus liabilities of more than $45 billion in fiscal 2003, which ended Sept. 30.
Although existing payments to pensioners are not at risk, the rising tide of red ink at the agency raises the specter of a taxpayer bailout, officials said, unless Congress acts to require companies to pay more to the beleaguered agency.
Congressional leaders have pledged to put pension reform at the top of the legislative agenda, and the Treasury Department is planning to introduce its own pension-reform plan in the coming weeks.
A series of pension-reform bills died late last year after partisan bickering and heavy lobbying by the industry, which maintained that some of the measures would have caused more problems than they solved.
Industry leaders were already blasting the higher payments that Kandarian is recommending, saying they could push dozens of companies with teetering plans over the edge.
"The worst thing lawmakers could do would be to enact legislation that makes the termination of seriously underfunded plans a self-fulfilling prophesy," said James A. Klein, president of the American Benefits Council, a Washington group that represents many of the nation's largest employers. "Any effort to impose unduly burdensome new funding rules on plans could unintentionally backfire and make it impossible for those sponsoring companies to continue their plans."
Added Steve Kerstein, managing director of the global retirement practice at Towers Perrin: "Do we need funding reform? Absolutely. Do we need to get contributions in to improve funding levels? No question. But we need to find a formula for funding reform that companies can afford."
The agency, which is paying monthly pension benefits to 459,000 retirees, has been on a government watch- list for high-risk programs since last summer, when a General Accounting Office report noted that structural problems within the traditional corporate pension system were jeopardizing the agency's health.
In addition to losses already incurred, the PBGC calculates "reasonably possible" exposure, an estimate of the amount of vested benefits in pension plans sponsored by financially weak employers.
The agency estimates that its potential exposure is $85.5 billion, nearly 2 1/2 times as high as the previous year's estimate of $35.4 billion. Two industries - airlines and metals, including steelmakers - account for nearly 40 percent of that total.
Copyright © 2004, Newsday, Inc. | Article licensing
I think your superimposing other companies problems onto AMR. When has AMR "delayed" a pension payment? Who said the liability continues to grow? AMR's penisons were OVERFUNDED just a few years ago. And don't forget the market grew at a tremendous rate last year. AMR's pensions are in the top 10% of all the pensions in the US.jimntx said:
What AMR and others want from Congress is a realistic payment rate. Pension funding is determined by the 30yr Gov bond rate. Guess what? The 30yr bond NO LONGER EXISTS! The PBGC is basing its funding rate off what the 30yr bond rate WOULD BE if it still existed which they calculate to be around 2 or 3%. The Corp Bond basket easily delivers around 6% rate of return. Thats a big difference! This is what AMR and other Corps are lobbying for. A realistic rate.
They couldn't do much worse than amfa at Alaska Airlines (one of the financially healthest airlines) who once again rolled over and played dead for management. Yep they agreed to put all new hires on the ol 401k plan. No Pension for them. Thanks Dell!!!Hopeful said:
will fix for food
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If I had one I might, but I work for Eagle.Hopeful said:
