Sunday, October 23, 2005

Senator Dewine blocking Pension bill in Senate

Senator Mike Dewine has joined with Senator Mikulski (D-Md) to block Pension Benefit Guarantee Corp changes that would increase premiums of companies with low credit ratings: From the Boston Herald editorial 'Pension Reform Stuck':

Delphi Corp.'s bankruptcy filing and cutbacks in retiree health benefits throw the spotlight again on the inability of Congress to reform private pensions.

Two Senate committees produced a bill labeled ``reform,'' and a House committee produced another. Whether the labels are deserved may be a moot point. Two senators, Mike DeWine (R-Ohio) and Barbara Mikulski (D-Md.), are blocking the Senate bill from the floor.

We have doubts about the ``reform'' label because, according to the Congressional Budget Office, both bills would increase government costs. The Pension Benefit Guarantee Corp., which takes over failed pension plans, already faces a $30 billion shortfall in future payments compared with what its assets can be expected to yield. The Senate bill would increase the corporation's obligations by $9 billion over the next 10 years, and the House bill would increase the government's costs by about $1 billion.

The bills at least would close some loopholes that have led to massive undisclosed shortfalls in some of the airline pension systems taken over by the PBGC, such as permitting an extra corporate contribution in one year to count on the balance sheet in future years at full cash value, regardless of what happened to the investments bought with the money. The bills also would raise premiums for companies with credit ratings below ``investment grade.''

However, the bills would give airlines 14 years to bring remaining pension systems up to full funding. Why so long? The drafters feared that any stiffer requirement would lead airlines to dump those systems on the PBGC.

Mikulski and DeWine object to the airline timetable, but also to the requirement of higher premiums. They say this hurts cyclical industries, whose credit ratings, they claim, may rise and fall with the business cycle. This may not be true and isn't a good argument anyway. Shaky plans should pay a higher premium than those of companies rated AAA.

Probably no bill will pass, and the total $450 billion shortfall in private corporate pension systems will continue to grow. If the stalemate continues, it might be better to take what assets there are and move them into liberalized 401(k) plans. That would at least stop the decay, and every covered worker would know what to expect.


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