2006 pension reform

Bill in Brief

What's up

With airlines going into the red and steel companies struggling to survive, the Pension Benefit Guaranty Corp (PBGC) has picked up a large load of pension payments over the past few years - and so fallen into deep deficits of its own. In 2006 Congress passed a bill to close PBGC's funding gap by forcing companies to follow stricter funding rules and pay higher premiums into the federal back-up fund.

What exactly is the PBGC?

PBGC was set up by the government to insure companies with pension plans wouldn't leave their retired workers high and dry if the company ever went broke. It sets up a fund - that companies pay into - to cover pension payments for employers that can no longer pay their own. It currently pays pensions out to about half a million retirees but covers 44 million other workers, should their companies ever go belly up.

The deficit

The Pension Benefit Guaranty Corp. says they had a deficit of $23 billion in '04 and '05, which went down to $18 billion in '06. The American Benefits Council, however, put the '05 deficit more in the $4.6 - $14.3 billion range.

Congress' proposal

Congress wants to strengthen private pensions and the PBGC by recalibrating how much companies should place in their own pension funds and how much they must contribute to the PBGC.

Some critics say that if Congress raises the PBGC premiums too high, companies may end up freezing or dumping their pensions.

Others - including the Washington Post editors - say the bill is too lenient, particularly when it comes to the airlines, by giving companies years to get their own pension funds on firm financial ground.

Status: The House and Senate passed a final pension bill before taking off for their 2006 August break - with the president signing it into law on August 17. The bill came back for a reprise in 2007; American and Continental were miffed by the 2005 bill, saying they got short shrifted by getting a shorter timeline (10 years) for when they'd have to be in the black than did Delta and Northwest (which have 17 years) - Congress cut them a new deal in 2007 as part of a war spending bill, according to Congress Daily.

More info: As usual, the Congressional Budget Office offers an in depth and clear backgrounder (pdf) on the problem. An American Enterprise Institute fellow gives a briefer picture. See also CJ's facts page on retirement and EBRI's fact sheet (pdf) on PBCG. The New York Times describes how the pension bill morphed from tough to tepid as it worked its way through Congress - and may even leave the country's pensions in worse shape.

Updated June 3, 2007.

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