Corporate Pension Overhaul Proposed

The Bush administration on Monday proposed overhauling funding and other rules covering traditional corporate pensions to reverse huge shortfalls and ensure long-term benefits for millions of workers.

Labor Secretary Elaine Chao, responding to an underfunding crisis that threatens big retirement plans as well as the federal program that insures them, said the proposed changes would inject new flexibility, accountability and reason into the complex and outdated funding system.

“If nothing is done, the financial integrity of the federal insurance system will be compromised and the pension security of 34 million workers and retirees will be more at risk,” Chao told a National Press Club audience.

The proposal, which would require changes in pension, tax and other laws, centers on traditional, single-employer defined benefit plans, which have a fixed payout at retirement.

But any major changes to pension regulations would have to be approved by Congress, which is working on proposals.

Once the centerpiece of retirement security for workers who spent years with one company, defined benefit plans are now mainly associated with older, high-cost industries, such as autos and airlines, which are struggling financially.

Chao said liabilities of defined benefit plans nationwide total $450 billion, which is putting enormous stress on the government agency that insures those accounts, the Pension Benefit Guaranty Corp. The PBGC recently reported a record $23-billion deficit as more companies fell behind on their payments and defaulted on their plans.

The core of the administration’s proposal would be to try to ensure that plans are fully funded by introducing a “yield curve” formula under which companies would take into account the age of employees and when they are likely to retire.

The plan also would raise insurance premiums the PBGC charges employers.