Saturday, August 05, 2006

Pension Reform Gets up off the Canvas

When last we discussed pension reform, the prospects for any meaningful increase in pension funding requirements seemed bleak. But sometimes five months can make a difference, and the intrepid Mary Williams Walsh is back on the case:

Earlier this year, as Congress inched toward a broad overhaul of the nation’s troubled corporate pension system, experts said the bill was so fraught with escape clauses that it could become easier for companies to shortchange their pension funds than under the current, flawed law.

But under the version just approved by lawmakers, companies appear to get a break in putting money into their pension funds for only a couple of years before the rules start to tighten. Within a decade from now, according to a new analysis by the Congressional Budget Office, companies will be putting substantially more money behind their pension promises.

The CBO's cost estimates can be found here. The higher contributions take about five years to kick in. I don't see the rationale for waiting so long (and even making the contributions lower in the next couple of years), but I suppose I'll take what I can get. Ditto for the special extensions granted to the airlines (a lot to Northwest and Delta, somewhat less to American and Continental) and to GM and the UAW.

A big win in the legislation is that the variable rate premiums to the Pension Benefit Guaranty Corporation--the extra amounts proportional to plan underfunding--go up to the tune of roughly $5 billion over ten years.

Read more coverage of the legislation's provisions here.


Arun Khanna said...

One small step in economic thinking by Congress, one big step for pension funds reform. We wait for one giant leap in social security and pension funds reform.

Anonymous said...

The puzzling time pattern is actually quite sensible. Lobbyists get what they want now - stable to lower contributions. A couple of years from now, the "scheduled" increases provide an opportunity for more lobbying/ campaign contribution rent-seeking, followed by legislation to postpone the increases. Congress gets credit from you for doing something sensible, and a self-renewing source of funding for the incombent majority, As Wimpy used to say on Popeye, "I will gladly pay you Tuesday for a hamburger today."