President Bush on Thursday signed new rules to prod companies into shoring up their pension plans and offered strong words for corporate America: "Set aside enough money now."
Before an enthusiastic audience in an office building on the White House grounds, Bush called the legislation "the most sweeping reform of America's pension laws in over 30 years."
"Americans who spend a lifetime working hard should be confident that their pensions will be there when they retire," Bush said. "Some businesses are not putting away the cash they need to fund the pensions they promised to their workers."
The massive legislation reflects the evolution of workers' retirement benefits - the decline in traditional pensions that give retired employees a fixed payment each month and the rise of defined-contribution savings plans that rely on workers to build retirement assets.
It could also save taxpayers from funding a multibillion-dollar bailout of the federal agency that insures pension plans.
Some critics, such as the Pension Rights Center, say the changes do nothing to stop companies from freezing their pensions and, with time, will weaken the pension system.
Bush seemed to recognize that, and urged companies to do their part on their own.
"This bill establishes sound standards for pension funding," he said. "Yet in the end, the primary responsibility rests with employers to fund the pension promises as soon as they can. The message from this administration, from those of us up there today, is this: you should keep the promises you make to your workers. If you offer a private pension plan to your employees, you have a duty to set aside enough money now so your workers will get what they've been promised when they retire."
With its hundreds of pages, the bill seeks to strengthen traditional defined-benefit plans and requires companies to tell workers more about the health of their pension programs. It also nudges workers into putting more money away for their own retirement.
It aims to boost the 30,000 defined-benefit plans run by employers that are now underfunded by an estimated $450 billion. Those plans must reach 100 percent funding, up from the current 90 percent requirement, in seven years.
Seriously underfunded "at risk" companies must contribute at a faster rate and face certain restrictions, such as a ban on increasing benefits.
Lawmakers allowed workers to contribute more to their personal retirement savings accounts, such as IRAs and 401(k)s, in future years. Employers can encourage their workers to save by automatically enrolling them in 401(k) retirement accounts.
Financial firms will get greater leeway to offer advice to those 401(k) and IRA savers on how best to invest their retirement nest eggs.
Lawmakers singled out financially struggling airlines for help when drafting the new rules.
Airlines in bankruptcy proceedings that have frozen their pension plans, an act that stops participants from getting new benefits, get an extra 10 years to meet their funding obligations. That specifically helps Northwest Airlines and Delta Air Lines.
Other airlines could use those provisions if they freeze their pension plans. Two airlines with active defined-benefit plans, American Airlines and Continental Airlines Inc., nevertheless get 10 years after the new funding rules go into effect to meet their obligations, three years longer than other companies.
An additional change gives companies legal ground for hybrid plans known as cash balance plans, which have been challenged as discriminating against older workers. The AARP said the bill does not redress that potential discrimination.
To the benefit of all taxpayers, lawmakers hope the bill puts the Pension Benefit Guaranty Corp. on more stable financial footing. The federal agency, which insures pension plans, has deficits of $22.8 billion, stemming mainly from taking over defunct steel and airline plans.
The agency runs on company-paid premiums and interest earnings, but some worry that a rash of pension terminations could mean an expensive taxpayer bailout.
Lawmakers also wrote in special items for specific industries. Among them, defense contractors won a three-year grace period before being required to comply with the new pension funding rules. They argued that their government contracts don't provide enough flexibility to cover a sudden spike in pension costs.
Several unrelated items found their way into the bill, including a package of changes to the rules for charities and charitable donations.
It also paved the way for the $50 million Going-To-The-Sun road in Montana. The office of Sen. Max Baucus, D-Mont., said the project was approved in the 2005 highway spending bill but the money had been held up by a technicality.
The bill is H.R. 4
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