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Different pension rules for different industries

Scott Tong Aug 4, 2006

KAI RYSSDAL: We won’t have Congress to kick around for a while. The House went home for the summer last week. The Senate wrapped things up last night. Before they left, senators agreed to disagree on cutting the estate tax and raising the minimum wage. That bill could come back up in the fall. But the Senate did pass a pension bill. Politicians are calling it comprehensive. But Marketplace’s Scott Tong in Washington reports that might be a bit of a stretch.

SCOTT TONG: The point of the bill is to tell employers with traditional pension plans: If you have promises to keep, keep them.

Olivia Mitchell is with the Wharton School of Business:

OLIVIA MITCHEL: If you make a future pension promise, you should set aside the money now to cover those promises, such that the benefit will be paid even if the employer should go bankrupt.

In the past, the rules let companies underfund their plans, and some did.

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In the 1960s, Studebaker defaulted on its promises. Bethlehem Steel and United Airlines followed later. This bill forces firms to sock away more money, more quickly, and to disclose more about their pension finances.

But Mitchell says the rules still allow some degree of financial fudging. So, companies can still go under and still dump huge obligations on the safety net program called the Pension Benefit Guaranty Corporation.

MITCHELL: The PBGC has not been strengthened by this bill, notwithstanding the politicians’ allegations that they fixed the problem.

If Mitchell finds the medicine too diluted, industry groups consider it too concentrated. Their point, says Mark Ivry of the Brookings Institution, is beware of too much tough love.

MARK IVRY: . . . So that we’re not pushing companies in a precarious financial position over the edge. Number one, we’re not pushing them into bankruptcy. Number two, we’re not pushing them to drop the plan.

The airlines made this point the loudest. And the bill gives them extra time to fund their plans. In addition, Delta and Northwest don’t have to put away as much money. They get to assume a super-high rate of return on their retirement investments — almost 9 percent a year.

Here’s David John of the Heritage Foundation:

DAVID JOHN: 8.85 percent is completely fantasy. It has no relation to financial reality. It’s just a matter of politics and trying to give the airlines the best deal that they can possibly get.

And defense contractors also get an exception. It’s just a matter of time, says John, before every other well-connected industry follows suit.

JOHN: If you’ve got good lobbyists, you’ll get easier treatment in funding your pension. If you don’t have good lobbyists, then you’re stuck with the new stricter rules.

In Washington, I’m Scott Tong for Marketplace.

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