Pension promises to get facelift

Pension promises to get facelift
In what is seen as a sincere attempt to make private pension claims more hassle free, the Congress passed a bill on Nov 16 which, in its legal guise, is likely to protect America's private pensioners from defaulting companies. The almost unanimous vote of 97 to 2 saw the Senate unified in purpose to direct defaulters to fulfill the 450 billion dollars deficit of pension funds, hereby proffering promised security to erstwhile and current employees.

The triggering point of the vote was the revelation by the government's pension insurance agency that it was weighed down by liabilities to the tune of 23 billion US dollars, leading to impending financial disaster. The agency or PBGC, as it is known, survives on premiums paid by companies and interest earned on investments. The current debt situation could fuel an unhealthy leaning on tax as a savior, leading to another debacle. The main culprits have been financially ruined steel and airline players. Insurance of pension will additionally benefit, as the bill will compel employers to pay more premium when the going is good.

The new legislation will bring clarity to the laws affecting combined or mixed pension plans, like cash balance ones. Earlier, some organizations had suggested a change over to cash balance schemes which impart benefits consistently during an employee's working period. Those ideas had been nipped in the bud on grounds of being harsh on older citizens. Another provision of the bill states that companies are legally bound to be transparent with employees regarding the financial health of their pension plans.

The defaulters will get 7 years to extinguish their debts and will pay a higher rate of interest which will mirror higher liabilities towards future employees. A low credit rating will mean extra contribution into the plan to ensure high security for those retiring.

However, this clause was criticized by the ABC (American Benefits Council), the official representative body of pension plan companies, saying that those companies would have to close their pension plans under such duress. The Council also stated that fluctuation in the interest rates didn't do much for stability in pension funding.

The corporate houses were in positive tandem of the bill, but did suggest some changes during the final phase.

The bill was constructed by Republican Charles Grassley, Finance Committee chairman, and Democrat Max Baucus, with senators Mike Enzi and Edward Kennedy. The wide support the bill received was indicative of a strong bi-party base.

Most of the bill was passed peacefully by the White House, with some opposition against exceptional relief granted to the airline industry. In one such provision, Delta airlines and others have been allocated extra time to pay up on their pension liabilities. However, White House officials are wary that such exceptionally granted delays could only fuel costs of the PBGC, especially in case of failure. A veto will be hanging on the provision, and it is likely to be erased. A parallel bill minus the benefit to airlines has been drafted already, for which voting will happen probably post Thanksgiving.

Whatever the final law, the much needed reforms in the pension sector could prove to be the crowning glory of the US administration, after the unsuccessful trial to revamp Social Security.