USA Today : Administration, business seeking pension remedies

Edward Iwata

Thursday May 12th 2005; Page 3B

In an unusual clash between traditional allies, Big Business and President Bush are debating the fate of troubled corporate pension plans -- and how to ensure the survival of the government-backed entity that insures them.

The Bush administration wants to shore up the Pension Benefit Guaranty Corp., which faces a $23billion shortfall as more troubled companies shed their costly defined-benefit pension programs.

Among other changes, the White House has proposed hefty premium increases that companies argue will drive many out of business or force them to abandon the plans.

Businesses whose pension plans are PBGC-insured pay a $19 base annual premium for each participant. The Bush proposal would increase that premium to $30.

But the U.S. Chamber of Commerce estimates the total impact on businesses would be much higher -- amounting to at least $80 a person annually, when all aspects of the Bush proposal are calculated.

The White House plan, proposed in January, also calls for increases in other premium payments, more financial disclosure by companies and higher payments by companies with bad credit ratings.

"There are a lot of moving parts," says Aliya Wong, director for pension policy for the U.S. Chamber of Commerce. "Once you add all those things together, it becomes too much of a burden for an employer."

Under the Bush plan, companies would pay $18 billion a year in premiums to the PBGC. Congress forged a tentative compromise last month, with House and Senate lawmakers approving a $6.6 billion premium rise over five years that should help the PBGC in the short term. "If all interested parties work together, the impact should be minimal" to companies, Wong says.

Rising pension costs have led more companies to drop their defined-benefit plans, in which employers promise their retired workers a specific monthly benefit based on salary and years on the job. The number of plans has fallen to 30,000 today from 112,000 in 1985, says the PBGC, which insures 45 million workers.

In congressional testimony last month, PBGC Executive Director Bradley Belt warned that "the defined-benefit system is under severe stress ... in many cases, benefits are being frozen or the plans are being closed to new participants."

Administration officials have said the long-term solvency of the PBGC pension-insurance program is at stake, while the Center on Federal Financial Institutions, a non-partisan public policy firm, predicts the PBGC could run out of money in a decade.

Douglas Elliott, founder of the Center, says the Bush administration clearly would like to see the PGBC stay afloat without a costly public bailout. In the 1990s, the government saved the scandal-plagued savings-and-loan industry at a heavy cost to taxpayers.

But he says pension plans also must stay cheap and flexible enough for cash-strapped companies to keep offering them.

"It's a very delicate balancing act," Elliott says, "and you may not be able to do both."