Airlines Deals

It’s late in the 2006 session, and Congress is hurrying a bill to overhaul the nation’s employer-sponsored pension system.
Talk about a recipe for disaster.

The measure is supposed to ease the pressure on the debt-ridden Pension Benefit Guaranty Corp., the federal agency created to insure - read: bail out - underfunded private pensions.

But the PBGC’s own analysis claims that the bill’s three versions would aggravate the crisis instead by costing it $2 billion more in claims over 10 years than if Congress did nothing.

The agency is currently running a cumulative $22.8 billion deficit in the pensions of the 1.3 million people it is responsible for.

The three plans would require companies to contribute from $1.21 trillion to $1.23 trillion over the next 10 years, and would increase the agency’s deficit by roughly $15 billion. If there were no changes in the law, says the agency, companies would be required to pay $1.24 trillion and the deficit would rise by just $12.8 billion.

If that’s the case, Congress should stay out of the game.

Rumor has it that the final version of the bill, which is supposed to be released this week, will be tougher. It will include a requirement that all pension plans be fully funded within seven years (except the struggling old-line airlines, which would get 20), and that companies less than 80 percent funded limit new obligations.

Such special deals for the older airlines, which have underfunded their pension contributions for years, understandably drive competing low- cost airlines slightly crazy.

The latter tend to have defined-contribution plans as opposed to defined-benefit plans, and that makes the employees, not the companies and the government, responsible for their pensions.

United Airlines used its recent bankruptcy as an excuse to dump its pension plan onto the agency, and Delta and Northwest may do the same.

Bills of this sort are tricky even when Congress is pondering them at leisure. But when there’s deadline pressure they become especially susceptible to abuse by corporate lobbyists who have a precise knowledge of the issue and take advantage of harried lawmakers who do not.

We remain cautiously hopeful that something better than the status quo will emerge in the coming weeks instead of an expanded bailout. One possible version of the law would encourage 401(k)-type plans. Currently, they are opt-in, meaning the employee has to choose to participate. But the bill may make enrollment opt-out, thus encouraging many more employees to participate.

The measure would require employer matches of 50 percent or so up to a certain level of contribution. Meanwhile, the mandatory employee contribution would rise from 3 percent to 6 percent over three years.

But it’s still too soon to tell what will happen, and Congress tends not to take the hard road, especially in an election year.