A key House panel on Wednesday takes up legislation to protect worker pensions, possibly the most important retirement issue Congress will address this year as Social Security reform fades into the background.
The House Ways and Means Committee is expected to approve a pensions bill that supporters say will tighten controls over employers that underfund pension plans, safeguard the financial future of the federal agency that insures plans and ensure that millions of Americans with defined-benefit plans will get their promised benefits.
The legislation adopts much of the pensions bill approved by the Education and the Workforce Committee last June while adding several related provisions to promote retirement savings. It takes steps to encourage employers to offer automatic enrollment in 401(k) plans and allows taxpayers due an income tax refund to ask the IRS to deposit a portion of that refund in a retirement account of their choosing.
The measure would also modify the “use-it-or-lose-it” rule for flexible savings accounts, which permit workers to set aside untaxed wages, deducted from their paychecks, that can be used to pay for health and child care costs not covered by insurance. The accounts have evoked criticism because workers have to forfeit unspent money at the end of the year, but the bill would allow a $500 carryover every year.
The legislation does not address Social Security reform. Committee Chairman Bill Thomas, R-Calif., had suggested that Social Security could be part of a broad retirement protection bill, but the issue, a top priority for the Bush administration this year, never gained traction either in Congress or among voters.
Senate Finance Committee Chairman Charles Grassley, R-Iowa, in a speech to the U.S. Chamber of Commerce Tuesday said he is “very pessimistic” that Congress can overhaul Social Security during the president’s second term in office.
The pensions aspect of the bill requires employers with underfunded plans to meet a 100 percent funding target, phased in over five years starting in 2007.
It provides a permanent interest rate, based on a modified yield curve, to more accurately measure a company’s pension liabilities and triggers accelerated contributions if a plan’s funded status falls below 60 percent.
The annual premiums that companies pay the Pension Benefit Guaranty Corporation, the federal agency that insures pension, are raised from $19 to $30 a participant. The PBGC, which operates solely on premiums and interest earnings, has seen its financial obligations soar in recent years as it takes over the pension plans of bankrupt companies, particularly in the airline and steel industries.
The concern is that mounting liabilities, currently some $23 billion, will eventually lead to a taxpayer bailout.
The Ways and Means bill also would require employers that terminate their plans through bankruptcy to pay an annual $1,250 premium per participant for three years after emerging from bankruptcy.
The Senate was close to passing its version of pension reform last month, but was stymied by the objections of two senators to a provision requiring companies with poor credit ratings to contribute more into their pension funds.
The Senate bill, unlike the House counterparts, gives faltering airline companies 14 years to restore solvency to their plans.