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The pension relief bill recently passed by Congress epitomizes the style these days in Washington: a short-term fix for a long-term problem. The legislation gives the largest companies relief and bails out the airline and steel industries, at least temporarily, on some of their pension responsibilities. The legislation was justified as a job-saving measure in troubled times, and there is some value to that argument, but this should not be mistaken for a real fix for the nation's pension woes.
President Bush has said he will sign the bill, which will allow most employers to put less money into their pension funds over the next two years. That is accomplished by allowing companies to assume a higher rate of return based on riskier corporate bonds rather than on lower-yielding (but safe) 30-year Treasury bonds. While a seemingly minor change, it will actually allow corporations to save $80-billion that would otherwise have gone into pension funds.
The airline and steel industries got an even better deal. They will be able to ignore "catchup" contributions the law now requires because their fund valuations have dipped too low. That break will save those industries $1.6-billion, but even that is likely not enough to save the shakiest operators.
Lawmakers say they supported the bill to save jobs. Maybe, but if they were being honest with Americans, they would admit that they have merely delayed the day of reckoning. Large and small companies alike have struggled with their obligations to retirees. One downside for workers is that the burden has motivated more companies to replace their pension funds with contribution plans, such as 401(k)s, that put more of the burden for retirement savings on employees.
The bill does not help most smaller pension funds, which commonly cover unionized industries. Some Democrats had fought passage of the bill over that point, but they dropped their objections when pressured by auto workers and other labor interests.
Ultimately, of course, taxpayers could be left holding the bag. When pension funds fail, many of those obligations fall to the Pension Benefit Guaranty Corp., a government agency that insures plans covering 44-million Americans. PBGC currently has enough reserves to meet its obligations, but risk rises as corporations put fewer of their own assets into pension funds.
Until Congress addresses fundamental threats to the economy, including growing federal deficits and rising health care costs, the future of pension funding will remain unstable. Those are not easy problems to solve, which means the politicians in Washington want to ignore them as long as possible.