SOCIAL SECURITY has faded from the headlines, but Congress is close to passing legislation to address the crisis in the corporate pension system. The nation's "defined-benefit" pension plans -- the ones that promise workers a percentage of final salary after retirement -- have something like $450 billion less in them than they need to meet their obligations to retirees, and this shortfall poses a risk to taxpayers. If companies can't make good the gap, the pension plans are frozen and passed along to the semi-governmental Pension Benefit Guaranty Corp. If the PBGC runs out of money, taxpayers will be expected to bail it out.
In January the Bush administration proposed a plan to head off a taxpayer bailout. The plan had two principles: Companies should stop underfunding their pension plans, thereby reducing the risk that these will be dumped on the agency, and they should pay higher insurance premiums to the PBGC so that it has the resources to take over insolvent pension plans without help from taxpayers. The House and Senate, which have been utterly feckless on the pensions crisis, have this time produced bills that would probably ameliorate it. But neither bill is as robust as the administration's proposal.
The House and the Senate accept the administration's common-sensical idea that companies should put aside enough money to pay for their pension promises. But they allow companies an excessively long transition period to get there. They accept the idea that companies should pay the PBGC a higher premium, but the Senate fails to protect the new level against future inflation and the House phases the increase in gradually. Likewise, both chambers accept the idea that past market conditions should not excessively color assessments of pension plans' health -- if the stock market crashes, for example, companies should quickly recognize the need to boost pension contributions. But the House makes only a token move toward real-time evaluation of pension plans. The Senate does better, and its position should prevail in conference.
The Senate is worse, however, in its treatment of airlines. It has given this industry an extra seven years to fund its pension plans properly; worse, it has allowed it to assume whatever future interest rate it deems "reasonable," an invitation to make paltry contributions. These loopholes put taxpayers at risk, because they allow airlines to contribute less than they ought to for the next few years and then dump their plans on the PBGC. Moreover, the airline loopholes set an awful precedent: When other industries get into trouble they will expect a special dispensation from Congress, too. Rep. John A. Boehner (R-Ohio), a pensions power broker in the House, has spoken out against the noxious airline measures. The administration should use its leverage in conference to see that Mr. Boehner gets his way.