Bush Signs Sweeping Revision of Pension Law
Friday, August 18, 2006
President Bush yesterday signed the most extensive revision of the nation's pension law in three decades as the federal government moved to shore up often-shaky private retirement programs for 44 million Americans and head off a crisis like the savings-and-loan bailout of the 1980s and 1990s.
The new law will force most private employers that provide traditional pensions to their workers to pump tens of billions of dollars more into those systems over seven years while making it easier to expand 401(k) and IRA retirement plans. But the law cuts a break to the financially troubled airline industry, where the pensions of tens of thousands of workers have been endangered.
The product of years of effort and a final round of intense negotiations, the Pension Protection Act of 2006 is one of the most significant bills to emerge from Congress in a year with particularly contentious elections. With Democrats accusing the Republican majority of running a "Do Nothing Congress," Bush and his allies were eager to showcase the bipartisan pension effort and flew lawmakers back from summer recess to stand behind him at a signing ceremony.
"Americans who spend a lifetime working hard should be confident that their pensions will be there when they retire," he said. "Members of both parties came together to pass a good bill that will improve our pension system while expanding opportunities for Americans to build their own next eggs."
Sen. Edward M. Kennedy (D-Mass.), a vociferous Bush critic, offered rare praise for the president's support of the pension legislation. "In this case, Democrats and Republicans worked together and America's workers and retirees came out the winners," he said.
But critics of the law, such as Rep. George Miller (D-Calif.), called it a smokescreen, warning that some companies would face fewer requirements to fund their pensions. The Congressional Budget Office reported Wednesday that the new law would "lead to an increase in underfunding among plans that will be terminated over the next decade."
"The bill did some good things but it would have been perfect if had been more aggressive," former budget office director Douglas Holtz-Eakin said.
The new law is aimed at restoring stability to corporate pensions. More than 700 pension plans have collapsed in the past five years, and the federal insurance program that steps in, the Pension Benefit Guaranty Corp., has gone from a $10 billion surplus to a $23 billion deficit. Altogether, private pension plans are estimated to be underfunded by $300 billion to $450 billion, and some officials feared a collapse requiring massive taxpayer bailout.
The law enacted yesterday requires companies to fully fund defined-benefit pension plans over seven years, closes loopholes allowing underfunded plans to skip payments and forces companies that underfund their plans to pay higher premiums to the pension corporation. Funding provisions of the law will not take effect for two years to provide time for a transition, and the airline industry and certain government contractors were given a break in meeting them. Airlines that have frozen their pension plans, Delta and Northwest, will have 17 years instead of seven to fully fund them, while others will get 10 years.
James Klein, president of the American Benefits Council, which represents employers, said the law is "a mixed bag," expressing concern that additional funding requirements will further prod companies to drop traditional pensions in favor of employee-financed 401(k) and IRA plans. The law encourages 401(k) and IRA plans by making permanent higher contribution limits passed in 2001. And it allows companies to automatically enroll workers in 401(k) programs, which could increase savings substantially. "This provision could wind up being the most important legacy of the legislation," said Peter R. Orszag, director of the Retirement Security Project, a Washington-based research and advocacy group.
Two little-noticed features of the law was praised by gay rights groups. Under the law, a person's retirement benefits could transfer to domestic partners or other beneficiaries such as sibling or parent. And workers could draw on retirement funds for medical or financial emergencies involving domestic partners or other beneficiaries.
The Human Rights Campaign, a gay rights group, said it was the first time federal legislation has on a broad basis treated same-sex couples similarly to married couples. "Today marks an important day for fairness under the law in America," said its president, Joe Solmonese.
The new law also contained provisions aimed at stimulating charitable donations and curbing abuses. The most significant provision will allow older taxpayers to make annual tax-free donations up to $100,000 from their IRAs to charitable causes. The provision, long sought by charities, is expected to generate $400 million in new charitable giving over the next two years, the United Way of America said.
Staff writer Jacqueline L. Salmon contributed to this report.