In the teeth of a tumultuous stock market, the steel industry, the United Steelworkers of America and their congressional allies have proposed legislation that would create a kind of federally guaranteed mutual fund to alleviate the industry's pension burdens.

Sens. John Heinz (R-Pa.) and Howard Metzenbaum (D-Ohio) yesterday introduced the Steel Retirement Benefits Funding Act of 1987, which would create a benefits authority and investment fund to pay early retirement benefits to workers involved in steel shutdowns since 1982. Companies also would be able to remove pension liabilities from their books, though they would be responsible for maintaining current health and retirement plans.

Companies that participate in the plan would offer stock warrants, equity or other assets to the authority in exchange for payment of the benefits. The authority would raise cash by selling shares in an investment fund consisting of the companies' assets and federal securities. Potentially, the authority could assume responsibility for $3.6 billion or more in steel pension liabilities.

"Some who don't understand the legislation will say this is a form of industrial policy," said Heinz. "But the current system is far worse, far more costly and far more unfair."

Attempts by the industry to convince the Reagan administration to officially back an aid plan appear to have fallen through as profits in the industry have staged a recovery.

The legislation was prompted primarily by the prospect of other steel companies following the example of Wheeling Pittsburgh and LTV Corp., two steel companies that filed for bankruptcy and transferred their pension liabilities to the Pension Benefit Guarantee Corp., the federal agency that insures the pensions of millions of workers.

Overall, the PBGC has a $4 billion deficit -- 80 percent of which is steel-related -- which it hopes to remedy by supporting pending legislation to increase minimum funding standards for pension plans and increase the premiums that all companies pay based on the health of their plans.

The agency supports some elements of four of the proposals to curb pension abuses that will be included in House and Senate budget reconciliation packages.

The agency is less impressed with the Steel Retirement Benefits Funding Act.

"The Heinz-Metzenbaum bill deals with an important problem, which is underfunded pensions in the steel industry, but it does it in the wrong way," said Kathleen Utgoff, executive director of the PBGC. "It does not address the underlying weakness of the pension system that led to underfunding of steel plans."

The PBGC also may be able to pare its deficit if it wins a legal battle to return to LTV three of the company's pension plans with $2.3 billion in unfunded liabilities. The agency has been arguing that the supplemental pension payments LTV has been making to workers amounts to a recreation of the original plan.

The Heinz-Metzenbaum bill leaves open a window for bankrupt companies to join the plan if they settle their differences with the PBGC or reinstate their plans.