It was an unlikely place to learn that a year's worth of pension reform lobbying efforts was going up in smoke -- or dry heat, to be more precise.

Karen Friedman, education director of the Pension Rights Center, thought legislation was about to be enacted that would require employers who have been tapping excess cash from their pension plans to share the wealth with workers and retirees. But while basking in the cedar scent and warmth of the women's sauna at the downtown YMCA, she overheard someone say that what looked like a done deal had come apart.

"Besides being shocked that anyone would be dealing with pension issues in the sauna, I thought everything was wrapped up," Friedman said.

But congressional committee proposals to share the surplus with pension plan participants, leave a cushion of assets in plans or increase the tax penalty for withdrawing the funds had been dropped when supporters of those provisions least expected.

Instead, companies -- with no changes in current law -- will be able to continue to recapture the excess in their pension plans, as they have done to the tune of $17.5 billion since 1980.

The uncertainty surrounding the dropping of the proposals from the legislation was the rule throughout months of knotty negotiations between four congressional committees and subcommittees. Agreements and disagreements. Promises, broken promises and, finally, compromise on a far-reaching package of pension revisions buried in the recently passed omnibus budget reconciliation act -- but not including rules to bar companies from taking back excess funds in their pension plans.

Overall, the provisions enacted by Congress last week will have long-term effects on how employers fund -- and underfund -- pension plans, pay federal insurance premiums to protect private pensions and gain access to pension funds that are considered "surplus."

What workers and retirees stand to gain and lose also will be affected as companies consider what they can realistically afford to offer in pensions under the new law.

"The good news is it will make pension funds better funded, but in some cases produce leaner benefits," said Dallas Salisbury, president of the Employe Benefit Research Institute (EBRI). "But many companies were promising more than they could afford. The bill says don't promise it if you can't pay it."

Some pension analysts also said the tougher provisions of the bill may persuade some employers to abandon more costly and demanding defined-benefit pension plans that guarantee workers a set benefit upon retirement. Instead, they may begin to favor defined contribution plans, which depend on the individual investment performance of a worker's retirement account.

Salisbury said that although the majority of private defined-benefit pension plans are well-funded, some companies have promised but not necessarily funded additional pension benefits for workers.

Because of such practices and the tendency of some companies to let pension liabilities mount, there was widespread agreement on both sides of the argument and in Congress on the necessity of tightening funding standards for companies.

"We have taken over companies in complete compliance with the law, but with no assets in their pension plan," said Kathleen Utgoff, executive director of the Pension Benefit Guaranty Corp., which insures the pensions of 40 million workers and pushed hard for pension funding revisions.

Consequently, new minimum funding standards will have the biggest effect on employers that are carrying some $45 billion in unfunded pension liabilities -- save for the steel industry, which will be able to remedy some of its underfunding problems more gradually during the next five years.

But overall, employers will be expected to make more frequent contributions to plans, and on a quarterly instead of annual basis. And all of a company's entities now will be responsible for contributions to any one of their pension plans.

Benefits will become more costly, because past liabilities will have to be amortized over an 18-year period rather than the more leisurely 30-year pace set under the old law.

The law also requires that new benefits costing more than $10 million in plans that are underfunded below 60 percent cannot be handed out unless a bond or some other security is posted.

Delaying contributions will be tougher, too. Companies will now be able to get only three funding waivers over 15 years, instead of the five that previously were available.

"American workers again can be sure that the system on which their retirement income depends is financed with hard dollars, not empty promises," said Labor Secretary Ann McLaughlin.

Companies that used a Chapter 11 bankruptcy as an automatic excuse for terminating their pension plans and handing them over to the PBGC will now have to prove in court that they would go under if the plan were not terminated.

Companies also face sharply increased pension insurance premium costs. To help the PBGC raise $400 million a year to manage its ever-increasing deficit, employers now will pay an annual fee of $16 per participant, rather than the current $8.50.

Again, underfunded plan sponsors will bear the brunt of the change because they will pay an additional variable rate premium of $6 per $1,000 of unfunded vested benefits, with an annual cap of $50 per participant.

The pension reform issue seemed to gather momentum after the PBGC assumed some $2 billion in underfunded liabilities from LTV Corp. last January, thereby increasing the agency's deficit to $4.2 billion.

The PBGC since has tried to return three plans to LTV, but the company is contesting in court whether the agency legally can turn back the plans. The company, which has since put in a new pension plan, also maintains it cannot afford to pay the old level of benefits.

LTV's pension problems also caused resentment among many employers who have met their pension obligations, but who face the payment of ever-increasing insurance premium payments to the PBGC.

"Our position is that it is simply not right to use Chapter 11 to shift pension liabilities onto other employers," said Mark Ugoretz, executive director of the ERISA Industry Committee, which represents Fortune 150 employers covering about 10 million pension plan participants. "A lot of people weren't too pleased with the way {LTV} handled it."

Many observers said the new law will affect LTV if the company loses its case against the PBGC and becomes responsible for its old pension liabilities. Sources said the company had been lobbying for exemptions from some of the new rules. LTV officials were not available for comment.

Many companies, particularly those with well-funded plans, applauded the tighter funding and bankruptcy rules. But Alan Reuther, associate general counsel for the United Auto Workers, worries that the new funding rules are too harsh and will be a disincentive for companies to improve or start new plans. He said he also is concerned that the variable-rate premium will be paid by those least able to afford it, in some cases.

"It's a victory for the AT&Ts and IBMs at the expense of workers, retirees and some employes in smokestack industries," Reuther said.

Labor groups also took a body blow in the legislation over the question of who is entitled to the "excess" assets in overfunded pension plans -- employes or employers.

As a result of rich gains in the stock market before October's collapse and generous funding practices of some employers, EBRI has estimated there are $300 million to $350 billion in excess funds in pension plans.

Some of that money may turn out to be fair game for employers who would take it back into corporate coffers through a procedure called "asset reversion." Typically when a pension plan is terminated, employes are paid retirement benefits to date, usually in the form of an annuity. The excess then is recaptured by the company, and a new plan is started.

The battle lines over those funds were drawn between labor and groups representing workers' and retirees' pension rights and the business establishment -- the Chamber of Commerce, the ERISA Industry Committee and others. Various congressional committees also lined up on both sides, while the Reagan administration said it believed employers had a right to excess funds.

Worker activists, represented by people such as Friedman, argued that the practice cheats workers and retirees out of adequate retirement income, removes funding "cushions" that protect companies against financial vagaries such as the stock market collapse and often leaves workers with less-desirable pension plans.

"You end up with a plan that probably is funded at its bare minimum," said David Certner, pension lobbyist for the American Association of Retired Persons. "These are supposed to be ongoing vehicles that are prefunded over a period of time, taking into account years of service and future salary increases."

If the practice was to continue, worker advocates and labor had hoped that employes would have a portion of the funds returned to them when plans were terminated.

Employers who won this round characterized what workers and retirees were lobbying for -- a portion of the excess -- as a "gift" that would discourage companies from funding above minimum levels required by law.

They also pointed out that fewer plans have been terminated this year to get at excess funds, and less has been taken out.

Whatever the trend, Friedman and officials of other groups are lining up congressional support to reopen the issue next year.

"If this means Congress is ratifying present law, the action is completely unacceptable and we will fight 10 times harder next session," Friedman said.