IN 1974 CONGRESS toughened the funding requirements for private pension plans. The rules had been lax, and too many plans were turning up without the funds to pay all the benefits they owed. The legislation also created an insurance pool to cover cases -- bankruptcies -- when the funding rules still would not provide enough protection. The premiums were low; the Pension Benefit Guaranty Corp. wasn't expected to have that much to do.
In fact it has been heavily burdened. The steel industry in particular has used the insurance system to shed its pension obligations. Bankrupt steel companies have picked up the equivalent of federal subsidies to stay in business, and the PBGC has become bankrupt instead.
Now Congress has moved to fix this. The reconciliation bill passed just before the Christmas recess further tightens the funding standards while raising premiums substantially (atop some smaller increases voted before). The funding requirements and premiums both are graduated so as to be highest for the companies whose plans are worst off.
No one is in favor of an underfunded pension system, but not everyone thinks all the new provisions are good ideas. Labor fears they go too far, will deter companies from offering pension benefits and may jeopardize precisely the weaker companies that Congress should be helping instead. Some business interests also are complaining. Faltering companies say they can't afford the costs, and healthy ones say they shouldn't have to pay them. Why, they ask, should a business that has faithfully funded its own pension plan be taxed because another, perhaps a competitor, has not?
But these are mostly distributional and marginal objections. The fact is that too many companies, including some major ones, have promised more than they can pay. Fewer promises and higher payments are both solutions. Neither is pleasant, but Congress was right to insist on them, and seems to have apportioned the burdens about as well as a fallible body can.
The bill was less successful in dealing with another set of questions -- the circumstances under which a company should be allowed to drop a plan on PBGC and the rights of PBGC thereafter. The pensioners become pawns in these situations. A bankrupt company says that if the PBGC doesn't take over its plan, it will have no choice but to cut benefits. The best solution would be to put the pension agency nearer the head of the line in bankruptcy proceedings. But banks and others typically involved in such affairs resist this, and Congress didn't reach the issue. It reduced the PBGC's exposure, but only marginally.
A third issue was dropped entirely -- what to do when a plan, because the market performs well or for some other reason, turns out to be overfunded. Companies can now retrieve the extra funds; labor doesn't want them to be able to. Congress is apparently divided. Some labor sympathizers say the money belongs to the workers. The companies say only the promised benefits belong to the workers, that they run the risk of financing these benefits and should also be entitled to the rewards. Why else assume the risk?
Our own sense is that the companies are right, though perhaps they should not be allowed to extract extra money from a fund as quickly as now. But in general this is good legislation. Pensions are costly; the costs need to be recognized. The system is stronger by virtue of the provisions in this bill.