US - The Senate Finance Committee has approved a pension reform legislation that will tighten funding rules for defined benefit (DB) plans but gives airlines 14 years to pay off their obligations.
The bill, National Employee Savings and Trust Equity Guarantee Act (NESTEG), would: establish new funding targets for DB plans, increase the premiums plan sponsors pay to the Pension Benefit Guaranty Corporation (PBGC), impose benefit restrictions on underfunded plans and require more disclosures from plan sponsors.
Senate Finance Committee chair Charles Grassley (R-Iowa) (pictured) said: “The fragile state of our nation’s pension plans is catching the attention of Americans everywhere.
“Not long ago, workers used to be fairly sure of a good pension plan. That’s not the case anymore. There are a lot of reasons for that, some within Congress’ control and some not in our control. We need to fix the problems within our control. Today we’ve taken a big step in the right direction.”
Under NESTEG, plan sponsors have less time to fund any shortfalls with the funding target the present value of all benefits accrued as of the beginning of the plan year.
Most plan sponsors would have to fund 100% percent of their funding target after a two-year phase-in period beginning in 2007. For plan years beginning in 2007, plan sponsors would fund 93% of their funding target. For the next plan year, plan sponsors would fund 96% of their target.
Grassley’s measure also would require businesses to contribute more to the federal Pension Benefit Guaranty Corporation (PBGC) - increases the premiums paid to the PBGC from $19 per worker each year to $30 for all PBGC-covered pension plans.
Grassley said: “The PBGC can’t sustain many more hits to its bottom line, and the potential for a taxpayer-funded bailout is growing every day we do nothing.
The agency has a $23.5bn deficit because weak pension funding rules have allowed some companies to underfund their pensions and turn them over to the PBGC.
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