Today, U.S. Representative Adam Smith (D-Tacoma) voted for H.R. 2830, the Pension Protection Act of 2005. HR 2830 is a comprehensive pension reform bill that would apply to both single- and multi-employer pension plans. The bill would increase the funding requirements for defined pension benefit plans, shorten the period of time over which funding shortfalls must be eliminated, require sponsors to disclose more information about pension funding, restrict benefit payments and benefit accruals in underfunded plans, and increase the premiums that plan sponsors pay to the Pension Benefit Guarantee Corporation (PBGC).
“I supported this legislation because we need to ensure that American workers pensions are protected,” said Smith. “Americans have worked too hard, for too long, to lose their pensions overnight. Voting for this legislation takes a step in the right direction.”
In general, plans would be required to fund 100% of their “funding target” which under current law is referred to as the plan’s “current liability.” The plan would have to repay any funding shortfalls over seven years. Under current law, a plan’s unfunded liability can be repaid over periods of up to 30 years. Additionally, this bill would raise the base annual PBGC premium from $19 to $30 per participant per year. For those plans that are 60% or less funded, benefits would be frozen and no new benefits could be earned until the company reached a funding level of at least 80%. It is Smith’s hope that the bill will help ensure greater transparency and accountability in the PCBG, inclusion of shutdown benefits for older wokers, and the overall tightening of rules so that companies will meet their financial obligations to their employees and retirees.
“Although I voted for today’s legislation, it is my hope that in the Conference Committee process, many of the concerns that I have will be addressed,” Smith continued.
Smith expressed concern that these reforms could encourage employers to terminate their pension plans and in turn, the PBGC will pick up the tab for these pensions. He noted the cases of the airline and steel industries, where pension plans that are taken over by the PBGC were bad for taxpayers as well as workers. He further stated that because the PBGC will only guarantee a capped amount per person, employees may end up receiving less money than what they were originally promised. Smith also regrets that the bill lacks language to ensure fairness between pensions for workers and executives.
“I believe that the objective of pension reform should be to strengthen retirement security for workers and retirees, while also addressing the economic pressures facing businesses today,” said Smith. “It is also my hope that the airline industry specific language in the Senate version of this bill will be included in the final Conference Report. I will continue to work with my colleagues to create policy that helps retirees keep the pensions that they have earned and allows businesses to flourish in the dynamic U.S. economy.”