The major pension reform legislation awaiting President Bush's signature at press time on Aug. 4 removes the uncertainty surrounding the pension industry's future, although some experts fear it will accelerate the decline of the defined benefit system.
At least that was the consensus of top industry insiders following the Senate's 93-5 approval of the most sweeping rewrite of the nation's retirement laws since the Employee Retirement Income Security Act was enacted in 1974.
"It provides certainty," said David Speier, senior actuary for Watson Wyatt Worldwide, Arlington, Va. "That's good for companies."
The legislation will speed up the time in which companies must amortize deficits to their defined benefit plans, require at-risk plans to make additional contributions, provide special funding relief to airlines, encourage automatic enrollment in 401(k) plans, and protect new cash-balance plans from age discrimination suits.
The most obvious immediate legislative winners were Northwest Airlines Corp., Eagan, Minn., and Delta Air Lines Inc., Atlanta, which will get up to 17 years to fund their defined benefit plans. American Airlines Inc., Fort Worth, Texas, and Continental Airlines Inc., Houston,will get 10 years to amortize their own funding shortfalls.
Threats by Northwest and Delta to terminate their already frozen pension plans and add to the burden of the financially strapped Pension Benefit Guaranty Corp. were widely credited for prodding senators to act on the legislation before they hightailed it out of Washington for their summer recess.
Industry and congressional sources said the final chapter on airline relief might not be written until lawmakers return to Capitol Hill after Labor Day, when legislators are expected to address complaints by American Airlines that it's being hurt competitively because it didn't freeze its plan.
"American does not object to the favorable rules given to airlines that have frozen their plans," said Will Ris, American's senior vice president-government affairs, in a statement. "We simply believe that those maintaining their plans should not be placed at a competitive disadvantage."
Similarly, Jay Schaefer, staff vice president of finance and treasurer of Alaska Air Lines Inc., Seattle, said Alaska Air Lines has funded its $710 million plans regularly, and its plans are better funded than its competitors. "It's still a tiny bit (disconcerting) to see that other airlines have greater relief than we do because their funded status is worse than ours," he said. Alaska Air's plans were 69% funded on a projected benefit obligation basis at the end of 2005.