The View From Here . . .

Now that the flap over judicial nominations has seemingly been resolved, at least for the moment, the Senate, and indeed Congress as a whole, will have a chance to focus on other matters of pressing concern.

On the domestic front there are few more important issues than the potential crisis in defined benefit pension plans, the type of arrangement that provides monthly benefit checks to retirees as opposed to an account balance. A number of the plans, although by no means all, have serious financial problems.

The looming defined benefit plan problem was pointed up last week by a bankruptcy court decision that in effect allowed United Airlines to walk away from its pension obligations and place the responsibility for payment of most benefits (up to $45,000 per participant at age 65) on the Pension Benefit Guaranty Corporation, the governmental agency insuring these plans. The United plan termination added at least $6 billion to the PBGC's deficit, which was listed at $23.3 billion last fall, in comparison with a surplus of $9.7 billion in 1999.

Unfortunately, the United plan termination appears to be only the tip of the iceberg. Other airlines in financial difficulties have large underfunded plans. Moreover, automobile manufacturers also have huge obligations under their collectively bargained plans. These plans as well could end up in the hands of the PBGC.

The Bush administration, seeking to head off a debacle similar to the savings and loan crisis, has proposed changes to strengthen the PBGC balance sheet and the funding status of existing plans. Premiums per employee, which have not been increased since 1993, will rise from $19 to $30, with additional variable rate premiums for at risk plans. Funding assumptions will be tightened, requiring employers with underfunded plans to fund their plans fully over a seven year period using more realistic actuarial assumptions.

While these efforts to improve the financial stability of defined benefit plans, and thus avoid a costly wholesale bailout by taxpayers, are reasonable, they are just a part of an overall solution. The other needed component is creating continued incentive for those employers who do have solvent plans to continue to maintain them.

A number of steps are possible. Under current law, withdrawals of overfunded amounts from existing plans are prohibited in the case of ongoing plans and are otherwise subject to confiscatory taxes as high as the 90 percent. This is an obvious disincentive to placing any more than the bare minimum in the plan. Congress should consider loosening some of these restrictions in appropriate cases, as well as some of the maximum funding limitations in the Internal Revenue Code.

Also, legislation in recent years has made defined benefit plans extremely complicated as well as limiting the ability of key employees to benefit under these plans. (For the 2005 tax year, not more than $210,000 of compensation may be taken into account in determining benefits under any qualified plan, including a defined benefit plan). Both of these factors lead employers to lose interest in or discontinue these plans While it is important that the plans provide significant benefits both to rank and file employees and managers, excessive regulations should be removed.

Defined benefit plans provide a very valuable benefit to workers and complement benefits received under 401(k) plans and other defined contribution arrangements. But now is the time for Congress to pass appropriate legislation that will continue the survival of these arrangements without a costly taxpayer bailout.