US Senate Approves Major Pensions Overhaul

by Mike Godfrey, Tax-News.com, Washington

07 August 2006

A major overhaul of US pensions legislation was approved by the Senate last week and has been sent to President George W. Bush for final approval, expected to be a formality.

The bill, which was approved in a 93-5 Senate vote late last Thursday, attempts to address the estimated $630 billion in underfunding in pension plans covering 45 million American workers and retirees, and is the first major change to America's pension laws for 30 years.

Under the bill, companies would be required to fund 100% of their projected pension obligations, an increase from the 90% requirement under current law. Companies that do not meet this obligation will be prohibited from increasing employee benefits and must make accelerated catch-up payments.

The bill strengthens disclosure to give workers and retirees more information about the status of their pension plan, and restricts 'golden parachute' executive compensation arrangements.

The bill also includes $60 billion in tax breaks that permanently extend pension and savings tax incentives that were part of the 2001 tax bill. This tax package includes increased contribution limits to Individual Retirement Accounts, 401(k) plans and a permanent saver's credit for lower income workers.

Although the approved legislation does not go as far as the White House had wanted, most lawmakers have welcomed the bill as an acceptable compromise.

"This bill that passed in both the House and the Senate includes about 95 percent of the compromise language we developed in the Conference Committee. It’s a package that will significantly strengthen pension funding rules, help curb record pension failures and better protect the retirement dreams of 45 million Americans," commented Sen. Mike Enzi, (R-Wy), Chairman of the Senate Health, Education, Labor and Pensions (HELP) Committee.

"Although we didn’t get everything we wanted in this bill, I am pleased the Congress will not leave this critical job unfinished as we adjourn for the August recess. The 45 million Americans directly affected by this bill deserve a greater sense of security about their retirements as we head into the end of summer," he added.

Senate Majority Leader Bill Frist (R-Tenn) also welcomed the bill, saying that the legislation will shield taxpayers from a possible multi-billion dollar taxpayer bailout of the federal Pension Benefit Guaranty Corporation, the institution that guarantees pension benefits for workers and retires from covered pension plans.

“Promises made to the American worker will be promises kept with the passage of this pension bill. We have protected the interests of retirees by strengthening pensions funding rules and making permanent the retirement security provisions from the 2001 tax bill, which is a major step toward making the president’s tax cuts permanent," Frist stated.

The bill is due to come into effect on January 1, 2008.

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