Associate Press January 23, 2004 WASHINGTON (AP) Companies struggling to meet staggering pension obligations are in line for some immediate help from Congress reduced contributions to their retirement plans. It's a $26 billion break over the next two years, with additional relief for the airlines and steel industry. The Senate began debating the measure Thursday after more than 200 companies, including AT&T Corp., Exxon Mobil Corp. and IBM Corp., wrote senators last week urging quick passage. The legislation would reduce by about 10 percent this year and next the amount of money that companies have to pay into their defined benefit pension plans, which cover more than 43 million workers. For many companies, the first of those payments are due in April. The measure has wide support from both business and labor, so some critics are que! stioning why the fix is only temporary. The United Auto Workers, which fears companies could abandon plans if they get too expensive, was among the groups that tried to make the change permanent. The Bush administration pushed for a temporary change, saying it wants to develop new pension rules that could be tailored to individual companies. Rep. John Boehner, R-Ohio, who sponsored the House bill approved overwhelmingly in the fall, says the proposal will give Congress time to consider ways to overhaul the pension system. "For the last two decades, we've patched it up and tweaked it, and we're left with a wide array of rules, regulations and statutes that in many cases are driving companies out of these plans,'' Boehner said. "Anything beyond a two-year, temporary fix means that everybody packs up, goes home and you don't get them back to work on this issue.'' Since 1987, companies with underfunded pension plans! have been required to invest in their plans based on the rate of r eturn they could expect from 30-year Treasury bonds. When the government stopped issuing new 30-year bonds in 2001, companies were forced to contribute more money as interest rates dropped. A two-year fix passed Congress in 2002 and expired in December. It still used calculations based on assumptions of what the 30-year bond rate would be. The latest fix would let companies assume that money in their pension funds is earning about 6 percent interest, based on a corporate bond index, rather than the 2 percent to 3 percent assume rate of return the past two years. The higher the assumed rate of return, the fewer dollars in new contributions companies will have to make into the funds. Delphi Corp., the world's largest automotive parts supplier, expects the change to free up to $700 million to $900 million over the next five years. Alan Dawes, chief financial officer of the Troy, Mich.-based company, said Delph! i is at a disadvantage when compared with foreign competitors that have government-sponsored pensions. "It's critical to have that cash to continue to compete,'' Dawes said. "We have other things we need to be investing in.'' Delphi's pension plan was underfunded by around $4 billion at the end of 2003. Dawes said Delphi put $1 billion into its pension fund last year and plans to pour $600 million into it this year and again in 2005. But Delphi is a relatively young company, with about two retirees for every 10 active employees. Its pension burden is small compared with a company like Detroit-based General Motors Corp. GM has 25 retirees for every 10 active employees and will have to pay out $6 billion in pension benefits this year. "In the long term, this issue is going to be significant for many companies with mature work forces,'' said Chris Preuss, a GM lobbyist. Unions support the change ! even though it will produce smaller corporate contributions to pens ion plans. Organized labor fears that many financially pressed companies will otherwise opt to dissolve their plans or declare bankruptcy and turn the plans over to the Pension Benefit Guaranty Corp. The government agency, which insures pension plans with premiums paid by the companies sponsoring them, may not pay the full pension that was promised. "If they don't do a fix now, the 30-year rate is going to apply, and that's disastrous,'' UAW lobbyist Alan Reuther said. Last week, the pension agency announced a record $11.2 billion deficit in 2003 due to a record number of pension plan bankruptcies mostly in the steel and airlines industry and low interest rates. The agency's outgoing director warned that the problems could grow if Congress failed to pass pension relief soon. The legislation would give a reprieve to steel companies and airlines that are behind in their payments to the ! agency. Those companies would have to pay only 20 percent of catch-up assessments in 2004 and 40 percent in 2005. Center for Collective Bargaining Staff AFL-CIO Dept. of Corporate Affairs & Collective Bargaining 815 16th St. NW Washington, DC 20006 202-637-5376 fax: 202-508-6985 ccb@aflcio.org Use of this listserve as a means to communicate with members on issues of collective bargaining is highly encouraged. To subscribe or unsubscribe, send an email to ccb@aflcio.org.