Senate Overwhelmingly Approves Pension Improvements

SENATE OVERWHELMINGLY APPROVES PENSION IMPROVEMENTS

Hatch: New Law Does Much to Fix ‘Busted' Pension System

Washington - Sen. Orrin G. Hatch (R-Utah) voted with the majority of his colleagues last night to strengthen the nation's pension system. By a 93-5 vote, the Senate approved the Pension Protection Act of 2006, which among other provisions, will permanently extend tax deductions that increase yearly contribution limits for Individual Retirement Accounts (IRAs).

"Congress understood the fundamental problem with pensions and sought to solve it through genuine bipartisan negotiation," Hatch said. "We saw that our defined benefit pension system was in dire straits. Too many companies had severely underfunded their plans. Companies had made promises to their employees, promises they were depending on for their retirement. But the companies were falling short."

The act requires companies to fund 100 percent of their pension liability. Under previous law, companies were required to fund only 90 percent. Underfunded pension plans place employees' retirement funds at risk. In worst-case scenarios, the plans are turned over to the Pension Benefit Guarantee Corporation (PBGC) and employees can find themselves not receiving their full pensions. Taxpayers can also be at risk. Under the new law, companies have seven years to make up their pension shortfalls. Financially struggling airlines will have up to 17 years.

"The bill gives the airlines more time to fund their pension plans, rather than forcing them to abandon the plans to the PBGC," Hatch said. "The amount of time differs, depending on the immediate difficulties the airline carriers are facing and whether they have frozen their plans. It's important that we give airlines the relief they need, but companies with severely underfunded plans must take steps to stop digging the hole deeper."

The act also makes permanent the tax-favored status of higher education savings accounts (529 plans). These plans allow parents and others to contribute money for their children's schooling, money that accrues tax-free interest. The Utah Education Savings Account is widely regarded as one of the best 529s in the country for affordability and return on investment.

The Pension Protection Act of 2006 also:

* Shores up multi-employer plans, which have unique funding problems
* Provides legal clarity to hybrid "cash balance" plans that have elements of both defined benefit and defined contribution plans
* Allows firms that administer 401(k) plans for their employers to provide investment advice to employees, so long as that advice is based on an independently certified and audited computer model
* Makes it easier for companies to automatically enroll workers in 401(k) plans

The Senate approved a pension bill last November, and the House approved one in December. This final piece of legislation is the compromise between the two versions, and with the Senate's action the bill will now go to the President for signing.

"This compromise wasn't perfect, but it goes a long way toward making sure that traditional pension plans are fully funded. Our pension system was busted, and through tough bipartisan and bicameral work, we went a long way toward fixing it."

http://hatch.senate.gov/index.cfm?FuseAction=PressReleases.Detail&PressRelease_id=1641&Month=8&Year=2006