It's a slow road to pension reform

One proposed reform would let companies automatically enroll new employees in a 401(k) plan. Should workers decide they can't manage the deductions from their pay, they could opt out. But more employees, out of inertia or whatever, are likely to stay in the plans.

When a company uses bankruptcy or other means to shed a traditional pension plan, the plan is taken over by the federal government's Pension Benefit Guaranty Corporation. The PBGC, as an insurer of participating pension plans, takes whatever remaining corporate assets the bankruptcy judge gives it and assumes future payments.

The maximum pension paid by the PBGC is $45,000 a year. So the great bulk of corporate pensioners are protected in full. But those with more handsome pensions, such as some airline pilots, find they receive less each month.

For years, Congress has been considering legislation to reform the private pension system. The House has the Pension Protection Act, the Senate another bill. The hope of their legislative sponsors has been for a floor vote this year. But there may be no action before 2006.

"There is not a constituency [for reform] on the outside," says a congressional staffer speaking on background. Business isn't keen on seeing their PBGC premiums jump sharply, a provision of both bills. As it is, the PBGC has a $23 billion gap between its expected income and its pension obligations. That gap could grow quickly to $100 billion. That might have to be made up by Congress with a future appropriation.

The bills also aim to close by regulation the gap between what firms promise employees in pensions and what companies actually provide in funding to meet those obligations. But lawmakers don't want to be so tough as to speed the exit of companies from defined benefit plans.

Details of a transition to PBGC solvency are controversial. Basically, the bills are a patch job for a fading system. The bills, for instance, aim to clear away legal obstacles to what are known as "cash balance" pension plans, a hybrid between traditional pensions and 401(k)s. Daniel Halperin, a pension expert at the Harvard Law School, says cash balance plans make "perfect sense" if older employees are protected from losing out in a transition.

The debate on how to set up a healthy future pension system has barely begun. Congress may decide that the US should build a generous Social Security system, such as that of France, Italy, or Germany. Or perhaps require workers to save for their own pensions, as do many Asian and South American nations.

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