Congress should impose a six-month moratorium keeping bankrupt companies such as United Airlines from dumping their workers' pension plans onto a federal agency, a Democratic lawmaker said on Friday.
A bankruptcy judge this week approved a deal between United Airlines, a UAL Corp unit, and the federal pension insurer allowing the carrier to terminate its pension plans, in the largest corporate pension default in U.S. history.
California Democratic Rep. George Miller worries this could lead to a rash of other defaults among struggling air carriers with acute pension woes, as well as other industries.
He and Rep. Jan Schakowsky, an Illinois Democrat, introduced legislation on Friday to stop plan terminations for six months while Congress considers what else should be done.
"I'm just worried that companies will decide right now is the best atmosphere for them to go into bankruptcy before Congress does anything," Miller said in an interview.
Under the court-approved deal with United, the Pension Benefit Guaranty Corp. would guarantee $6.6 billion of the nearly $10 billion in benefits in the airline's pension plans, meaning many of the 120,000 workers can expect pension cuts.
But the long-term solvency of the PBGC, which has a deficit of $23.3 billion, is also in question. Some pension experts worry it could ultimately need a taxpayer bailout.
Miller acknowledged that as a member of the minority party his bill for a moratorium on pension defaults faced an uphill fight, but said he would raise the issue with House Education and Workforce Committee Chairman John Boehner.
Boehner, an Ohio Republican, has been working for months on a bill to reform traditional "defined benefit" pensions, which have a fixed payout at retirement. These plans cover 44 million Americans in many old-line industries like airlines and automobiles and are underfunded by some $450 billion.
A Boehner spokesman declined to comment on Miller's proposal, but said Boehner's pension overhaul bill, to be introduced in a few weeks, was not expected to have any provisions specific to airlines.
"Obviously many of the reforms in the bill will ensure that all employers, including airlines, are better able to fund their (pension) plans," the spokesman, Kevin Smith, said.
Miller, ranking Democrat on Boehner's committee, worries these reforms may not come in time to stop more defaults.
"You could have hundreds of thousands of workers impacted before Congress could get around to writing legislation to help secure these pensions," he said.
The Bush administration in January proposed that companies with defined benefit pensions plans should fully fund them within seven years. It also said they should pay higher insurance premiums to the PBGC.
But business has warned the administration proposals could scare more companies into terminating their pension plans.
Boehner has said he favors a longer phase-in of the premium hikes, but has given few clues otherwise as to his intentions. In the Senate, Finance Committee Chairman Charles Grassley, an Iowa Republican, is also actively working on a pension reform bill, but an aide noted that he had been distracted by the need to write legislation on a Social Security overhaul.
A House Democratic staffer said there was precedent for a pension default moratorium, because Congress had intervened in similar way in the 1980s after the former LTV Steel Corp. announced it would not pay health benefits for retirees.
Congress then changed bankruptcy law to prevent companies from arbitrarily canceling health benefits, the staffer said. "We are wondering if pensions can be added to that."
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