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Autoworkers union against at-risk pension rule

Posted on: Wednesday, 21 June 2006, 19:13 CDT

By Susan Cornwell

WASHINGTON (Reuters) - The United Auto Workers would oppose a bill to overhaul the traditional U.S. pension system if it kept a current proposal for identifying pension plans at risk of default, a union official said on Wednesday.

The UAW, which represents employees at General Motors Corp. , Ford Motor Co., DaimlerChrysler AG and other automakers, has played a pivotal role with pension legislation before.

Last December, the union's endorsement of a different version of the pension bill broke a logjam within the House of Representatives, which then passed it by a sizable margin.

Lawmakers are now trying to draft a compromise merging House- and Senate-passed versions of the pension legislation, which affects 44 million Americans with traditional pensions in older industries such as automobiles, airlines and steel.

Republican negotiators recently proposed a framework to define which pension plans are so poorly funded that they are at risk of default and must add cash. A Republican spokesman said Thursday the proposal would strengthen the law and increase pension contributions by $200 billion over 10 years.

But UAW legislative director Alan Reuther said the "at risk" provision being discussed would penalize companies that put more than the minimum required into pensions in the past. The union backs changes proposed by Senate Democrats, he said.

"If it stays as proposed by Republican conferees, we would oppose it and urge people to oppose it," Reuther said. "We would oppose the bill."

Negotiators have been working behind closed doors to finalize the bill aimed at putting the traditional pension system on a sounder footing. Defined benefit plans, which pay a fixed amount to retirees, are underfunded by $450 billion.

The Bush administration says earlier versions of the pension legislation actually eroded pension funding, and is leaning on negotiators to come up with a bill that makes companies put more money into their plans.

Republicans said Thursday the proposal they were discussing would do just that, adding $200 billion to plans over 10 years. "The administration has scored this as stronger than current law," said Kevin Smith, spokesman for House Majority Leader John Boehner, an Ohio Republican.

The formula lawmakers are considering would define a company's pension plan as at risk of default it if were less than 80 percent funded. The funding threshold could be lowered to 70 percent if the calculation used a stricter formula.

However, in determining how well funded their plans are, companies would not be allowed to count something called "credit balances," which are created when a company puts more money into a plan than is required in a given year to meet obligations to retirees.

These balances have been allowed to grow at an assumed interest rate, which can be higher than the actual return. Some analysts say they are a loophole that should be stopped.

Reuther said pension plans that would be 100 percent funded when counting their credit balances should not have to subtract them. Senate Democrats Max Baucus of Montana and Edward Kennedy of Massachusetts have proposed giving such companies a "safe harbor," he said.

"It is real money that has been contributed to the plan," Reuther said. "This is not only an auto industry issue; there are other companies that have credit balances."

One company with a credit balance is GM. The automaker has declined to say how large the balance is, but some analysts estimate it at some $50 billion.

Counting the credit balance, GM has a well-funded plan, but without it the funded percentage would fall. "Their assets cover over 90 percent of liabilities; but if you subtract their credit balance, they are probably below 60 percent funded," said Ron Gebhardtsbauer of the American Academy of Actuaries.

Source: REUTERS

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