1630 Connecticut Avenue

7^th Floor

Washington, DC 20009

Tel: 202-659-0620

Fax: 202-659-0520

August 5, 2004

Ms. Elaine L. Chao, Secretary of Labor

U.S. Department of Labor

200 Constitution Avenue NW

Washington, DC 20210

Dear Secretary Chao:

With the ERISA responsibilities that reside in the Department of Labor, I’m sure that you are familiar with the precarious status of the Government’s Pension Benefit Guaranty Corporation. You may have read the August 1 article in The New York Times that reported possible pension defaults by major airlines could lead to a national pension scandal comparable to the Savings and Loan debacle of the 1980’s and necessitate a multi-billion dollar taxpayer bailout.

You might not have seen the editorial in the August 4 issue of The Atlanta Journal-Constitution entitled: Pension Needs A Swift, Sure Rescue. The text of the editorial is attached. The National Retiree Legislative Network, a diversified and dedicated group of nearly 2 million retirees and pre-retirees, believes the editorial is highly insightful and its call for immediate action is justified.

It has been less than four months since Congress passed and President Bush signed legislation that gave companies temporary pension fund relief through a more liberal formula that saves employers billions of dollars in payments. Yet, here we are again with another crisis looming.

The NRLN urges you, as the Secretary of Labor, to take a leadership role in developing comprehensive measures for Congress to adopt as legislation that will protect the pensions of some 45 million current and future retirees under single and multi-employer pension plans. I’m sure that Bradley D. Belt, PBGC Executive Director, would be an ally in the creation of far-reaching actions that would shore up the pensions promised by Americas corporations.

The NRLN stands ready to work with you in this endeavor. Some of the measures we would support include:

• Tighter funding rules for companies whose pension plans are not financially secure;
• Higher premiums for companies at risk of failing to meet their pension obligations;
• Companies should never again be allowed to take pension trust “surplus” (the 125% rule) as though it belonged to the company or its shareholders;
• Recent legislative action enabling the hiking of interest rate assumptions will be damaging in the long run unless companies are restricted from skimming trust dollars for non-pension purposes;

· Section 420 and 401 (h) should be repealed or at the very least allowed to sunset on December 31, 2005. Retention of these statutes would extend a corporation’s license to continue raiding the pension trust surplus when it reaches 125%;

• At the moment, the only current pension funding information available to plan participants is found in corporate financial statements—often in footnotes. There should be a requirement that companies disclose whether the plan is fully funded on a “termination basis.” This means telling the participants whether the plan would have sufficient assets to guarantee payments of full promised benefits in the event of a corporate failure.
• Pension underfunding data currently available only to the PGBGC should be made available to the public.

Madam Secretary, the NRLN would like to promptly hear from you about what you will do to update ERISA laws in order to better secure the pensions of existing and future retirees.

Sincerely,

A. J. (Jim) Norby, President

Attachment

Copy to:

George W. Bush - President of the United States

Bradley D. Belt - Pension Benefit Guaranty Corporation

Thomas Daschle - United States Senate

Bill Frist - United States Senate

Judd Gregg - United States Senate

Tom Harkin - United States Senate

J. Dennis Hastert - United States House of Representatives

Edward Kennedy - United States Senate

John Kerry - United States Senate

Nancy Pelosi - United States House of Representatives

Ellen Schultz - The Wall Street Journal

John F. Tierney - United States House of Representatives

Mary Williams Walsh - The New York Times

The Atlanta Journal-Constitution - August 4, 2004

OUR OPINIONS: Pension needs a swift, sure rescue

So much for temporary pension fund relief. Less than four months after President Bush signed legislation that gave all industries a break on pension costs and airlines and steel extra help, there's a crisis again. That's the legacy of a pension system that needs more than short-term "fixes" that simply paper over the problem.

United Airlines, which is in bankruptcy court, has stopped making pension payments. The thinking goes that if United eventually unloads its obligations on the federal Pension Benefit Guaranty Corp., a domino effect in the airline industry could follow. In turn, the overstressed Pension Benefit Guaranty Corp., which insures private-sector pensions, might need a taxpayer bailout.

A similar warning about taxpayers getting stuck with the bill was issued leading up to passage of the Pension Funding Equity Act of 2004. For this year and next, the law allows companies that provide pensions to use a higher interest rate to calculate liabilities. That reduces the amount of cash that employers owe to their pension plans.

Also, airlines and steel companies get to make smaller payments than otherwise would be required, with some limitations.

It's no mystery why United's move to conserve cash has set off alarms about the Pension Benefit Guaranty Corp. The agency reported a deficit of $9.7 billion at the end of March. That's an improvement from six months earlier, but still leaves a big gap between the agency's assets and its liabilities at a time when employers are about $400 billion short of what they need to pay promised benefits.

The Pension Benefit Guaranty Corp. pays benefits with pension assets it takes from companies when it takes over their plans and with insurance premiums assessed against employers that still offer traditional pension plans. The problem is that fewer and fewer plans are around to pay premiums.

The last time the number of insurance-paying plans increased was in 1985. Since then, the total has shrunk from more than 112,000 to fewer than 30,000. Those pension plans cover almost 35 million people.

This year's temporary fix --- the second in two years --- was approved on the premise that emergency relief was needed and that a permanent solution would follow. The way things are going, Congress may not have much time to make good on the promise.

And the longer the delay, the worse the problem.

Emory University professor George Benston compares the pension problem with the collapse of the savings and loan industry in the 1980s. Before the roof fell in, the rules were changed that made the industry look better off financially than it was. That delayed the day of reckoning and probably meant even more savings and loans had to be closed.

Repairing the pension system will not be painless. Either retirees, corporations --- which means shareholders --- or taxpayers will have to pay.

The most painful choice for retirees would be a cut in benefits, which is set by law and is capped at $44,386.32 this year. That would reduce outlays by the Pension Benefit Guaranty Corp., but would be as politically treacherous as suggesting a cut in Social Security payments.

Raising premiums paid to the Pension Benefit Guaranty Corp. would increase the assets available to pay current and future retirees, but would be opposed by companies better off than the likes of United.

Bradley Belt, who heads the Pension Benefit Guaranty Corp., has expressed support for changing the rules so companies more at risk of failing to meet their pension promises pay higher premiums. He has also suggested tighter funding rules for companies with shaky pension plans would help.

Congress needs to get busy. There will be pain, but it ought to be spread around as equally as possible.