Companies that have not sufficiently paid into employees' pension funds would have to catch up within seven years under a Bush administration plan to address a multibillion-dollar...

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WASHINGTON — Companies that have not sufficiently paid into employees’ pension funds would have to catch up within seven years under a Bush administration plan to address a multibillion-dollar shortfall.

Financially strapped companies also would be prohibited from promising their employees retirement benefits they cannot afford, under the proposal announced yesterday. Companies with pension plans at a higher risk of failing would have to pay higher premiums to the government agency that insures them.

Changes in the system require congressional approval. The plan was described by Labor Secretary Elaine Chao, who also chairs the Pension Benefit Guaranty Corp. (PBGC) board.

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The board guarantees pension benefits to workers when companies fail and cannot make good on their retirement-program promises.

“I have become increasingly concerned as the number of terminated plans grows and the PBGC is forced to assume ever-larger liabilities,” Chao said in a luncheon speech at the National Press Club.

The nation’s pension plans are underfunded by an estimated $450 billion because of what she called the “perfect storm of declining equity markets … and low interest rates.”

In November, the guaranty corporation reported a record deficit of $23.3 billion for private, single-employer pension plans. Chao emphasized that the insurance program is “not in immediate danger of collapse” and has enough funds to meet the demands of beneficiaries.

“But if nothing is done, the financial integrity” of the guaranty corporation will be compromised, she said.

Single-employer, private defined-benefit pension plans cover some 20 percent of the nation’s work force and are prevalent in older industries such as automobile manufacturing and commercial airlines.

As an example, the government’s pension agency late last month moved to assume responsibility for United Airlines pilots’ pensions, acknowledging as unfortunate but inevitable the carrier’s elimination of defined-benefit plans for its employees.

The move saddled guaranty corporation with another huge financial burden, an estimated $1.4 billion of the plan’s $2.9 billion in underfunded assets, making it the third-largest claim in the history of the insurance program.

Rep. John Boehner, the Ohio Republican who chairs the House Committee on Education and the Workforce, commended the administration for yesterday’s proposal.

“I’m pleased the Bush administration recognizes the urgent need to strengthen the defined-benefit pension system and has put forth a comprehensive reform proposal,” Boehner said.