April 30,2008

Baucus Statement on the FAA Pension Provision

Washington, DC – Senate Finance Committee Chairman Max Baucus (D-Mont.) issued the
following statement today regarding a pending amendment to strike an airline pension
provision from the FAA reauthorization bill currently before the Senate. The Senate Finance
Committee has included the pension provision in the tax title (Section 808) of the bill to
protect airline workers’ pensions and taxpayers alike.

“I oppose the Durbin amendment to strike the airline pension provision from the
underlying substitute amendment. And let me tell you why.

“I oppose the amendment because it would undermine the pension plans for the
affected workers. I oppose the amendment because it would expose taxpayers to the
prospect of a bigger government bailout of failed airline pension plans in the future. I
oppose the amendment because it would treat some airlines unfairly when compared to
others. And I oppose the amendment because it would circumvent the committee
process.

“Let me explain the Finance Committee provision in the underlying substitute
amendment. Let me explain its history and its purpose. This is the provision that the
pending amendment seeks to strike.

“Most commercial airlines in America have defined-benefit pension plans. Over the
past few years, in connection with bankruptcy reorganizations, some of these airlines
have frozen their plans.

“When an employer freezes its defined-benefit pension plan, the affected employees
cannot earn more toward their retirement benefits. The amount that employees were
entitled to at the time the plan was frozen is the maximum amount that the employees
can receive at retirement.

“In 2006, we passed a major reform of the pension law, the Pension Protection Act of
2006. In that law, Congress gave pension relief to all the commercial airlines. The law
permits those airlines choosing not to freeze their defined benefit plans to pay off their
pension liabilities over 10 years. And the law permits those airlines to use an interest
rate of six percent to calculate how much the assets in their pension plans are expected
to earn in the future.

“It’s tricky, but here’s how that interest rate works: The higher the assumed interest
rate, the less that a company has to contribute. That’s because a higher earnings rate
will generate more earnings on the assets over the years. The more that the assets in a
plan earn, the less that the employer has to contribute to deliver the promised benefits.

“Then the 2007 supplemental appropriations bill changed the rules in the middle of the
game. The 2007 ‘supp’ changed that percentage for employers that did not freeze their
plans from six percent to 8.25 percent. The supplemental did that without any
consideration by either the Finance Committee or the HELP Committee, the two
committees with jurisdiction over pensions.

“As a result, the affected airlines are now permitted to reduce their contribution to
their employees’ pension plans. Some don’t have to make any contributions at all for
several years. That means that these pension plans will be less well-funded than they
would have been before the law was changed.

“The less that a pension plan is funded, the greater is the risk that the employees will
not get everything that was promised to them. And the less that a pension plan is
funded, the greater is the risk that the Pension Benefit Guaranty Corporation will have
to pick up the tab. PBGC is the federal insurer of pension plans. And in the end, we all
know that it’s the taxpayer who could be left holding the bag.

“Section 808 of the Finance Committee provisions in the underlying substitute
amendment would fix this. It does so in something of a compromise.

“The Finance Committee provisions would preserve the 8.25 percent interest rate that
the 2007 supplemental appropriations bill enacted. The only change that the Finance
Committee provisions would make would be to provide a condition for using the 8.25
percent interest rate. In order to use that more-lenient interest rate, the company
would have to make contributions to cover pension benefits that accrue during the
current year.

“That simple condition would help to level the playing field. It would put the affected
airlines in the same situation as other airlines that froze their pension plans. The
airlines that froze their defined benefit pension plans now support 401(k)
arrangements. And those 401(k) plans require contributions from the airline each year.

“That condition would increase the chances that the pension plans involved could
actually pay the benefits that they promise.

“The Finance Committee provision does not prohibit the commercial airlines from
using the more favorable 8.25 percent interest rate. It merely requires the airlines to
keep up with the additional liabilities that they incur when their employees earn more
pension benefits. That’s what the Durbin amendment would strike.

“I urge my Colleagues to join me in opposing the Durbin amendment. Vote against it to
protect the pension plans for the affected workers. Vote against it to preserve a level
playing field among the airlines. And vote against it to protect taxpayers from a bigger
bailout of failed airline pension plans.”

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