Pension reform is high on the overloaded agenda of Congressional leaders. The need is obvious and immediate: Lots of companies have defaulted on their defined-benefit pension plans, and for many others, the clock is ticking on woefully underfunded liabilities that total a staggering $450 billion. The shortfalls--and there will be lots of them--will ultimately fall to the federal Pension Benefit Guarantee Corp., which is in no position to receive them. In fact, the PBGC currently has a roughly $23 billion deficit and counting.

Resident Scholar Norman J. Ornstein

Defined-benefit pension plans may be on the way out, or at least well on the way to becoming anachronisms. Yet they will continue to reverberate in the society and economy for many decades. The systemic pressures are hitting, and hurting, many current retirees who are finding their retirement plans jolted by the collapse of their former employer, or sometimes by the company’s strategic reversion to Chapter 11 in order to adjust pension benefits downward. This may have started with the airlines, but as the case of automobile component manufacturer Delphi suggests, it is clearly not limited to them.

Pension reform has been in a House-Senate conference for a long time. I won’t go into stupefying detail on the issues that divide the two chambers, but I will highlight a couple of the sticking points.

One is the question of whether relief should be targeted to a specific industry. The Senate gives relief to the airlines (20 years worth) but the House does not, and the White House does not want it to happen.

Another issue involves how to calculate the level of underfunding by companies, and therefore the amount they have to make up in the next several years. The Senate uses firms’ credit balances and ratings to make the calculations, but the House does not.

At the same time, companies are facing sharp increases in premiums to the PBGC and reeling under a ruling made by the Financial Accounting Standards Board that requires changes in their balance sheets to reflect their liabilities--which in turn would reduce their balance sheets by a hefty sum and pare back shareholder equity in the 1,000 largest firms by about 10 percent.

No rational person could argue that pension reform can wait. The pension system is a catastrophe waiting to happen. At the same time, it is hard to argue that the fixes offered by the House and the Senate are more than Band-Aids on a flimsy system. And some argue that the proposed fixes actually make the system more precarious, not less.

I’ll leave that argument to Dallas Salisbury, the president and CEO of the Employee Benefits Research Institute, and others who are far better versed in the intricacies of the pension world. Instead, I want to focus on the bigger picture.

The pension reform effort is aimed at the defined-benefit part of the system--a dinosaur. The number of companies offering defined-benefit plans tallied more than 170,000 20 years ago. It fell to less than 47,000 by 2001 and has continued to drop considerably since.

Defined-contribution plans, such as 401(k)s and Keoghs, are the wave of the present and the future. This means a sharp reduction in certainty for future retirees: They have no idea what their assets, and hence their pension checks, will be when they retire.

The decline in defined-benefit plans goes a long way toward explaining the public hostility toward the president’s Social Security plan. For people worried about losing the cushion of a predictable private pension, the comfort of the Social Security safety net is crucial. Shredding that net was not going to be popular among people already coping with more than enough uncertainty in their lives.

The pension future for most of us and for our children will rest with 401(k)s. But we need serious and major change in that system to make it work well for most of us--and that includes those who work for a living and now have no pension plan at all, as well as those who switch jobs frequently and have to move from pension plan to pension plan, if they manage to qualify at all.

Here are a couple of suggestions from a non-expert. First, Congress should move to create a universal portable pension program. I have lived most of my career under the umbrella of TIAA-CREF, the pension giant that services most educational and nonprofit institutions. As I moved from one university to another and then to a think tank, my pension moved with me. I had the same investment choices and got statements from the same place, and my money went into the same pension account regardless of my employer. The pension benefit did change, because different employers offered different packages of varying generosity. But I never had to worry about whether I had a plan, what happened to it, or how I would merge or grapple with several plans, one for each employer. In an era when most people move from one job to another many times during their careers, this is a huge plus.

Why can’t we have the national equivalent of TIAA-CREF? It does not have to be run by the government, but it can be managed under a single umbrella, adding a real measure of continuity and some certainty for workers. It ought to be for everybody--and I do mean everybody. So let’s couple it with a refundable tax credit for the working poor, aimed at those who have no private pension plan and little likelihood of getting one.

I would like to see a credit at least equal to these workers’ share of payroll taxes that they could invest in the equivalent of a TIAA-CREF account. I would love to couple it with a generous matching provision that would encourage these low-wage earners to save something additional. How to pay for it? We could start by removing the cap on Social Security taxes and using the increment above the current $90,000. And let’s couple these ideas with implementation of KidSave, putting $1,000 into a long-term savings account for each child born in America for each of the first five years of their lives, giving everybody lifetime nest eggs.

Fortunately, we still have thoughtful and imaginative Members of Congress well situated to focus on the big picture and the future. It is time for them to do so, more aggressively than they have, and to open a major dialogue on this issue--one of the biggest for our economic and social future.

Norman J. Ornstein is a resident scholar at AEI.