What the Republican-controlled federal government couldn’t do with Social Security may have been achieved with pensions, as Congress this month passed the biggest pension law changes in 30 years. The full impact is unclear, but certainly there will be fewer traditional pension plans, more 401(k)-type retirement accounts and a lot of betrayed workers, but companies happy to be able to more easily freeze or terminate pensions.

“I believe we will witness an unprecedented number of companies closing their well-funded defined-benefit pension plans to new employees,” said James Klein, president of the American Benefits Council, which represents employers.

Employers have been shifting their promises from traditional “defined-benefit” pensions to investment-oriented “defined-contribution” plans for 25 years. A defined-benefit plan is part of a compensation package, with employers shouldering the risk for promised retirement pay based on years of service, pay at retirement and other factors. A defined-contribution plan has workers taking the risk and little guarantee that hoped-for retirement income will be there. Changing from a traditional pension to a 401(k) is like changing a worker’s paid vacation benefit to a payroll-savings plan, forcing the worker to put money aside for time off.

The shift wasn’t very noticeable in the 1990s, when technology sparked a stock-market boom, but since the current recession started around 2000, the contrast was huge. From January through April of this year, 113 U.S. companies froze or terminated their defined-benefit plan or announced that they would do so, according to an analysis by management consulting firm Watson Wyatt Worldwide. Only 71 companies did so in 2004.

“The bill takes the unprecedented step of allowing certain underfunded multi-employer plans to cut already-earned ‘early-out’ retirement benefits of hundreds of thousands of truck drivers, construction workers and other rank-and-file workers,” said Pension Rights Center Director Karen Ferguson, who criticized aspects of the bill that will hurt consumers and older and long-tenured workers.

Indeed, the Teamsters are protesting, saying that cutting promised benefits is unprecedented, and UPS and some construction trade unions argue that they need more flexibility to restore health to these joint employer-union plans. “The bill unnecessarily increases the deficit by giving costly tax breaks to higher-paid employees to encourage them to save,” Ferguson said, “when they would be doing so without additional tax incentives.”

“The bill misses two of the biggest issues of the day by doing nothing to stop pension freezes or prevent companies such as United Airlines from using bankruptcy courts to renege on promises to workers,” continued Ferguson, who also expressed her disappointment with the lack of debate. “Work on this bill began almost two years ago, yet only a select few of the conferees controlled its final form and pushed it through both the House and the Senate within days,” she added.

Pensions were supposed to be permanent, and government historically encouraged retirement security, but as business began to see that pensions aren’t predictable, saw financial holdings as a source of capital, and gained political influence, pensions were targeted. Already, some 30,000 defined-benefit plans run by employers are underfunded by $450 billion — a mark of mismanagement, certainly — and the bill requires plans to reach 100 percent funding levels in seven years. Seriously underfunded “at-risk” companies must contribute at an accelerated rate.

About 40 percent of U.S. common stock is owned by pension and retirement funds, more than $80 billion, according to Randy Barber of the Center for Economic Organizing, who called pensions “a major source of new capital in the economy.” The bill, said the AARP’s David Sloane, “may lead to discriminatory plan designs that stop or reduce benefits for older workers.”

For younger workers, the legislation makes it easier for employers to automatically enroll workers in 401(k) savings programs. For any worker, the bill makes it easier to freeze or terminate plans, where employers stop adding years of service or pay increases to the formula, or substitute an annuity or lump-sum payment for a pension.

“The so-called Pension Protection Act of 2006 represents a huge missed opportunity for Congress to protect the retirement income security of millions of Americans,” said Ferguson. “While the bill contains a handful of positive provisions that help some workers, it also contains harmful provisions that allow plans to break pension promises, and, rather than strengthen the private pension system, are likely to weaken it.”

Bill Knight writes for The Labor Paper, published by the West Central Illinois Building and Construction Trades Council in Peoria, Ill. This article is reprinted with permission.