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Giving defined-benefit pensions will be less burdensome for firms after Congress approves pension reform legislation next year. The move will likely slow the decline in defined-benefit pension plans by removing some of the uncertainty associated with employers’ costs.
A number of improvements are on tap, including a set benchmark for employers’ contributions to the plans that is more closely aligned with firms’ future obligations. Plan sponsors can also be more flexible on making extra pay-ins in good years without losing good tax treatment.
Bush and Kerry both support the pending pension plan changes.

Employee stock ownership plans will flourish more widely as more business owners nearing retirement note the tax benefits. Owners who sell 30% or more of a firm to ESOPs pay no capital gains tax. Tax gains are also behind moves by firms to integrate ESOPs and 401(k)s. Companies can get a tax deduction on stock dividends if ESOP members reinvest the dividends and put the new shares into their 401(k) accounts.

Travel
A move to reduce flight delays comes at a cost for airlines. The Federal Aviation Admin.’s recent decision to limit flights at Chicago’s O’Hare International Airport will crimp United and American. Low-fare carriers may be hurt even more. Their arrivals are being capped at eight each per day, which will limit their expansion efforts at O’Hare and eventually at other airports as similar curbs take effect there. Airports serving Atlanta and Dallas-Fort Worth may see flights cut, too.

Air travelers will also be hit. Although trimming air traffic is aimed at keeping flights on schedule, it will also mean less service, more-crowded flights, and possibly steeper fares if demand increases.
Odds are that limits, billed as temporary, will last for years.

Energy
With high fuel prices here to stay, conserving energy is key to saving money for firms. Historically, they have been wary of making heavy investments in energy conservation. Prices often fell as fast as they rose. But the energy outlook is much different now.
Demand for energy will continue to outstrip supplies this year and next, and there’s very little new production capacity being added. Moreover, terrorism risks exacerbate the problem, keeping oil prices up.
The U.S. IS making strides in efficiency, but more can be done. Using existing know-how alone can yield a 20% gain in energy efficiency.

Efficiency investments can pay off more quickly now because oil and other energy costs are so high.
For example, Hyde Tools of Southbridge, Mass., changed to sodium-vapor and metal-halide lights. The installation paid for itself in one year. And Centerplex, an office complex in Seattle, needed only 18 months to recoup its expenses on new lighting, thermostats, and window glazing.
An energy audit by Uncle Sam could prove useful. The Energy Dept.’s Industrial Assessment Centers will analyze offices, warehouses, and factories, recommending ways to increase energy efficiency. The audits are free for firms with energy bills over $100,000 and under $2 million a year. For more information about the audit program, go to www.oit.doe.gov/iac.

High oil prices will slow economic growth in many regions, particularly in Asia, where dependence on imported oil is very high. The same goes for Europe, though countries there are shielded somewhat by the strength of the euro and the British pound against the dollar. Since oil is sold in dollars, it is slightly less expensive there.
An oil-fueled global slump as in the early 1980s isn’t likely. Back then, crude oil prices rose in response to Iran’s Islamic revolution far more steeply and faster than the recent run-up. In 2004 dollars, oil reached $80 a barrel in early 1980, up from only $35 in spring 1979.
We see worldwide GDP up 3.3% next year after about 4% this year.

Iraq’s oil output will remain at risk, despite the peace accord in Najaf between Grand Ayatollah Sistani and radical Shiite cleric Sadr.
The largely Shiite south of Iraq is the weak link for Iraqi oil. If Sadr fails to disband his forces as pledged, he’ll still be a threat to southern oil fields and pipelines too large and dispersed to defend. The 1.9 million barrels pumped there daily was halved by recent attacks.
Kurdish security forces provide sound protection in the north, guarding pipelines and fields, warding off attacks by insurgents there.
One bright spot: Strong defenses at key Iraqi oil terminals ... in Basra and Khor al-Amaya. The no-go zone around Basra is miles wide. Any suspicious entry into that area will be quickly challenged.

© 2004 The Kiplinger Washington Editors, Inc.