(See Corrections & Amplifications item below .)

Congress is expected to shore up ailing pension plans and provide significant retirement-savings incentives in one of the first tax laws it passes in 2006.

The House and Senate this fall approved separate bills that boost contributions to the federal pension-insurance fund. Both bills also carry billions of dollars in retirement-related tax breaks to encourage 401(k) plan contributions by individuals.

The House and Senate could begin negotiations in mid-January to craft a compromise bill, Senate Finance Committee Chairman Charles Grassley (R., Iowa) said last week. Congressional aides and lobbyists say the final bill could pass Congress by April 1. The savings incentives and new 401(k) changes, if enacted, would constitute some of the most significant pension- and retirement-law changes since 2001.

The move is being driven by a looming funding crisis involving the U.S. pension insurer, the Pension Benefit Guaranty Corp., which has assumed the pension liabilities of bankrupt airlines and steel companies. Earlier this year, the PBGC assumed nearly $10 billion in pension liabilities from UAL Corp.'s United Airlines and US Airways Group Inc.'s US Airways as both restructure under bankruptcy laws.

The most far-reaching measures, which are contained in the House-approved bill, would make permanent the pension provisions of President Bush's 2001 tax bill, such as expanded contribution limits for 401(k) plans and the chance for people age 50 and older to make extra "catch-up" contributions to individual retirement accounts.

While these pension provisions enjoy bipartisan support, they also carry a large price tag: Making the 2001 pension items permanent would cost more than $20 billion over 10 years. This presents a major political obstacle, lobbyists and congressional aides say.

A number of other significant retirement-savings measures are expected to be wrapped up in a final bill. One feature of both bills would allow companies to automatically enroll workers in 401(k) plans. This could lead to a surge in the opening of new 401(k) accounts, according to projections by Congress's Joint Committee on Taxation.

Both bills also provide incentives for companies to automatically increase workers' contributions into 401(k) and retirement accounts, typically at the time of pay raises. The bill clarifies that companies wouldn't run afoul of state wage-garnishment laws by adopting such automatic-contribution increases, says James Delaplane, a pension lawyer with Davis & Harman LLP in Washington, D.C.

Another provision would help clear the way for employers to provide annuities that can provide lifetime monthly payments in exchange for a lump sum as a distribution option for 401(k) participants. The bill directs the Labor Department to issue regulations to help employers choose an annuity provider, said Elaine Dent, a vice president at the American Council of Life Insurers. "Employers are hesitant to take that on" for fear of litigation, Ms. Dent says.

The Senate pension bill contains a variety of items designed to protect workers' 401(k) plans from abuses like those suffered by Enron Corp. employees. Many workers were unable to diversify their investments in 401(k) plans outside of Enron stock, and their plan prevented them from selling Enron shares as the company's financial troubles mounted. For Enron workers and other victims of similar financial scandals, the Senate bill would let them make additional contributions to their retirement accounts for five years from when the bill is signed into law.

Both bills would provide workers with access to independent investment advice through their employer. Such advice can alert workers they aren't saving enough for retirement, and result in a doubling of their savings rates, according to Steve Patterson, chief operating officer of Schwab Retirement Plan Services, a unit of Charles Schwab & Co.

Melding the two bills won't be easy, since several controversial differences over investment advice and cash-balance pensions must be bridged, as well as a mechanism to increase PBGC funding.

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Taxpayers in areas without a state income tax should consider buying big-ticket items before year's end.

Congress failed to extend a deduction for state and local sales taxes for 2006, removing a valuable benefit for taxpayers in states with no income tax. Congressional tax writers say they plan to renew the benefit sometime next year, possibly on a retroactive basis.

Jeffrey Kelson, a partner with the accounting firm BDO Seidman LLP, urges taxpayers in sales-tax-only states who were thinking about buying a big-ticket item this week or on Jan. 2, to "think about buying it this week."

Under current law, most people who itemize deductions can deduct either state and local income taxes or state and local sales taxes.

Corrections & Amplifications:

The Internal Revenue Service intends to boost the cost of "private letter rulings," a request for the IRS to rule on a specific tax issue, to $10,000 from $7,000. This column, citing erroneous information in an IRS news release, reported private-letter rulings currently cost $7,500.