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House approves pension overhaul bill

Posted on: Saturday, 29 July 2006, 00:13 CDT

By Susan Cornwell and Donna Smith

WASHINGTON (Reuters) - The House of Representatives approved a bill on Friday to overhaul the creaking private pension system and prevent more spectacular airline pension defaults, and sent the measure to the Senate for possible action next week.

Republican leaders want to finish the pension overhaul that has been months in the making, while pushing through a contentious estate tax cut ahead of November congressional elections in a bid to blunt Democratic electoral gains.

To do so, they peeled $35 billion in popular tax breaks off the pension bill and combined them with a permanent rollback in estate taxes that was to be voted on in the House early Saturday. The estate tax bill also includes an increase in the minimum wage.

The leaders' plan was for the House to pass both bills before an August recess, and for the Senate to take them up next week. But it was unclear whether the strategy would work in the Senate, where the estate tax has repeatedly been rejected.

Senators who have spent months drafting the pension bill, and did not want the popular tax breaks taken out, were angry -- and worried that the tax breaks might now be voted down in their chamber along with the estate tax.

"This plan throws months of work in the trash," Montana Democrat Sen. Max Baucus said.

However, Senate Republican leadership aides suggested the pension bill may not be brought up in that chamber next week if the estate tax package did not pass first. "We'll be talking to the members about that," one aide said.

Wyoming Republican Mike Enzi, chairman of the pension negotiating group, and other Senate negotiators were asking House negotiators to sign a deal putting popular tax breaks back in the pension bill. These include deductions for tuition costs and tax credits for companies' research and development.

The 900-page pension bill, which the House passed 279-131, aims to close loopholes that led to underfunding of traditional employer-sponsored pensions that cover 44 million Americans. This system is underfunded by some $450 billion.

The measure also seeks to prevent a taxpayer bailout of the federal agency insuring pensions, which has absorbed multibillion-dollar defaults from plans in the airline and steel industries.

Most companies would have seven years to make up funding gaps in their pension plans. But airlines that have frozen their pension plans would be allowed 17 years to fund them. This was targeted at bankrupt Delta Air Lines Inc. and Northwest Airlines Corp.. They had threatened to default on their pensions if they got no help, as United Airlines, a unit of UAL Corp and U.S. Airways Group Inc. have done.

Other airlines would get just 10 years to stretch out payments, a provision aimed at American Airlines, a unit of AMR Corp., and Continental Airlines Inc. But the disparity between the airlines led to charges of favoritism.

During debate, Rep. Sam Johnson, a Texas Republican, said Northwest and Delta were getting relief "for having run their pension plans into the ground," while American and Continental were being "punished" for managing their pension plans better.

The bill also gives large defense contractors a three-year delay before the stricter funding rules kick in for them.

The bill makes it easier for mutual fund companies to advise workers on investments for 401(k) retirement savings plans and tax-deferred Individual Retirement Accounts. It also encourages automatic enrollment in 401(k)s.

It gives legal status going forward to cash balance plans, a hybrid kind of pension which gained notoriety in 2003 when a federal court said IBM's plan was age discriminatory. There is a provision making it easier for hedge funds to handle pension money without being subject to legal safeguards.

Source: REUTERS

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