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Time Running Out for Pension Overhaul Bill: House, Senate Lock Horns As Midterm Politics Warm Up

Posted on: Monday, 24 April 2006, 09:00 CDT

By William Neikirk, Chicago Tribune

Apr. 24--WASHINGTON -- With pension programs across the country in deep trouble and workers fearing a collapse that could jeopardize their retirements, it was hardly a surprise that Congress would step in last year to write legislation to reassure retirees, help businesses and protect taxpayers.

But with lawmakers returning to work Monday, there are signs the legislation could be in trouble. Congress has missed two deadlines for completing the bill, and a key senator is warning that unless a deal is reached in the next few weeks it will be increasingly difficult to pass.

That means pensions could join the list of politically sensitive items that Congress is having trouble addressing--including immigration, lobbying reform and taxes--as lawmakers face the voters this November.

"The closer we get to Election Day, the harder it'll be to get a bipartisan agreement," said Sen. Charles Grassley (R-Iowa), chairman of the Senate Finance Committee.

"Congress needs to dedicate itself to sending a [pension] bill to the president before Memorial Day."

Grassley said he had hoped to pass a bill at the end of last year, but "unfortunately, political gamesmanship and special-interest lobbying have interfered with that." Then lawmakers set April 15 as the goal for reaching an agreement, but that passed with the Senate and House far apart on key issues.

Senate more worker-friendly

Both houses have passed major pension-overhaul bills, but the Senate version is significantly friendlier to workers and would impose stronger restrictions on companies, while the House version focuses on protecting businesses.

A House-Senate conference committee will again try to resolve differences in the two bills. Congressional staff members reported that progress had been made on some issues since members left for their Easter recess two weeks ago, but the outcome still is considered highly uncertain.

Sen. Mike Enzi (R-Wyo.), chairman of the conferees, said in a statement that "we are very close to an agreement on the big issues," but he added that the conferees would be "fine-tuning" most aspects of the legislation.

The Senate measure contains relief for airlines, especially Northwest Airlines, which has threatened to dump more than $3 billion in pension liabilities on the Pension Benefit Guaranty Corp., the government agency that insures private pensions.

Help for airline

Rep. John Kline (R-Minn.), one of the conferees, said he favors the airline relief because Northwest is in his district and added he hopes to overcome opposition from some conferees who don't like government bailouts of companies that have over-promised their employees.

"In the case of Northwest, this is not theoretical," he said. "They are in bankruptcy. They will dump their plan on the Pension Benefit Guaranty Corp."

The House bill, pushed through by now-Majority Leader John Boehner (R-Ohio), left out airline pension relief, which many conservatives oppose.

The legislation is being considered against a backdrop of major concern about the future of pensions and retirement income in the United States.

Companies are increasingly backing away from defined-benefit pension plans in favor of company-sponsored 401(k) plans and other defined employer contribution investment devices.

Some companies have frozen their defined-benefit pension plans in recent years. Currently about 20 million people still have a defined benefit.

There is concern among supporters that pension legislation might cause many corporations to drop pension plans to avoid the additional costs of shoring them up.

"It is a delicate line," said one congressional staff member working on the legislation. Business interests have warned that if there are too many mandates, more businesses might drop their pension plans.

This legislation might not save the pension, say experts, even though it would rewrite the law completely. It would force companies with under-funded plans to shore them up and ensure that their workers' pensions will be fully funded within three to five years, depending on the bill.

By contrast, the Bush administration's proposal would require companies to reach 100 percent funding in the first year.

"Workers and retirees deserve a good pension bill that guarantees that their pensions will be there for them when they need them," Grassley said. "We also need to ensure that we are strengthening--not weakening--existing pension protections."

Business interests have conducted a heavy lobbying campaign to soften some of the funding requirements that would be imposed on companies.

"I think the bill overreaches in the [pension] funding area," said Janice Gregory, lobbyist for the ERISA Industry Committee, which represents large employers. For example, the targets for meeting 100 percent funding should be lengthened, she said.

Key Senate provision

Perhaps the most controversial aspect of the legislation is a Senate provision that would give workers more financial protection when their pension plans are converted to cash-balance plans, under which workers receive an annual cash contribution that grows with interest.

The Senate provision would prevent "wear-away" of pension benefits of older workers when the conversion is made. In effect, the Senate proposal would require that cash-balance plans accumulate benefits to the same degree that traditional pensions do.

Cash-balance plans have been in legal limbo since one court held that they discriminate against older workers; companies have pushed for Congress to legalize them and declare that they are not discriminatory.

But both the House and Senate pointedly rejected business lobbying and declared that the legalization would apply only to new cash-balance plans, not retroactively to old ones, such as a controversial conversion plan at IBM Corp. cited in litigation.

Studies by the Government Accountability Office and others show that older workers do not fare as well under cash-balance plans during conversions.

For example, when Janice Winston of Philadelphia took early retirement from Verizon in 2002, she decided to cash out her pension and take a lump sum.

Bottom-line difference huge

Under company rules for retirees at the time, she said she had the choice between the money she had accumulated in a defined pension plan or a relatively new cash-balance plan. When she looked at the two, she immediately decided on the defined benefit balance--it was $215,000 higher.

"This is just a raid on the white-collar workers of America," said Winston, who is an activist against cash-balance plans.

But proponents of cash-balance plans say they have many advantages for workers, especially in a highly mobile society where people often hold many different jobs in their lives.

Gregory said that fewer companies would offer cash-balance plans if Congress imposed the requirements in the Senate bill.

- - -

Some key differences

The Senate and House have each passed major pension-overhaul bills. A House-Senate conference committee will try to resolve differences between them.

- Both bills would require companies to phase in full funding of their pension plans. The Senate bill would force companies with poor credit ratings to pump more into their pensions, prompting criticism from firms with poor credit ratings but well-funded pension plans.

- Both bills would legalize cash-balance plans that have been under a legal cloud, but the Senate bill would go further by providing older workers with enhanced benefits to eliminate alleged discrimination.

- The Senate bill would provide relief for troubled airlines, including Northwest Airlines and Delta Airlines, by giving them 20 years to fund their pension plans fully.

- The House bill would permit financial institutions that manage pension assets of companies to offer investment advice to investing workers as well. The Senate bill would require independent investment advice.

-- William Neikirk

wneikirk@tribune.com

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Copyright (c) 2006, Chicago Tribune

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Source: Chicago Tribune

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