Capitol Hill Democrats are trying to block a decision by the Energy Department to reimburse only defined-contribution pension and medical benefits for newly hired contract workers, but it’s unclear whether the agency’s move will have an impact on House-Senate negotiations over pension reform legislation.
Sen. Edward Kennedy, D-Massachusetts, Senate Minority Leader Harry Reid of Nevada and four other senators introduced a bill May 11 to overturn the policy. In late April, the Energy Department said it was trying to "improve the predictability of contractor benefit costs and mitigate the growth of the department’s liabilities for these costs" in a way that is "consistent with market trends."
In a letter, 10 House Democrats called on President Bush to withdraw the new rule. They also filed their own bill.
"These changes penalize responsible employers who provide their employees with guaranteed retirement benefits and real, affordable health insurance," wrote Rep. George Miller, D-California, ranking member of the House Education and the Workforce Committee. "The federal government should not be leading a race to the bottom on health and retirement benefits for workers."
The Energy Department’s policy change comes at a delicate time in House-Senate talks on a final pension bill.
House Majority Leader John Boehner, R-Ohio, hasn’t reviewed the Energy Department policy, but he says it may affect Capitol Hill negotiations. "It is going to be another issue on the table we are going to have to discuss," he says.
The department’s pension declaration stunned policy experts. "This is a shocking attack on the defined-benefit pension system by the administration," says Ethan Kra, chief actuary for retirement at Mercer Human Resource Consulting. "This came out of left field with no opportunity for comment. This was just an edict."
The decision, according to one expert, reflects a bias by President Bush against traditional benefit programs and in favor of personal accounts, such as those he has proposed for Social Security.
"The Bush administration has been quite clear and candid that they don’t care whether employers have defined-benefit plans and that in their view individual plans are better for workers," says Dallas Salisbury, president and CEO of the Employee Benefit Research Institute. "The question is, is the Defense Department next?"
Even if the agency is acting alone, it is overstepping its bounds, says an expert, who argues that contractors should be free to choose a benefits program as long as it holds down costs.
"I was stunned because it seems to me that there is no justification whatsoever for DOE to dictate to a provider what type of benefits they should be offering," says Martha Priddy Patterson, a director of Deloitte Consulting in Washington. "Where does this end? Will they not reimburse your medical plan if it covers contraceptives or cosmetic surgery?"
The decision also could have influence outside the Beltway.
"This just further underlines for the private sector, at least while this administration is in power, that they can’t expect to be criticized for getting rid of their defined-benefit plans," Salisbury says.