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Pension Reform Talks Hinge on Rules Defining ‘At-Risk’ Status

June 26, 2006
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If House and Senate negotiators can agree on the conditions that define a company as "at risk" and require higher payments into its pension plan, the rest of the complex bill may fall into place quickly.

Talks that began in early March continued to slog along at press time. Last year, the House and Senate passed different versions of pension reform that encompass complicated funding rules, provisions on 401(k) accounts and policy on investment advice. In conference, some elements of tax reform may be added.

So far, the conference has missed two self-imposed deadlines—April 7 and Memorial Day—for producing a final bill. Although the group consists of 27 members, only a handful attend most meetings.

In the meantime, many companies are in limbo as they near the start of financial planning for next year. They’re also uncertain how to advise employees on retirement decisions.

"Every day (the conference) goes on is a day that the HR director is getting beat up by the CFO, and the CFO is getting beat up by the CEO," says Martha Priddy Patterson, a director of the human capital practice at Deloitte Consulting in Washington, D.C.

The Pension Coalition, a group of nearly 200 companies, is walking a fine line between pushing for a speedy conference conclusion and slowing the process down to ensure that the policies it backs, such as including at least three years of smoothing for assets and liabilities, are included.

Haggling over the credit rating issue, however, is multidimensional. Legacy industries such as automaking and steel are wary of a provision in the Senate bill that would force companies with junk-bond status to make higher pension payments.

They favor the House language that bases higher payments on the funding status of the pension plan. For instance, General Motors has a below-investment-grade credit rating but asserts that its pension fund is in good shape.

The issue doesn’t break down along partisan or cameral lines. "There are more than two sides on the subject in the conference, and they’re struggling to reach an agreement," says Martin Reiser, manager of government policy for Xerox and spokesman for the Pension Coalition.

Pension reform has been spurred in part by a nearly $23 billion deficit at the Pension Benefit Guaranty Corp. and an aggregate $450 billion in underfunded pension liabilities, according to Bush administration estimates. The administration advocates funding rules that are more stringent than those in either the House or Senate bills.

All the plans call for companies to fund 100 percent of their pension promises, a goal that is reached in incremental steps beginning in 2007. But the conference committee has taken so long that the coalition is asking for a delay in implementation until 2008.

"We’re getting pretty good feedback on that," Reiser says.

The coalition has conducted 75 meetings with congressional members and staff since early March.

"The business community has remained cohesive," says Maria Ghazal, director of public policy for the health and retirement task force at the Business Roundtable. "It’s been fairly aggressive. It’s definitely a dynamic coalition."

Mark Schoeff Jr.

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