Pension Reform Timetable Falters
A House-Senate conference committee on the legislation got under way March 8 after a delay as Senate Democrats and Republicans fought over appointments to the panel. Sen. Mike Enzi, R-Wyoming, chairman of the Senate Health, Education, Pensions and Labor Committee and conference leader, set an April 7 deadline to produce a final bill. Now that schedule has faltered.
Last week, House Majority Leader John Boehner, R-Ohio, indicated that it might take until May to work out a deal on the legislation. Congress is scheduled for a two-week recess beginning April 7. The complex reforms--and volatile politics surrounding them--make the negotiation timeline unpredictable. The final bill must be passed by the House and Senate.
Businesses must make their first pension payments of the year on April 15, but experts say that they can still use the corporate bond rate set in 2004 for their 2006 payments. They don't need to switch to the 30-year Treasury bond rate until April 15, 2007. The mid-April payment deadline was one of the factors adding urgency to the conference because the pension reform measure would introduce a different bond rate for calculating payments. Companies would have to pay more into their pension plans under the Treasury rate, which is now in effect.
Even though the conference is proceeding more slowly than many had hoped, there is optimism that a deal can be reached. "Everybody wants to fix this thing. I think they’ll work it out," says Ron Gebhardtsbauer, senior pension fellow at the American Academy of Actuaries.
Plenty of controversial issues could blow the 27-member conference off schedule, including provisions to give airlines more time to shore up their pensions, ensure the legality of cash-balance plans and reform multiemployer plans.
The Senate bill allows airlines 20 years to fully fund their pensions, while the House bill contains no airline language. All other companies have seven years to reach 100 percent funding. Neither bill makes cash-balance plans retroactively legal, leaving them vulnerable to lawsuits.
The White House, worried about the $23 billion deficit at the Pension Benefit Guaranty Corp. and $450 billion in underfunded pension liabilities, has threatened to veto any bill it deems too weak.
Other volatile areas include rules governing the smoothing of interest rates, credit balances and the use of credit ratings to determine whether a company must make higher payments into its pension plan.
The makeup of the conference will affect its decisions. Sen. Tom Harkin, D-Iowa, has voiced misgivings about cash-balance conversions. Sens. Mike DeWine, R-Ohio, and Barbara Mikulski, D-Maryland, have fought the credit rating proposal, arguing that it clobbers faltering companies in cyclical industries like auto manufacturing.
DeWine and Mikulski blocked the Senate bill until they were assured their concerns would be addressed in conference. Boehner, former chairman of the House Education and the Workforce Committee and now House majority leader, reassured skeptical Democratic supporters that their lingering objections would be assuaged during House-Senate negotiations.
The stage is set for "both an unusual amount of cooperation and an unusual amount of conflict," says Kyle Brown, retirement counsel at Watson Wyatt. "This might be the hottest a pure pension bill has ever been."
The Pension Coalition, comprising about 200 companies and trade associations, has been making dozens of visits to Capitol Hill, sponsoring advertising and mobilizing employees for grass-roots support.
"Congress needs to get it right," says Martin Reiser, manager of government policy for Xerox Corp. and coalition spokesman. "At the end of the day, it’s more important that we resolve the issues correctly than (adhere to) any particular timeframe."