Senate, House Poised to Confer on Differing Pension Measures
White House threatens veto if final reform legislation isn't tough enough.
December negotiations over pension reform legislation may determine whether the Bush administration gets the new funding rules it is seeking. But if no bill passes, pensions will still be more costly for employers in 2006.
In mid-November, the Senate passed, by a 97-2 vote, a measure that would force companies to fully fund their pension promises by 2010, limit so-called smoothing of assets and liabilities to one year and require extra "at risk" pension payments by companies with junk-bond status whose plans are less than 93 percent funded. It also would allow airlines 20 years to reach full funding.
Earlier in the month, the House Ways and Means Committee approved its version of reform: a bill that would allow three years of smoothing, would define a company as "at risk" if its pension plan is less than 60 percent funded and would enforce full funding beginning in 2012. It has no airline provision. The full House is expected to vote on the bill during the week of December 5.
If no bill is approved by January 1, pension costs will increase as companies begin determining liabilities with the 30-year Treasury bond rate instead of the higher temporary corporate bond rate.
Both the House and Senate bills would raise premiums companies pay to the Pension Benefit Guaranty Corp. from $19 to $30 per participant. In a November report, the PBGC said that it had a deficit of $22.8 billion, down from $23.3 billion in fiscal year 2004.
Business lobbyists responded quickly, asserting that the figure showed the agency's situation is not as dire as the administration claims.
But the PBGC also says that unspecified events occurring after September 30, the end of the fiscal year, would have raised its deficit to $25.7 billion. PBGC found that total underfunding for pension plans was $450 billion.
As House and Senate members meet to reconcile the pension bills, the White House is threatening to veto the final measure if it is not tough enough.
The Senate voted on pension reform only after Sens. Mike DeWine, R-Ohio, and Barbara Mikulski, D-Maryland, released their hold on the bill. Senate leaders promised that the two holdouts' concerns about smoothing and credit ratings could be raised in the conference with the House.
"We think we got people's attention," DeWine said in an interview after the Senate vote. "We think we've got a good shot at this at conference, but there's no guarantee."
DeWine, who will be a conferee along with Mikulski, said that auto manufacturers and unions in his state have been "very vocal" about pension reform.
Under the Senate bill, a company like General Motors would have to make higher pension payments because it has junk-bond status--even though it says that its pension fund is healthy.
Business lobbyists argue that the Senate approach will make ailing firms sicker, increase funding volatility by limiting smoothing and ultimately force defined-benefit plans to shut down.
"For some companies, these changes are going to be dramatic," says Kent Mason, a partner at Washington law firm Davis & Harman.