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Pension Bill Nears Congressional Approval
Associated Press
July 20, 2006
A Senate leader on the issue said Wednesday that negotiators had reached verbal agreement on the massive bill, which also takes up tax legislation, relief for financially suffering airlines and rules for offering investment advice as well as seeking to revitalize defined-benefit plans.
''I think everything's resolved, pending getting the exact wording,'' Sen. Michael Enzi, R-Wyo., chairman of the Health, Education, Labor and Pensions Committee, said Wednesday.
Aides familiar with the negotiations, which have dragged on for four months, were more cautious, stressing that there were still loose ends, including how to treat the pension plans of airlines. They said a final deal could be reached this week.
That would allow the House and Senate to vote on the compromise before Congress leaves for an August recess.
''It's not 100 percent rock-solid done,'' said Lynn Dudley, vice president of the American Benefits Council, which represents companies with pension plans.
Dudley said she still hoped changes would be made in one of the central facets of the legislation, determining the formula for what plans are ''at risk'' and must increase contributions until they are fully funded.
The concern, she said, is that the proposed formula might capture some plans that are essentially healthy, forcing them to freeze benefits or opt out of their defined-benefit plans. ''You don't want to push companies out, particularly companies with a lot of employees close to retirement,'' she said.
Congress has been trying for several years to bring more discipline into a single-employer pension system that is underfunded by an estimated $450 billion. The biggest question has been how to compel delinquent companies to meet their financial obligations without causing them to abandon their plans and shift the burden to the Pension Benefit Guaranty Corp., the federal agency that insures defined benefit plans.
The PBGC, financed by premiums, is running a $22.8 billion deficit, which could grow considerably if major industries, in particular airline companies, declare bankruptcy and stop paying pension benefits.
Lawmakers negotiating the bill released few details. They said they planned to meet again Thursday to ensure there were no discrepancies in the verbal agreement
The deal was expected to give specific relief to airline companies that are on the verge of defaulting and unloading their plans on the PBGC. These airlines would get more time to put their pension plans on a sound footing.
The chief executives of Northwest Airlines Corp. and Delta Air Lines Inc. urged Congress on Wednesday to pass the legislation, warning that they could be forced to terminate their pension plans without action on Capitol Hill.
''A further delay is a functional equivalent of no,'' said Douglas Steenland, president and chief executive of Northwest.
Other topics included how to give legal status to cash balance plans, which are hybrids of defined-benefit and 401(K)-type plans that have been challenged in court over age-discrimination issues; and how to strengthen multi-employer plans sponsored by companies and labor unions.
The bill also would establish a permanent interest rate that would more accurately determine a company's liabilities to its pension fund.
It would restrict the practices of companies giving deferred-compensation payouts to executives of financially troubled companies with at-risk pension plans.
The agreement was expected to reinstate temporarily some popular tax breaks, including a corporate research and development credit and a deduction for state and local sales taxes. Lawmakers also planned to use the bill to keep some of the president's temporary tax incentives for retirement savings, first passed in 2001.
The chairman of the Senate Finance Committee, Sen. Charles Grassley, R-Iowa, said negotiators were under pressure from GOP leaders to fold in a cut in estate taxes.
''I think it's a gamble to put it in,'' Grassley said.
A senior GOP leadership aide, speaking on condition of anonymity while negotiations continued, said Senate Majority Leader Bill Frist, R-Tenn., wants an estate tax reduction exempting the first $5 million of an individual's estate and $10 million of a couple's.
Under his plan, estates greater than $25 million would start to lose the exemption, and it would disappear for estates greater than $40 million. Estates would be taxed at graduated rates, starting at capital gains tax rates and increasing to 35 percent.
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