Senators Wrap Up Pension Overhaul Legislation on Their Way to the Exits

By Michael R. Crittenden, CQ Staff

The Senate easily cleared wide-ranging pension overhaul legislation late Thursday, marking a sudden end to a tortuous process that involved skirmishes involving labor and business groups, troubled airlines and House and Senate negotiators. “It’s a package that will significantly strengthen pension funding rules, help curb record pension failures and better protect the retirement dreams of 45 million Americans,” said Sen. Michael B. Enzi, R-Wyo.

The chamber voted, 93-5, to clear legislation (HR 4) for President Bush’s signature that would require companies to better fund their pension plans and expand access to a variety of retirement plan options. “This bill says to millions of Americans . . . that help is on the way,” said Sen. Edward M. Kennedy, D-Mass. The Senate did not amend the measure, which was introduced July 28 and passed the House, 279-131, that day, before the chamber adjourned for its August recess.

The vote gave little indication of the tempest that embroiled the legislation since last week, when GOP leaders hatched a plan to join two election-year priorities — a permanent reduction to the estate tax and extensions of expiring tax breaks — in a single measure (HR 5970).

That required separating the popular tax extensions from a long-debated conference report on pension legislation (HR 2830). House GOP and Senate negotiators had reached a stalemate over whether to include the business tax break extensions in the report. Senate Finance Chairman Charles E. Grassley, R-Iowa, had expected to keep them there, arguing that was the plan he agreed to with Ways and Means Chairman Bill Thomas, R-Calif., after they were left out of a tax cut reconciliation package (PL 109-222) enacted in May.

Tensions reached their peak on July 27, when House GOP conferees did not show up at a conference meeting attended by Senate negotiators and their House Democratic peers to take up a final conference report — including the tax break extensions. Thomas, House Majority Leader John A. Boehner, R-Ohio, and Sen. Majority Leader Bill Frist, R-Tenn., had decided to restructure the bills — adding the tax break extensions to an estate tax reduction proposal, along with an increase in the minimum wage, and moving the pension bill separately. That effort failed Thursday, leaving senators able to agree only on the pension legislation before their recess.

Record Deficits

Since early 2005, lawmakers had worked on legislation that would strengthen the private pension system to make sure companies met promises to retirees and to shore up the finances of the federal agency that insures private pensions, the Pension Benefit Guaranty Corporation (PBGC). The PBGC has reported record deficits in recent years following a series of bankruptcies in the airline, steel and auto parts industries. Lawmakers strove to balance the need to have companies quickly make up for shortfalls in their defined-benefit pension plans with concern that language that was too restrictive could lead companies to foist their plans on the PBGC.

The measure that cleared Thursday largely mirrors the agreement that had been before the conference committee. It would require companies to fund 100 percent of their pension liabilities — up from the 90 percent under current law. Most would have seven years to make up for shortfalls. Companies also would have to adjust the way they evaluate plan liabilities, revising current measures to better reflect when promised benefits would have to be paid.

Taking aim at companies that have chronically underfunded their plans, the bill would prevent companies with plans that are less than 80 percent funded from promising additional benefits unless they could immediately pay for them. The measure also clarified the legality of what are known as hybrid, or cash balance, plans. One business lobbyist characterized the package as a “mixed bag.” Another suggested there would be little revelry in the business community because of stricter funding rules. “It’s a bitter pill to swallow, frankly, but one we have to,” he said. Also included is specific relief for financially struggling airlines. The airlines had been a main lobbying force behind the package. Under the bill, airlines would have extra time to make up for pension underfunding, depending on the status of their plans.

In the days leading up to the vote, senators from states where American and Continental airlines have major hubs balked at language that they say would put those carriers at a competitive disadvantage to Delta and Northwest, but they did not block the measure Thursday.

Delta and Northwest — which have frozen their pensions, meaning no new employees are allowed to enroll and benefits have stopped accruing — would get 17 years to reach full funding. Other airlines — which have not frozen their plans — would get 10 years to meet their obligations.

The bill also includes provisions aimed at boosting retirement savings and options for investors. Employers would automatically enroll workers in a 401(k) and would be able to arrange for investment advice from plan advisers. They also would have to offer employees a range of investment options and could not require investments in company stock.

Also included are provisions dealing with the treatment of charities and charitable contributions. Grassley had long pushed to crack down on abuses by charities and private foundations, but faced opposition from conservatives allied with church groups that objected to the changes. The legislation strikes a middle ground, tightening requirements on donor-advised funds and supporting organizations and increasing the excise taxes applicable to certain charitable activities. At the same time, it includes tax incentives aimed at charitable giving, such as tax-free distributions from IRAs for charitable purposes.