It’s hard to assess whether the Richter scale registered higher in Washington or New York after the financial earthquake on Monday, September 29.

The House of Representatives’ narrow 228-205 rejection of a rescue package for the financial markets sent the Dow Jones industrial average down 777 points. The tremors in Washington were even stronger.

Enough House Democrats and Republicans in competitive re-election bids rejected their party’s leadership—and for Republicans it also meant dissing the White House—to deliver a potential body blow to the economy. The kind of bipartisan cooperation surrounding the bailout measure rarely fails.

Proponents said the grave problems facing financial institutions would impact Americans’ daily lives. Americans would no longer be able to get auto, car or business loans, for instance. Their retirement savings would be at risk.

That argument didn’t work. What members of Congress—especially those in vulnerable seats—heard from constituents was anger. It was the raw, amorphous frustration that often lights up the phones in Capitol Hill offices.

The primary focus of Main Street’s ire was wealthy Wall Street CEOs who richly benefit even when their firms crash. Americans struggling through the sluggish economy just don’t accept that outcome. 

“People have an image that this money is going to support executives on Wall Street, and what we’re really trying to do is to fix a systemic problem in our economy,” said White House spokesman Tony Fratto in a September 29 briefing.

Initially, Fratto’s boss didn’t even want to put executive compensation into the bailout package. The first proposal from the administration was three pages.

Congress quickly rejected the idea of authorizing with no strings attached up to $700 billion in tax dollars for the purchase of bad mortgage-based assets. After more than a week of negotiations, the bipartisan legislation grew to 110 pages.

It now includes congressional and judicial oversight, relief for homeowners and assurances that the government would be able to profit from the sale of assets that regained their value.

One of the most politically persuasive additions to the measure was limits on executive compensation for firms participating in the bailout.

“The party is over,” House Speaker Nancy Pelosi, D-California, said at a September 28 Capitol Hill press conference. “The era of golden parachutes for highflying Wall Street operators is over.”

Congressional leaders vow that they will try again to pass a rescue package. Rest assured that it will contain executive pay restrictions.

The business community is wary. They argue that boards of directors should make the decision on remuneration based on industry factors and market signals. They say that pay parameters would add a regulatory burden and make U.S. companies less attractive for the best global executives.

If that talent is so valuable, then Wall Street needs to do a better job of demonstrating how it helps Main Street. It has to link high 401(k) returns to brilliant decisions made by leaders of financial companies.

Once again, this is a situation where the cloistered corporate mentality has to loosen up—communicate with everyday Americans about why the CEO is so important.

If companies don’t make this case, then the executive pay reform in the bailout bill is just the beginning. Next year, expect Congress to take another bite out of exorbitant corporate paychecks.

Something rare happened this week in Washington. AARP, the mammoth retiree organization, struck out on an issue it had been advocating for years.

The Mighty Casey of special interest groups whiffed in its effort to force companies to provide the same level of benefits for retirees regardless of their age. 

On Monday, March 24, the Supreme Court declined to hear a case that centered on whether the Equal Employment Opportunity Commission can allow companies to offer less medical coverage to retirees who qualify for Medicare than they do to retirees  younger than 65.

The EEOC wrote the rule in 2003 in response to a 2000 decision by the 3rd Circuit Court of Appeals in Philadelphia stating companies that coordinate retiree coverage with Medicare violate federal age discrimination laws.

AARP filed suit against the EEOC rule. That led to several years of litigation. During that time, the Supreme Court ruled on a separate case dealing with the authority of agencies to interpret statutes.

In June, the court effectively reversed itself and upheld the EEOC rule. Now the Supreme Court has stiff-armed AARP’s appeal, ending the legal process.

Business groups hailed the Supreme Court’s lack of action. “Retirees and employer benefit plan sponsors can breathe a little easier,” said James Klein, president of the American Benefits Council, in a statement.

The court found persuasive the argument that businesses and the EEOC make in favor of wrapping retiree benefits around Medicare: Employers might reduce or abandon health care coverage for all retirees if they can’t offer less coverage to their post-65 population and depend on Medicare to make up the difference.

AARP called that approach a double standard.

“By allowing employers to reduce or even eliminate health benefits for retirees when they reach age 65, this rule essentially shifts the costs of all retiree health care onto the backs of older retirees,” said David Certner, AARP legislative policy director.

Don’t look for Congress to jump in and try to clarify the legislative intent of age discrimination legislation to prohibit companies from using a Medicare carve-out.

Although Democratic majorities on Capitol Hill have been eager to push back against court rulings (e.g., a bill to overturn the Supreme Court decision in the Lilly Ledbetter age discrimination case), their ardor is likely to be diminished this time because unions joined business advocates in siding with the EEOC.

Although they opposed AARP in this battle, unions and business have joined AARP in a strange-bedfellow alliance called Divided We Fail, a national advocacy campaign designed to force congressional—and presidential—candidates to deal with health care and entitlement issues.

AARP acknowledges the legal setback it suffered in the Supreme Court this week. But it remains hopeful about setting the election agenda.

The EEOC rule “is an unfortunate byproduct of the bigger problem, which is skyrocketing health care costs,” said Jim Dau, an AARP spokesman. “We’re keeping our eyes on the big picture. Affordable health care and financial security are closely linked.”

When President Bush soon signs economic stimulus legislation totaling about $160 billion, he wants to be done with it.

It contains the elements that were Bush’s priority—tax rebates for individuals and tax incentives for business investment. He was able to get Democratic majorities in the House and Senate to limit additions.

They settled on inserting higher Social Security payments. In response to opposition by the White House and many Senate Republicans, they left out an extension of unemployment benefits.

That represented a victory for AARP and a loss for organized labor. But labor will try to stage a comeback in the sequel to the stimulus bill, which many Democrats insist should include a boost in unemployment payments.

It looks as if they will continue to face resistance from the White House. Edward Lazear, chairman of the Council of Economic Advisers, maintains that unemployment hasn’t reached a level that requires action.

“Extension of unemployment benefits has never occurred when the unemployment rate was below 5.7 percent,” he said at a briefing for White House reporters on Monday, February 11. “And usually, if you look at the historical record, it’s somewhat closer to 7 percent. So it would be unprecedented to extend unemployment benefits at a time when the unemployment rate is 4.9 percent.”

If Senate Republicans were brave enough on the first pass-through to oppose changing unemployment policy during an election year with a potential recession looming, it’s a good bet that they’ll keep hanging together.

But Democratic leaders like Sen. Edward Kennedy, D-Massachusetts and chairman of the Senate Health, Education, Labor and Pensions Committee, intend to put up a fight. He called the stimulus bill a down payment, not the final check, when it comes to government efforts to juice the economy.

“It’s clear the White House doesn’t begin to understand the anxiety that tens of millions of American families are suffering, and the stimulus bill … leaves too many of them out,” he said in a statement this week. “The best response by Congress … is to pass immediate additional targeted relief to those in need, with specific help for the unemployed and for families who can’t afford to heat their homes.”

Given the Democratic majorities’ strong inclination to advance employment legislation that expands worker rights and to promote bills that bolster the labor movement, it’s been fascinating to see them get stymied time and again.

We’ll have to see during the remaining months of the 110th Congress whether the trend continues. In the meantime, Democrats are hoping they can increase their numbers in the Senate and put a colleague in the White House. That is probably the surest way to achieve the outcome they seek on employment law.

Meanwhile, Bush and the Senate Republicans continue to be extraordinarily effective in winning the daily policy grind in the capital. Will they now be able to come up with an election narrative about workforce issues that voters embrace?

When I was hired as the first Washington correspondent for Workforce Management in 2005, I had an idea that we lived in a litigious society. Now that I’ve worked a beat for two-and-a-half years that focuses largely on employment law, I’m absolutely certain.

From the Supreme Court down to trial proceedings, there is always a case in the legal pipeline that could have a profound effect on employers. Following an anemic jobs report on Friday, January 4, a rise in unemployment to 5 percent and an increase in the price of oil to $100 per barrel, it is possible that the number of cases will increase, particularly in the area of age discrimination.

If we are slipping into a recession, the economic setback coincides with fundamental changes in labor force demographics. As everyone knows (has been beaten over the head with, in fact), the huge baby boomer generation is reaching retirement age.

The trendy assumption is that employers will want to entice these folks to stay on the job past 65 so that they aren’t hammered with a talent shortage if most of the eligible boomers head to Florida. But others argue that many will elect to stay on the job to fulfill financial or psychological needs, so there won’t be a retirement crisis after all.

The leading edge of boomerdom may be courted by employers. But those who were born a little later—at some point during the Eisenhower administration—are only in their 50s and face a more harrowing situation.

They are in the prime years for companies fighting a recession to dump them and their hefty salaries and benefit packages. So, if the subprime housing fiasco and the credit crunch end up producing an economic contraction, look for age discrimination cases to multiply.

At an early December event hosted by AARP to commemorate the 40th anniversary of the Age Discrimination in Employment Act, Howard Eglit, a professor at the University of Chicago, noted that labor is the highest cost businesses face.

In rough economic times, that’s what takes the biggest hit. Young people trying to get a job and older workers trying to keep theirs “will be the two groups with the most problems,” he said.

Demographic trends exacerbate the situation for AARP members, who must be at least 50 to join the massive advocacy organization. “There are a lot of people out there who are potential ADEA plaintiffs,” Eglit said.

Another factor that could foster an increase in age discrimination suits is the fact that millions of Americans haven’t saved enough money to head to Florida or Arizona to live happily ever after. They could be desperate for jobs.
“The group that needs to work is going to get larger,” said James Brudney, a professor of law at Ohio State University.

But even as the population that might sue over age discrimination increases, their cases may languish because the federal government can’t help enough of them.

“There are many, many valid claims out there, but there aren’t the resources to represent those people,” Eglit said.

Even if the plaintiffs hire an attorney and get to court on their own, litigation is a long, difficult and potentially frustrating process.

“Juries have been enormously unsympathetic to age cases,” said Glen Nager, a partner at Jones Day.

An economic downturn will cause grief for most people. It may be even more hurtful for the burgeoning number between 55 and 65.

Trying to read body language and parse rhetoric is a popular game in Washington. It’s also a dangerous one for people who aspire to make insightful predictions that have a good chance of coming true. In politics, you never know who will be able to persuade whom on which issue—or, more important, when.

Having said that, I’m going to predict the House Ways & Means Committee will take a less stringent approach to 401(k) fee legislation than their colleagues on the House Education and Labor Committee.

The latter panel is led by Rep. George Miller, D-California, who has introduced a bill requiring itemization of at least 12 expenses for each investment option. It would also mandate that an index fund be offered as an alternative in each plan. Miller argues that such steps are necessary to protect middle-class retirement savings from being eroded by opaque fees.

Industry advocates say Miller’s approach could overwhelm participants with too much information and potentially scare them away from retirement products.

Now it looks as if a different option may be offered in the House Ways & Means Committee. That panel held a four-hour hearing on 401(k) fees Tuesday, October 30. The crucial exchanges came early.

Chairman Charles Rangel, D-New York, and the senior Republican, Rep. James McCrery of Louisiana, pledged to work together on the topic.

“These complex issues require a comprehensive analysis,” McCrery said. “Pension issues have always been bipartisan.”

Rangel, who has emphasized the importance of reaching across the aisle since the Democrats took over Congress in January, responded in kind.

“If we act in a cooperative way, a bipartisan way, I’m sure the American people will feel we’re trying to do the right thing,” Rangel said.

It’s true that Rangel and McCrery have pledged bipartisanship before and then split when it came time to draft and vote on legislation. Sometimes, they don’t even start on the same page, as was the case last week when Rangel introduced a massive tax reform package.
 
But on 401(k) fees, it feels as if bipartisanship, at least in the first hearing, was the real thing. Republicans likely will resist Miller’s bill as being overbearing. It looks as if Rangel will take their concerns to heart.

For one thing, he indicated that a simple fee report would be effective. “All we want to know is: Are we getting a good deal?”

More important, Rangel seemed willing to let the Department of Labor complete its process of drawing up new 401(k) fee rules before moving on legislation. The 401(k) fee rules are due to be promulgated next year.

Unlike other Democrats at the hearing, who chafed at the DOL’s timetable, Rangel had an open mind.

Tellingly, he asked the DOL official who testified whether a legislative remedy is necessary in addition to the upcoming regulatory changes. “Or should we stay out of it?”

Such a question must have fallen pleasantly on the ears of business lobbyists in the audience. They want the DOL, rather than Congress, to establish new 401(k) fee rules because it’s easier to revisit a regulation than to change a law.

During the hearing, Rangel didn’t mention an alternative bill to Miller’s written by Ways & Means member Rep. Richard Neal, D-Massachusetts. It imposes fewer disclosure requirements than Miller’s measure. In fact, the only person who brought it up was Neal.

This may indicate that Rangel—and McCrery—have their own ideas about 401(k) fee legislation. At least in the hearing, they didn’t posit and pursue a hypothesis about fees damaging retirement nest eggs, as Miller has in his hearings.

Their rhetoric Tuesday lent credence to a prediction made a few weeks ago by James Delaplane Jr., a partner at the Washington law firm Davis & Harman.

“We’re going to see Rangel and McCrery build a bill together from scratch,” Delaplane said at a Pensions & Investments defined-contribution conference in San Francisco. “That gives our community some hope on this issue.”