Pension Measure Clears Committee but Faces Hurdles

Business groups that have been fiercely fighting the Bush administration’s proposal on pension reform may be in for good news: A bill that would ease some of the measures employers feared in the White House’s original plan is gaining momentum.

The Pension Protection Act, introduced by Ohio Republican Rep. John Boehner, chairman of the U.S. House Education and Workforce Committee, cleared his committee June 30. Many lobbyists and industry watchers say this is the bill that has the most support from employers and the Bush administration.

“This bill represents a revision to the administration proposal by which a lot of employers’ concerns have been addressed,” says Patrick Purcell, specialist in social legislation for the Congressional Research Service at the Library of Congress. “If anything goes anywhere, this is the bill that will.”

On July 22, Sen. Charles Grassley, (R-Iowa) and Senate Finance Committee Chairman Max Baucus (D-Montana) released a bill that is similar to the Bush Administration’s plan, which has been met with staunch resistance from employer groups who say that it would cause more companies to stop offering traditional defined-benefit plans. Among the most controversial provisions, the proposal would increase flat premiums from $19 to $30, prohibit employers from using credit balances to fund their plans and apply tougher funding rules to junk-rated companies. The proposal also would bar companies from using smoothing techniques when calculating their funding requirements and mandate that they use a yield curve that many employers argue would make funding their plans much more volatile and difficult to predict.

If enacted, the Pension Protection Act would ease the pain of the premium increase by phasing it in over three to five years. The bill would permit the use of credit balances to fund plans in certain circumstances. It would allow for smoothing and the use of a simplified yield curve for calculating funding requirements. Finally, Boehner’s bill would not require tougher rules for junk-rated companies.

The American Benefits Council, which came out against Bush’s proposal, says the Boehner bill is a step in the right direction, but still misses the mark, says Jan Jacobson, director of retirement policy at the American Benefits Council. For example, the group wants the bill to clarify the legal status of cash-balance plans. Under the proposal, the creation of cash-balance plans would be deemed legal, but there is nothing about existing plans.

Although Boehner’s proposal was the first to make it into bill format and has gained momentum quickly, it still has to face the Senate. Anything could happen there, says Kyle Brown, retirement consultant in the Arlington, Virginia, office of Watson Wyatt Worldwide.

Another potential hurdle for the bill would be if its
co-sponsor, House Ways and Means Committee Chairman William Thomas, R-California, folds the proposal into bigger retirement package that includes Social Security reform. If he does, the prospects for pension reform this year may grow dim, Brown says. “The level of controversy pales in comparison to the level of controversy around Social Security reform,” he says.

—Jessica Marquez