The Association of U S West Retirees



Pension Measures Remain Far Apart
Even the Conference Panel That Will Reconcile House, Senate Bills Is a Matter of Dispute
By Michael Schroeder
The Wall Street Journal
Tuesday, February 21, 2006

WASHINGTON -- After two years of debate, the House and Senate recently passed bills to force companies to better fund their pension plans and shore up the Pension Benefit Guaranty Corp., the federal insurer of traditional company-sponsored plans.  Now comes the hard part:  reconciling the two measures before sending legislation to President Bush.

Making the task more difficult is that the two Republicans who pushed the legislation this far in their respective chambers -- Ohio Rep. John Boehner, the newly elected majority leader, and Iowa Sen. Charles Grassley, chairman of the Finance Committee -- are far apart on a handful of critical issues.

Mr. Boehner, as former chairman of the Committee on Education and the Workforce, was instrumental in putting together a bill geared toward helping the business community and Wall Street.  Mr. Grassley, who became interested in pension legislation after the bust up of Enron Corp. wiped out employee retirement savings, has helped craft a more populist bill.

"There are enough controversial pieces to be worked out that this could be a drawn-out process," says David Certner, director of federal affairs at AARP, the retiree advocacy group, which generally supports the Senate version.

Even naming the conference committee has been contentious.  The Senate is fighting internally over the size of its contingent, with Democrats seeking an extra slot.  Because much of the final language will be decided by the committee in closed-door meetings, Senate and House members are being barraged by lobbyists pushing their positions.  "It's a veritable chorus line of interests lobbying prior to conference," a Senate staff member said.

The process could get hung up on a handful of issues on which Mr. Boehner and Mr. Grassley sit on opposite sides:

  Investment Advice:  The House version of the bill would allow investment firms to offer advice to participants in 401(k) plans even if the firms' mutual funds are among employees' investment choices.  Federal labor laws long have banned this on the theory that the investment firms would favor their own funds, even if a competitor offered a better choice.

Wall Street wants to lift this restriction, especially since it is likely that the pension legislation will give companies the option to automatically enroll employees in 401(k) plans.  That potentially would bolster the number of employees in the plans, under which employees set aside pretax dollars for retirement.

This is a lucrative business for financial-services firms such as Goldman Sachs Group Inc., Fidelity Investments and Citigroup Inc.

Mr. Boehner has been Wall Street's champion on the issue, arguing for years that the law should be changed because employees with 401(k) plans need professional advice to earn better returns.  The securities industry has been a leading contributor to his political action committee -- $644,473 since 1989, according to the Center for Responsive Politics.

Mr. Grassley, meanwhile, has fought to keep the restrictions and the Senate's measure would continue the ban on direct advice from fund firms.  It would encourage companies to hire neutral third-party advisers to tell employees where they should put their money.

"This is one issue on which [Mr. Boehner and I] haven't been able to see eye-to-eye," says Mr. Grassley, who has received $378,502 from Wall Street contributors since 1989.  "After the corporate and Wall Street scandals of recent years, this is no time for a blind spot on conflicts of interest."

  Hedge-Fund Investments:  Financial-services firms could reap a windfall from a provision that would let many hedge-fund managers skirt fiduciary duties.  Under current rules, if 25% or more of a hedge fund's assets come from public or foreign pension plans, the entire investment pool must be managed according to strict pension-law fiduciary standards, such as considering pension clients' interests first and investing prudently.

The Securities Industry Association got Mr. Boehner's House bill to include a proposal revising the rule so legal standards wouldn't apply unless pension assets reached 50% of a hedge fund.  The trade group argues that the current threshold is too low and restrictive and that the cost for relatively unregulated hedge funds to comply with pension-law standards is burdensome and expensive.

Mr. Grassley hasn't supported the change because of his perception that the securities industry pushed the language into the House bill without exploring in hearings the potential for abuses.

  Multiemployer Pension Plans:  Another hot-button issue is language in the House bill that would give employers, through collective bargaining, broader discretion to cut nonbasic retirement benefits, such as early-retirement benefits and life insurance.
Multiemployer plans, which cover about 10 million employees, were set up so that workers who move from employer to employer within unionized industries could maintain retirement-benefit plans negotiated under a common union contract.

United Parcel Service Inc., which participates in 22 multiemployer plans, has been looking to lower its pension costs.  The delivery company -- one of Mr. Boehner's top contributors -- pushed for the provision.

The Senate bill doesn't address the issue, which Mr. Grassley expects conferees to battle over.  Under current law, a pension plan can't change the rules to eliminate pension benefits already earned by workers.  Modifying a core protection in the law would establish a dangerous precedent that could soon be extended to the majority of pensions, so-called single-employer plans, says Karen Friedman, policy director at the Pension Rights Center, a worker-advocacy group.

 Company Credit Ratings:  A big issue for auto companies involves a provision -- only in the Senate bill -- that would require employers with credit ratings that are below investment grade to adopt certain actuarial assumptions that would have the effect of making them kick in additional contributions.
Mr. Boehner said he believes "the actual financial status of the pension plan, and not the company's credit rating, is the most important factor in determining how to ensure the plan gets back on track."

  Airlines:  The Senate bill would give major commercial airlines 20 years to fully fund their pension plans.  The House bill has no airline provision.
Mr. Boehner has said he opposed relief for any specific industry but has told the airlines that he now is open to compromise.

Write to Michael Schroeder at