Republicans Split On IRA Provision In Pension Bill
Boehner, Grassley Disagree Over How Much Leeway Wall Street
By Davod Rogers and Deborah Solomon
The Wall Street Journal
Wednesday, July 26, 2006
WASHINGTON -- Pension-bill negotiations in Congress are
coming down to a bruising fight among Republicans over how
much latitude to give the financial-services industry to
provide advice to individuals on their retirement accounts.
Senate Finance Committee Chairman Charles Grassley (R.,
Iowa) continues to resist pressure from House Majority
Leader John Boehner (R., Ohio), who wants to make it easier
for investment companies to both manage retirement accounts
and advise clients on their portfolio.
As the dispute drags on, it has invited other skirmishes,
threatening hopes of enactment this week of the underlying
package to shore up the private pension system.
Major provisions promising airlines more time to bring their
pension contributions up to date were being finalized last
night, and Mr. Boehner is hopeful of agreement today on the
package. But a closed-door exchange yesterday between House
Ways and Means Committee Chairman Bill Thomas (R., Calif.)
and Sen. Edward Kennedy (D., Mass.) betrayed Republican
concerns about labor's reaction to some of the agreements.
And members of the Senate Finance panel were in open revolt
after Majority Leader Bill Frist's chief-of-staff Eric
Ueland told reporters that popular tax provisions would be
pulled out of the package.
"Am I dealing with Sen. Ueland or am I dealing with Sen.
Frist," said Chairman Grassley. "Sometimes plans change,"
said Speaker Dennis Hastert (R., Ill.) of the new leadership
tax strategy, but Republican business allies began a
countereffort to keep a corporate-research tax credit in the
The fight over investment advice focuses on the increasing
number of Individual Retirement Accounts, used by about 33
million families in the U.S., according to the Employee
Benefit Research Institute. With baby boomers poised to
retire, and having the option of rolling over their 401(k)
plans into IRAs, the industry sees potential, and Mr.
Boehner has invested his prestige as a House leader and past
chairman of the House Education and the Workforce Committee,
which shares jurisdiction over pension legislation.
The Ohio Republican says more advice is needed if retirees
are to achieve the returns they expect on accounts, which
are in many cases underinvested and lack diversification, he
says. "The people who can give the best advice also happen
to sell products," Mr. Boehner said. "I believe there is a
way that protects the interest of the recipients while at
the same time allows advice to get into their hands."
Mr. Grassley counters that "the bottom line of it is you
have conflicted interests when you are advising people," and
some objective standard, such as a product-neutral computer
model, is required. In the case of 401(k) plans, a
compromise has been reached requiring that such a model be
used. In the case of IRAs, with many more diverse holdings,
this type of modeling is more difficult.
Mr. Grassley has proposed a compromise under which
investment companies would temporarily shift to paying their
investment advisers flat fees instead of percentages from
sales until a model is found. "You need an incentive to get
a computer model, and that's why we have a flat fee," he
said. "If you operate within a computer model, you're not
just giving advice on something you sell."
Mr. Boehner rejects this and has sought to isolate Mr.
Grassley by giving ground elsewhere to win support from
other senators. The House appears willing to drop a
provision opposed by Sen. Kennedy that would allow health
insurers to make sweeping first claims on insurance payments
related to accidents. Sen. Max Baucus (D., Mont.) is
pursuing an unrelated $50 million highway provision
important to his home state, and Sen. Michael Enzi (R.,
Wyo.), chairman of the Senate Health, Education, Labor and
Pensions Committee, is waging a battle to get language
related to Abandoned Mine Land fund financing.
The talks have been closely watched by the airline
industry. Under proposals now,
Northwest Airlines and
Delta Air Lines are expected to have 17 years to pay
their pension debts, substantially less than the Senate
AMR Corp.'s American Airlines and
Continental Airlines could qualify for a less generous
break and appeared last night to have beaten back efforts to
impose an increased penalty if they default on their pension
promises in the future.
Write to David Rogers at
email@example.com and Deborah Solomon at