Congress Works on Pension System Overhaul

Congressional negotiators worked to clear the last remaining hurdles as they moved within sight of completion of the most sweeping changes to the pension system in years.

House and Senate staffers were drafting language through the night in anticipation of lawmakers signing off on the bill Thursday morning. Barring further disputes, that could make it possible for the House to formally approve the legislation on Friday, before it departs for its August recess. The Senate is in session one more week before its summer break.

The bill, years in the making and under negotiation for five months, has the goal of strengthening traditional employer-based pension plans, crucial to the retirements of some 44 million Americans. It would also provide for steps, such as automatic enrollment, to ensure that 401(k) plans and IRAs, increasingly the main savings option of younger workers, are utilized by more people.

The bill would require all defined benefit plans to reach full funding within seven years, presumably shrinking the current level of underfunding estimated at $450 billion. Companies that are seriously underfunded would be required to make extra payments to catch up with their contributions.

The legislation also attempts to protect the fiscal integrity of the Pension Benefit Guaranty Corp., the federal agency that insures pension plans and takes over plans abandoned by companies. The PBGC, running a deficit of $22.8 billion, has so far operated on premiums and interest earnings, but there is concern that it could require a taxpayer bailout if more major employers dump their pension plans.

Negotiators said late Wednesday that there were still three major outstanding issues.

The original Senate bill passed last year gave financially struggling airlines, specifically Northwest Airlines Corp. and Delta Air Lines, up to 20 extra years to reach full funding. Other airlines would also receive breaks in their repayment schedules.

The House demanded less generous breaks for the airlines, and it appeared that Northwest and Delta would end up with a grace period of about 10 years. But Sen. Mike Enzi, R-Wyo., chairman of the Health Education, Labor and Pensions Committee, said lawmakers still want to look at the final language being drafted before signing off on the compromise.

Enzi said he expected that the principle negotiators would meet again Thursday morning to see if they were in accord on the airline issue as well as an enduring dispute over who is permitted to offer investment advice on retirement plans.

House Majority Leader John Boehner, R-Ohio, a chief negotiator, has pushed a plan that would give financial firms the authority to provide investment advice on 401(k) and IRA plans. But he has met resistance in the Senate because of concerns that firms that managed plans would have conflict of interest problems in offering advice.

"The people who can give the best advice also happen to sell products," Boehner said at an earlier news conference. Under current law such financial firms can't advise investors, he said. But "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," Boehner said.

Under a proposal circulated by the House side, employers with retirement plans would be responsible for selecting and reviewing advice providers. Fiduciaries for employer-sponsored plans such as 401(k)s that provide advice must base their recommendations on a computer model that is certified and audited by an independent party.

The third issue was whether to use the pension bill as a vehicle to extend several tax breaks. House leaders were against linking the bill to the tax breaks because they said the popular tax measures could be combined with an estate tax cut and passed separately.

Boehner earlier reported that negotiators had decided not to add the tax measures to the pension bill, but Enzi said later in the day that it was still an open question.

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