WASHINGTON - Employers might lose more than they gain on pension issues now that Republicans will take control Congress for the first time in 40 years.
The big losses could overshadow the small gains as the Republican party's pledges to slash the federal budget deficit and cut taxes for middle-income Americans might bump up against preserving tax benefits for pension funds.
In its "Contract with America," the Republicans pledged to roll back tax hikes on Social Security benefits enacted as part of President Clinton's 1993 budget law.
Somebody has to pay for all the tax giveaways, and it might be employers, says Henry Saveth, a principal with A. Foster Higgins & Co. Inc., New York.
"They are going to have to search for new revenue, and pensions are a potentially big source of new revenue," says Mr. Saveth.
"This is ordinarily something the Republicans would not want to do, but if the top priority becomes balancing the budget, everything is on the table." The Republican-controlled Congress might slap a transaction tax on pension fund investments as one way of raising money, he said.
Still, employer groups and consultants are celebrating the almost-certain death of legislation from the last session. Such bills include expanding workers' rights to pensions at the expense of employers, bolstering the rights of employees to sue plan advisers and nudging funds into making infrastructure investments.
Pension lobbyists also are encouraged because the Republicans are big on building the nation's savings through tax-deductible individual accounts and pruning the capital gains tax on the sale of appreciated stock or property.
The new Republican leadership of the House Education and Labor Committee also will probably hold a series of hearings to examine ways to "fine-tune" the Employee Retirement Income Security Act, said Russ Mueller, who is expected to move from minority counsel into the majority counsel's seat.
And chances of passage of the Tax Simplification and Technical Corrections Act of 1993 - which has lingered in Congress for some years - improved considerably overnight. Republicans traditionally favored reducing the regulatory burden on business. The tax bill would make it easier for companies to prove their 401(k) plans are not discriminatory and allow non-profit organizations to sponsor 401(k)s, among other things.
Republicans have already sworn they will not chip at the Social Security benefits of older Americans in an attempt to balance the budget deficit or consider Social Security cuts for Americans approaching retirement in the next decade - despite evidence the system is financially strained.
The issue became a hot potato in last week's elections and was credited with being at least partly responsible for Oliver North's bid for the U.S. Senate in Virginia. Mr. North had suggested scrapping the current Social Security program.
"It would be political suicide," says Jim Kaitz, a lobbyist with the Financial Executives Institute, Washington. "Both Republicans and Democrats will run away from the issue" until after the 1996 presidential elections, he said.
But the record shows Republicans have not shied away from legislation eroding employers' tax benefits for pension funds in the past.
The Republicans controlled the Senate from 1981 through 1986. During that period, Congress passed three major tax bills curtailing employers' tax-deductible contributions to pension funds and reducing the amount of benefits Americans could collect.
In 1982, under the stewardship of Senate Finance Committee Chairman Robert Dole of Kansas, the Republicans pushed for tax legislation that lowered - to $30,000 from $45,475 - the amount of money companies and employees annually could contribute to defined contribution plans. The same law also lowered to $90,000 from $136,425 the cap on retirement benefits that could be funded through traditional pension plans.
In 1983, Republicans teamed with Democrats to restore the health of the Social Security system through a combination of taxing benefits for some older Americans, rolling back cost-of-living increases and raising the retirement age to 70 by the turn of the century.
Then in 1984, Republicans threw their support behind yet another tax bill. This one made it harder for employers to set aside money for medical benefits of retired workers by imposing an unrelated business tax on investment income earned by trusts set up specifically for that purpose.
Congressional Republicans also were instrumental in passage of the Tax Reform Act of 1986, which slashed to $7,000 the maximum employees could contribute to 401(k) plans. The law also severely reduced the tax benefits on individual retirement accounts.
Tax reform also fixed at $30,000 the annual contribution limit on defined contribution plans until the top yearly benefit from pension plans rose to $120,000 from $90,000 several years later.
Many Republicans behind these tax increases and benefit cutbacks are going to assume key roles in the next Congress.
The Republican party will meet within the next few weeks to divvy up leadership of congressional committees and subcommittees. Those in line for key Senate and House positions are well-versed in pension and employee benefit issues:
The Senate Finance Committee chairmanship is expected to go to Bob Packwood, R-Ore., a staunch supporter of employee benefits and pensions.
The Senate Banking Committee is expected to be offered to Alfonse D'Amato, R-N.Y.
The Senate Labor and Human Resources Committee chairmanship is expected to go to Nancy Kassebaum, a moderate from Kansas.
Chairmanship of the powerful House Ways and Means Committee is expected to go to Bill Archer of Texas, who supports expanded IRAs.
The House Education and Labor Committee chairmanship could go to William Goodling of Pennsylvania.
Carlos Moorhead of California is in line for chairmanship of The House Energy and Commerce Committee.
Jim Leach of Iowa is expected to take charge of the House Banking Committee.
The question in the minds of many pension lobbyists and employer representatives is whether these Republicans will be willing to trade the tax benefits of pension plans for some of the other tax breaks Republicans now want to give Americans.
The answer, many pension experts say, is no.
"Looking back at the last time the Republicans controlled the Senate is of limited usefulness, because the team has the same name but their identity is different," says Frank McArdle, manager in the Washington office of Hewitt Associates.
"Back in the 1980s you had Sen. Dole backing tax increases in part to restore fiscal solvency. The Republican Party this time around is much less interested in any kind of tax increases and much more careful at chipping away at things like benefits," he said.
FEI's Mr. Kaitz agreed. "I'd be willing to bet ... they will not move to taxing pension funds in the next two years," Mr. Kaitz said. "It is the only form of institutional savings" in the country, he noted.
Richard Belas is the former tax counsel to Sen. Dole in the 1980s, and now partner at the Washington law firm of Davis & Harman. He expects the Republicans to focus on cutting government spending, not increasing taxes.
But Harry J. Conaway, managing director at William M. Mercer Inc., Washington, points out the political realities confronting Republicans moving into Congress are the same as those the outgoing Democrats faced.
Mr. Conaway referred to a recent speech by now lame duck Rep. Dan Rostenkowski, D-Ill., in which he spoke of the pressure building in Congress to reassess the tax benefits of pension plans.
"I think what he was trying to say is whether it is Republicans or Democrats who are governing, the same pressure is going to be there and the private sector had better gear up if it wants to defend pension plans."