WASHINGTON - The House of Representatives passed a bill last week banning the Clinton administration from promoting economically targeted investments.
But the bill wouldn't stop public funds - the most frequent ETI investors - from making such investments.
The bill, which passed by a 239-179 vote, affects private defined benefit and Taft-Hartley plans covered by the 1974 Employee Retirement Income Security Act. Several Taft-Hartley plans participate in ETIs, but private plans rarely do.
"It won't change what we do," said Michael Steed, senior vice president for Union Labor Life Insurance Co. Inc., Washington. "But maybe if I were creating a new (ETI) product, I would have a concern."
On top of banning the Clinton administration from promoting ETIs, the bill - The Pension Protection Act of 1995 - would void a 1994 Labor Department interpretive bulletin on ETIs and would shut off funding for a clearinghouse of ETI data. An amendment, passed alongside the bill by a voice vote, would allow the Department of Labor to issue advisory opinions on investments in constructing or renovating affordable housing projects - investments often categorized as ETIs.
The bill now awaits consideration in the Senate. So far, no vote had been scheduled, and several observers questioned whether Senate members had any interest in the bill. Repeated phone calls to the office of the bill's sponsor, Sen. Connie Mack, R-Fla., were not returned.
Debate on the issue has been split mostly between House Republicans wanting to ban promotion of the investments and House Democrats and Labor Department officials defending the investments' worth. Many Washington groups have purposely avoided getting involved.
"In the scheme of things, it's not that important a bill," said David Certner, a lobbyist for the American Association of Retired Persons, Washington. "There are no huge ramifications for our members."
Yet the over-65 group is exactly the group that the bill's sponsor -Rep. Jim Saxton, R-N.J.- targeted in his campaign to get it passed. While Mr. Saxton was able to get smaller senior citizen groups like the Seniors Coalition, Washington to back his bill, the AARP, with 33 million members nationwide, declined.
"We were asked our position and we made it clear that we weren't going to take a position on it," Mr. Certner said. "The rhetoric was much higher than the importance of the bill, and we saw little need to step in one way or another."
Observers said the bill had more to gain in Republican posturing than it had in saving retirees from these investments. Some said this bill, accompanied by questionable data generated by the Republicans, was used to scare seniors into believing they were losing pension benefits and keep them too distracted to focus on the Republican agenda to cut Medicare spending.
Still one source said Mr. Saxton was genuinely concerned that ETIs were a plot by the Democrats to direct investments.
According to the 1992 Democratic platform, the party "will encourage the flow of investment to inner city development and housing, through targeting enterprise zones and incentives for private and public pension funds to invest in urban and rural projects" (Pensions & Investments, July 6, 1992).
As federal spending dries up, Mr. Saxton "is afraid that (the Democrats) see this as a pot of money to use," the source said.
Most say the bill would bring ERISA back to its standing prior to the 1994 interpretive bulletin on ETIs. Richard Ferlauto, associate director for the Center on Policy Alternatives, Washington, said that even if the bill becomes law, pension law would still allow ETIs if they pass prudence and due diligence standards.
The Republicans "can say that they're protecting pensions, but it's not going to affect investments," Mr. Ferlauto said.
But Assistant Secretary of Labor Olena Berg said the bill would affect investments and would more than muzzle the Labor Department on ETI issues.
Ms. Berg said the courts will interpret Congress' action to mean that no investment can have a double benefit. Prohibited transaction exemptions, such as the one granted to General Motors Corp. to contribute $10 billion in cash and stock to its pension fund, most likely will not be possible in the future, Ms. Berg said.
The March 1995 exemption allowed GM to make the largest-ever cash-stock contribution to help shore up its unfunded pension liability.
But the transaction also benefited the company by helping it get a better debt rating.
In addition, the bill could stymie pension funds' chances for good returns on investments that have other benefits as well, said ULLICO's Mr. Steed.
ULLICO runs J for Jobs, a $703 million ETI that invests in commercial real estate projects and uses union-only labor. Since its inception in 1977, the fund has had a 9% annual rate of return, Mr. Steed said.