WASHINGTON - Pension interest groups are keeping their fingers crossed President Clinton and Republican lawmakers will reach an agreement on key provisions of a mammoth tax bill that includes "pension simplification" legislation.
Meanwhile, pension interest groups are readying themselves for a fuller legislative agenda in 1997, following the presidential elections.
"There doesn't appear to be any major pension legislation on the horizon in 1996 (outside of a budget bill). But in 1997 we are looking at major reforms in the pension area with a new administration and a new Congress," said Mark J. Ugoretz, president of the ERISA Industry Committee, Washington, a lobbying group representing large corporations.
The grab-bag pension legislation - which would make it easier for small businesses to offer retirement benefits to their employees, relaxes the amount of retirement benefits higher-paid employees can earn and lets non-profit organizations set up 401(k) plans - has been held hostage by the inability of the Clinton administration and lawmakers to agree on a seven-year outline for federal spending.
"Pension simplification still has a better than 50-50 shot if they cut a budget deal," said Randolph H. Hardock, a partner at the Washington law firm of Davis & Harman and former benefits tax counsel at the U.S. Treasury. Like others in the pension community watching the budget negotiations, Mr. Hardock hopes the administration and Republican legislators will work out a deal soon.
The fate of another bill, which would give employers guidance on providing retirement benefits to reservists, also hangs in the balance with the stalled budget talks.
A 1994 law requires employers to let workers returning from active military duty make contributions to their 401(k) plans for that period in addition to contributions for the current year. That law also asks employers to match retroactive employee contributions to 401(k) plans. However, tax laws currently limit 401(k) contributions to $9,500, so a "technical corrections" bill was needed to allow returning military personnel to make those additional contributions.
With thousands of Americans now called up for duty in Bosnia, the odds have increased this bill will be part of a budget agreement, Mr. Hardock said.
Moreover, the mutual fund industry is pushing legislation to expand individual retirement accounts. Because of the high price of expanded IRAs, the legislation stands little chance of passage outside the budget bill.
"Because a major priority of the industry for a number of years has been to increase savings, expanded IRAs and expanded pension coverag....and pension simplification have to be listed as the highest priorities right now," said Cathy Heron, vice president and senior pension counsel at the Investment Company Institute, the Washington mutual fund industry group.
Shutdown causes backup
The budget disagreement between the president and Republican lawmakers has paralyzed many government agencies, including the Department of Labor.
"When we get back in business, we will do some priority-setting because everything is backing up," said Assistant Labor Secretary Olena Berg, who heads the department's pension office.
Apart from the few budget-related bills, pension lobbyists expect little legislation of consequence this year because of election-year politics and because Congress usually recesses in early October in election years.
The one exception is a bill introduced late last year by Sen. Nancy Kassebaum, R-Kan., head of the Senate Labor and Human Resources Committee. The bill aims to help insurance companies cope with the Supreme Court's 1993 decision in John Hancock Mutual Life Insurance vs. Harris Trust & Savings Bank, which ruled that pension plan assets held in central investment pools are subject to federal pension law. The legislation would seek to prevent the high court decision from being used as a precedent in similar lawsuits and require the Labor Department to issue rules on how insurers can structure pension assets in their pooled accounts. The life insurance industry is hoping Ms. Kassebaum will push for passage of her bill before she retires this year, said Melissa J. Kahn, senior counsel for the American Council of Life Insurance.
But pension lobbyists do expect - as part of the presidential campaign - a greater discussion of overhauling the nation's tax system, and the implications of such an overhaul for the private pension system.
In fact, Republican lawmakers are expected to kick off the debate Jan. 9 by releasing recommendations of a task force appointed to study the issue. The National Commission on Economic Growth and Tax Reform, chaired by Jack Kemp, former Housing and Urban Development secretary, is expected to recommend abandoning the current income tax system for a flat-tax structure.
Meanwhile, because of the federal government's shutdown, the Labor Department might have to reschedule a Jan. 24 hearing on a proposal requiring employers to speed up deposits of employee contributions to 401(k) plans, Ms. Berg said.
The Labor Department also was scheduled to release the results of an investigation into proxy voting by pension plan sponsors before the onset of the 1996 annual meeting season. Those results might be delayed too, Ms. Berg said.
The shutdown also has pushed back the department's efforts to seek legislation that would require accountants to examine pension plan financial statements and make them responsible for any errors.
Although Sens. Jim Jeffords, R-Vt., and Paul Simon, D-Ill., recently introduced the legislation at the Labor Department's behest, it is unlikely much action will take place while legislators continue focusing on an agreement to balance the budget.
The shutdown also has delayed the Labor Department's review of comments on guidance it issued last year on the kind of financial information companies can give employees about investing their 401(k) plan retirement savings.
The PBGC's 1996 agenda
A new Pension Benefit Guaranty Corp. regulation asks most employers with plans underfunded by more than $50 million to provide more corporate and plan financial information by April 15, according to Martin Slate, executive director. The agency also intends to ensure 1,500 large companies with shortfalls of more than 10% in their pension plans last year notified their employees and pension plan participants as required under a 1994 law. This year, the PBGC intends to ensure an additional 4,000 companies with smaller plans notify their employees of underfunding.
The agency will focus on pension plan mergers and breakups as an attempt by companies to paper over pension plan financial problems. And the agency will expand its early warning system that monitors plans with shortfalls to smaller pension plans, those with unfunded liabilities of $5 million or more, said Martin Slate, executive director.
The agency also plans to streamline paperwork for shutting down overfunded pension plans, Mr. Slate said.
And finally, the agency intends to examine the way in which companies calculate their PBGC insurance premiums, Mr. Slate said.
The agency also will continue fighting a Republican proposal to let companies tap surplus pension assets, Mr. Slate said.
"We have reversed the trend of underfunding and we don't want a change that would weaken protection for pensions," he said.
At the U.S. Treasury Department, lawyers issued a slew of regulations in the closing weeks of 1995 that give guidance on complying with the Retirement Protection Act of 1994.
IRS regulation expected soon
Still expected any day - the Internal Revenue Service wasn't affected by the federal government shutdown - is an IRS regulation giving employers guidance on calculating lump-sum payments from cash balance pension plans when employees quit their jobs.
The issue has been a thorny one for years because current tax rules require employers to use ultraconservative interest rates assumed by the PBGC in converting projected pension payments at retirement into a lump sum.
Because cash balance plans create individual account balances like 401(k) plans, using artificially low interest rates to convert monthly pension payments into a lump sum resulted in employers frequently giving out larger payments to parting employees than they otherwise had anticipated.
The new rule is likely to let employers simply give employees leaving their jobs the amount of money set aside in their account balances, as long as the pension plan uses interest rates within an acceptable range predetermined by the IRS.
Also on the IRS' agenda for 1996 is an effort to give employers guidance on taking deductions for contributions to foreign deferred compensation plans. While pension lawyers are optimistic this regulation will be issued sometime in 1996, "it is one of those projects that is sometimes on the front burner, sometimes on the back burner, and sometimes you can't even say it's in the kitchen," said Kyle N. Brown, retirement counsel at Watson Wyatt Worldwide, Washington.
The agency also is expected to deal with giving employers help on figuring the amount of payroll taxes to deduct on amounts accrued but not yet paid to employees participating in deferred compensation plans.
At the heart of the problem is the amount of benefits employers should assume employees have earned through such plans, even though they will not receive the benefits until retirement.