WASHINGTON - A Democratic majority in Congress - which is a possibility following November's elections - might not be the best thing for the stock market or pension funds, experts say.
"We'd like to see a balanced structure," between the DemBocrats and Republicans, rather than a sweep for the Democrats in Congress and the White House, said Gina Mitchell, director of government relations for the Financial Executives Institute, Washington.
Many experts agree, saying a balanced structure will keep politicians of both parties in check. Some say more liberal members of the Democratic party would be in line to control key congressional committees if the Democrats sweep Congress; keeping the current combination might have the most potential for legislative progress as well as market stability.
"For the market's benefit some type of balance between the two (parties) is always the best outcome," said Bruce Simon, president and chief investment officer of Glenmede Trust Co. of New Jersey, Princeton.
Market watchers say if there is a Democratic sweep in the House and Senate, the stock market will dip; but for the most part, the drop will not be drastic and will be short-lived, they say.
"The markets have been fairly comfortable with (Bill) Clinton as president," said Larry Keblusek, U.S. chief investment officer for Citibank Global Asset Management, New York. If the Democrats sweep this election, the drop in the market will only be "a matter of weeks, and certainly a matter of a single-digit decline. It will be nothing of any magnitude."
Mr. Simon agreed there would be a short-term drop, but the market rebound would depend upon what is accomplished in Washington.
The Democrats now stand a better chance at becoming the majority than they did earlier in the summer, some political pundits believe. To take control of the House, Democrats need to seize 20 Republican-held seats. In the Senate, the Democrats need three seats, but also need to take the White House so Vice President Al Gore could help the Democrats win any tie-breaking votes.
According to analysis by Cook & Co., a political analyst group in Washington, at the end of August, 12 Republican House incumbents were running behind their Democratic challengers; meanwhile, 41 Republican incumbents were leading their Democratic challengers with somewhat fragile leads.
Meanwhile, the Senate is still a coin toss, with more seats in play this year than in 1988 and 1990 combined, according to the Cook report.
What's ahead for pension issues
Most pension observers say pension issues will be important no matter which party is in the majority. And, many expect the Democrats to pick up where they left off when Congress adjourned. While the Democrats have been successful in pushing through some of their initiatives under a Republican Congress, getting their proposals will be even easier when they are in the majority.
House Minority Leader Rep. Richard Gephardt, D-Mo., and Senate Minority Leader Tom Daschle, D-S.D., have been pushing their "Families First" agenda, which includes provisions to improve pension coverage, portability and protection.
"The legislation proposed this year by (Messrs.) Daschle and Gephardt sets out the marker .*.*. that the Democrats are seeking" in the 105th legislative session, said Rep. Earl Pomeroy, D-N.D., one of four congressional co-chairs of the Retirement Savings Network. "The goal is to accelerate retirement savings."
Mr. Pomeroy said in an interview he would like to see some way to encourage defined benefit plan growth as a legislative priority. He didn't think the issue of economically targeted investments - usually a Democratic issue - would be brought up next session.
He also wants to see "a stake driven through" the pension reversions issue - a proposal that was included in the Republican budget bill last year, but was taken out before it was vetoed by President Clinton; it would have repealed the 50% penalty for corporations that withdraw surplus pension assets for other, non-pension uses.
Lastly, Mr. Pomeroy said an amendment expected to be stripped from pending legislation that would require plans to have full-scope audits deserves more discussion. "I'm not enthused by utterly redundant accounting," he said.
Meanwhile, Rep. Benjamin J. Cardin, D-Md., said the top pension priority for Democrats in the next Congress will be reforming Social Security. Speaking before the National Employee Benefits Institute's fall conference in Washington, Mr. Cardin said members should look at the benefits of other types of retirement plans, such as Keoghs, individual retirement accounts and thrift accounts, and apply their advantages to a new type of Social Security system.
Mr. Cardin agreed with Mr. Pomeroy, saying Congress will tackle issues of pension portability and security.
Meanwhile, Mr. Cardin also said the Internal Revenue Service's $150,000 maximum compensation limit used to calculate benefits - which was lowered in 1993 - was a mistake and that the limit needs to be changed.
But some pension experts were skeptical of Messrs. Pomeroy's and Cardin's predictions. While most agree the Democrats will continue their push to improve pension coverage, portability and protection, most doubted the Democrats would push some of the specific issues.
FEI's Ms. Mitchell said Democrats would place more unnecessary mandates on defined contribution plans. She cited the recent regulation issued by the Department of Labor that shortens the time employers have to make employee contributions to 401(k) plans. Ms. Mitchell also said a bill sponsored by Sen. Barbara Boxer, D-Calif., that would prohibit employer-directed plans from investing more than 10% of assets in company stock, creates a major disincentive for some employers to maintain and create 401(k) plans.
"Restricting employer stock doesn't make a lot of sense," Ms. Mitchell said. "They are forgetting that this is a voluntary system."
Both Ms. Mitchell and David Kemps, manager of employee benefit plans for the U.S. Chamber of Commerce, Washington, doubted the Democrats would try and change the $150,000 limit used to calculate benefits. They also didn't foresee any legislation to encourage defined benefit growth.
"It's unfortunate (the Democrats) took positions this year that put employers in a bad light," Mr. Kemps said. "Employers should be commended for what they've done."