WASHINGTON -- You lose some, you win some.
Despite furious lobbying by groups representing employers, both chambers of Congress are drafting a provision requiring employers to give employees more information about plan changes that could cut benefits. Under current law, no explanation is needed.
But there is a silver lining. The House and Senate pension bills, expected to be part of a broader tax bill, probably will include many of the other changes employers had sought, such as letting them provide more generous pensions to upper level executives, removing limits on tax-deductible contributions to pension plans and increasing the amount employees may contribute to 401(k) retirement plans.
Lawmakers are scheduled to present the House and Senate versions next week.
Meanwhile, the Clinton administration is crafting its own proposal, which apparently would require employers to describe, through examples, any changes in their pension plans that could result in lower benefits for some employees. It probably also would require employers to tell workers the value of their earned benefits at the time of the changes.
Legislators' efforts to force companies to explain pension plan changes come as hundreds of corporations are abandoning their traditional pension plans for cash balance plans.
Because cash balance plans spread out the accrual of benefits over a career, younger workers stand to earn more benefits than in the old line pension plans, but some older workers stand to lose a portion of their earned benefits when the companies switch to these plans.
Most recently, IBM Corp.'s switch to a cash balance pension plan July 1 drew the attention of lawmakers when thousands of their constituents wrote or called in to complain about benefit cuts.
Given the likelihood a disclosure provision will be approved, employers might fare best under a House proposal. The narrowly crafted provision would let employers use hypothetical examples to illustrate future benefit cuts. What's more, employers need only inform affected employees. Introduced by Reps. Rob Portman, R-Ohio, and Ben Cardin, D-Md., in March, the provision is part of their comprehensive pension bill, which has broad support.
In the Senate, Republican lawmakers are attempting to water down a tougher provision introduced some months ago by Sen. Daniel Patrick Moynihan, D-N.Y., whose Pension Right to Know Act would require large employers to notify workers of about cuts in unearned retirement benefits.
The legislation requires employers to spell out how employees would be affected by pension plan changes. Employers would have to compare the value of employees' earned benefits and the net present value of those accrued benefits with projected benefits and the present value of those future benefits at stipulated periods after the changes take place, and at normal retirement age. Employers would need to give the information before the amendments are adopted.
Pension plan sponsors that fail to give this information to employees could risk losing their tax-favored status.
Rep. Jerry Weller, R-Ill., introduced an identical bill in the House.
Although the legislation primarily is aimed at companies that convert to cash balance plans, it would in fact apply to all employers that make substantial changes to their defined benefit pension plans.
Senate Republicans, meanwhile, are crafting a provision that is expected to look similar to the bipartisan House provision. At the same time, Mr. Moynihan is working on making his bill more palatable by narrowing the scope somewhat, but he still is expected to insist that companies give workers individual statements explaining the changes. Mr. Moynihan also is attempting to allay employer fears over the definition of "substantial" by letting regulators address that.
It is not clear whether the Republican or the Democratic Senate provision will make it into the pension bill the Senate Finance Committee is writing.
"It seems very likely there will be some sort of legislation that requires greater clarity in explaining to people when significant changes in pension plans occur," said Judy F. Mazo, senior vice president and director of research in the Washington office of The Segal Co., a benefits consulting firm.
"Hopefully, someone will also focus on the fact that every change that could reduce someone's benefit is not such a major change," said Ms. Mazo, who is heading up a Labor Department-sponsored task force studying cash balance pension plans.
Still, pension lobbyists contend Mr. Moynihan's bill is unacceptable. Ironically, employer representatives argue that the same actuarial assumptions used to calculate future benefits should not be presented to employees because they could be misunderstood.
"The requirements for individual benefit projections are inherently misleading because they don't reflect what these individuals are likely to earn under the old or the new plan, and are based on salary assumptions that are going to be wrong because you can't guarantee their (future) salary, and they assume the employees will be with the employer for his career," said Mark J. Ugoretz, president of The ERISA Industry Committee, Washington.
A tale of flunking
Rita D. Metras, director of total compensation at Eastman Kodak Co., Rochester, N.Y., told members of the Senate Finance Committee at a hearing a few weeks ago that the company -- which gave all of its employees extensive details about the changes when it converted to a cash balance plan earlier this year and offered them the choice of staying in its old defined benefit plan -- would have flunked the stringent requirements of Mr. Moynihan's bill.
"It is critical that companies maintain the ability to make business decisions about the benefit plans they offer without the additional, onerous legal requirements and fear of draconian penalties that (Mr. Moynihan's bill) would impose," she said. "If companies feel they cannot maintain this needed flexibility within the defined benefit system, they will abandon these plans at an even more rapid rate."
Not all bad
But while employers hate this one provision, they should like the rest of the House and Senate pension bills.
The House pension bill is expected to be drawn from H.R. 1102, the Comprehensive Retirement Security and Pension Reform Act, a catch-all bill introduced by Messrs. Portman and Cardin in March, and based on legislation last year that was not acted upon.
In the Senate, the pension bill is expected to be an amalgam of S. 646, the Retirement Savings Opportunity Act introduced earlier this year by Sens. William V. Roth Jr., R-Del., chairman of the Senate Finance Committee, and Max Baucus, D-Mont., and S. 741, the Pension Coverage and Portability Act introduced by Sens. Bob Graham, D-Fla., and Charles E. Grassley, R-Iowa.
Also likely to be considered is a range of other pension bills introduced by lawmakers in the House and the Senate, including those in the president's budget proposal.
And the latest good news on the federal budget surplus may have improved the prospects for many costly provisions being included in the pension bills.
"The new surplus numbers do increase the likelihood of pension provisions in the bill, and also increase the likelihood of the bill passing," commented James M. Delaplane Jr., vice president of retirement policy at the Washington-based Association of Private Pension and Welfare Plans. Still, Mr. Delaplane and other sources don't expect President Clinton to necessarily sign the first version of a tax bill.
Among those provisions with improved prospects, sources say, are:
* Increasing the limit on how much employees can contribute to 401(k)-type retirement plans to $15,000 from the current $10,000.
* Allowing employers to provide more generous pensions to middle and top management, by taking $235,000 of their salary into account for calculating pensions, instead of only $160,000.
* Allowing retired workers to keep up to $100,000 in retirement plans and individual retirement accounts even after they turn 70 1/2.
* Letting workers tuck away as much as $5,000 in their IRAs, more than twice the current $2,000.