Congress may pass pension solvency, but not much else

WASHINGTON — Although Congress is expected to pass legislation this year that would protect the solvency of many defined benefit pension plans, chances of a broader pension bill becoming law are almost nil.

Congress also may pass a provision letting United Airlines' parent UAL Corp. and other financially strapped companies waive about $30 billion in pension contributions over the next three years. United Airlines has a $6.4 billion pension fund shortfall. Company officials cited UAL's anticipated $4.2 billion in pension contributions over the next five years as a key reason for postponing its exit from bankruptcy until next year.

The comprehensive pension legislation — known as the National Employee Savings and Trust Equity Guarantee Act — cleared the Senate Finance Committee on Sept. 17. A similar version passed the House Ways and Means Committee on July 18, but that's as far as the bill will get this year, pundits predict. That's because lawmakers must attend to more pressing business in the remaining six weeks of Congress, such as Medicare reform.

(That bill, prompted by the collapse of Enron Corp., would, among other things, require employers to make it easier for 401(k) participants to sell their holdings of employer stock and receive independent investment advice. Participants in defined contribution plans would get quarterly benefit statements, and those in defined benefit plans would receive statements at least every three years. The legislation also would require employers to give employees a 30-day warning of "blackout periods." And, it would let workers who are older than 50 contribute more to their individual retirement accounts.)

But legislation allowing corporate plan sponsors to value pension liabilities using the interest rate tied to an index of high-grade long-term corporate bonds seems a shoo-in.

Corporations and labor unions — often on opposite sides of pension issues — both lobbied for passage.

Federal pension law requires companies to calculate their pension liabilities and contributions based on the interest rate on 30-year Treasury bonds. The issue is considered urgent because a temporary fix enacted in 2001, which lets companies use up to 120% of the interest rate on 30-year Treasury bonds, expires in three months.

Because the interest rate on corporate bonds is higher than the interest rate on Treasury securities, and a higher interest rate translates into lower pension liabilities, the legislation would save employers approximately $30 billion in contributions over the next three years. The Senate Finance Committee legislation also included the provision sought by United Airlines that would let companies with deep shortfalls in pension funding forgo contributions for three years. Under current law, employers must speed up contributions to their pension funds if their shortfall grows to more than 90% of current liabilities.

The Bush administration favors letting companies use the corporate bond rate for two years, until the economy recovers and they can get back on their feet. But the administration opposes protecting the underfunded plans of financially shaky companies, arguing that the waiver would add another $40 billion to their underfunding by 2008.

"The administration is opposed to provisions that reduce funding," William F. Sweetnam Jr., benefits tax counsel at the Treasury Department, said before the Senate Finance Committee voted to include the provision in its pension bill.

But because of the fierce lobbying by United Airlines, sources say there is a good chance lawmakers might listen.

A spokesman for the Air Line Pilots Association representing United declined to comment. But a source who did not wish to be identified said: "United Airlines has met with a lot of members. They're pretty optimistic…"

Some lawmakers also worry that letting companies use corporate bonds as the benchmark for valuing liabilities and escape the accelerated contributions they must make if their pension funds are underfunded might tip the Pension Benefit Guaranty Corp. over the edge. Employer representatives are taking a wait-and-see approach.

"A lot of things don't really jell until you get to the end game, so it could be November before you get this (signed) into law," observed James M. Delaplane Jr., partner in the Washington law firm of Davis & Harman, which represents the nation's largest corporate pension plan sponsors.

The legislation passed by the Senate Finance Committee would allow companies to continue using an imprecise method for measuring pension obligations by averaging them over a four-year period. But proponents contend it would prop up the declining defined benefit pension system and persuade employers not to freeze or shutter those plans.

Shaun O'Brien, senior policy analyst at the AFL-CIO, Washington, argues that averaging enables employers to make steady and predicable contributions to their pension plans. "We are supporting what we believe is an accurate measurement of liabilities over the long term," he said.

The four most powerful members of the House — Reps. Bill Thomas, R-Calif., chairman of the House Ways & Means Committee; and John Boehner, R-Ohio, chairman of the House Education and the Workforce Committee, along with their Democratic counterparts, Reps. Charlie Rangel, D-N.Y., and George Miller, D-Calif. — introduced such a bill on Sept. 17.

The Pension Funding Equity Act, H.R. 3108, would let corporate plan sponsors use, for the next two years, the four-year weighted average of interest rates on corporate bonds as the basis for valuing pension liabilities. That gives the administration and Congress time to agree on a longer-term alternative method for valuing pension liabilities.

The legislation is expected to move swiftly, without further debate, and be voted by the full House as early as the week of Oct. 6. House. According to sources, Speaker J. Dennis Hastert, R-Ill., who represents a large number of United employees, is contemplating adding the United Airlines provision as an amendment to the bill on the floor.

In the Senate, Judd Gregg, R-N.H., chairman of the Senate Health, Education, Labor and Pensions Committee, and Edward Kennedy, D-Mass., the senior Democrat on the committee, are close to an agreement on introducing similar legislation. One difference: The Senate bill would be valid for at least three years. Mr. Gregg is also said to be supportive of the provision shielding United

The Senate bill will be an adaptation of the Pension Stability Act, which Mr. Gregg had introduced on his own on July 31.