The legislation that cleared the House last fall would switch the benchmark for calculating pension liabilities for this year and 2005 from the interest rate on the 30-year Treasury bond to an index of high-grade long-term corporate bonds. And it would give airlines with underfunded pension plans a pass on 80% of the accelerated contributions they would otherwise need to make this year and next.
Several provisions in the Senate version, however, could slow down the negotiations, sources say.
"The Senate has added some controversial provisions," said a spokeswoman for the House Ways and Means Committee, chaired by Rep. Bill Thomas, R-Calif.
Mr. Thomas is concerned over provisions in the Senate bill that would permit Taft-Hartley or multiemployer union plans to amortize their investment losses over an extended period of time, and permit companies in many old-line industries to escape accelerated contributions to their underfunded plans over the next two years. Mr. Thomas' goal "is to make law, and if (the Senate bill) is a deterrent to get it done, then it's something to be considered," she said.
Some members of the House team strongly oppose any breaks to pension plans representing labor unions, according to sources who asked not to be identified.
The Senate version of the legislation also includes a provision that would benefit CNF Inc., a Palo Alto, Calif.-based freight carrier. The provision in the Senate bill would make it easier for CNF and others to pull out of multiemployer plans without having to prove their withdrawal was not an attempt to avoid paying a proportionate share of the unfunded vested benefits.
Also loaded in the Senate bill is a provision that would let Greyhound Lines Inc., Dallas, escape from making additional contributions to its pension plan in 2004 and 2005 by treating the plan as at least 90% funded. The plan's current funding status could not be learned by press time. The bus company also would be exempt from making quarterly contributions during that period.
That's not all. The Senate version would let not just airlines, but also steel companies with underfunded plans escape paying 80% of the accelerated "catch-up contributions" this year, and 60% in 2005.
It also would enable companies in other industries to apply to the IRS for similar waivers. The Bush administration strongly opposes this provision and issued a veiled veto threat on Jan. 22.
Then too, the Senate bill includes a provision that would allow General Motors Corp., Deere & Co. and a handful of other companies to continue to claim tax deductions for contributions to their pension plans. That's because the legislation would continue to base the maximum funding limits on 120% of the interest rate on Treasury bonds in 2004 and 2005, instead of being tied to the interest rate on corporate bonds.
While both companies support the broad pension legislation, they have expressed concern to lawmakers that the legislation could crimp their ability to claim tax deductions for contributions that would fully fund their plans.
Deere, Moline, Ill., announced Feb. 25 that while it is not required to, it intends to contribute $1 billion to its pension fund in the current quarter. On Oct. 30, at the end of its fiscal year, the farm equipment manufacturer had pension assets of $5.98 billion and liabilities of $7.79 billion, according to its 2003 annual report.
"We're talking to those who are conferees" to include the provision in the final version of the pension bill, said Ken Golden, a spokesman for Deere.
And Detroit-based General Motors, whose pension plans were $18 billion underfunded at the end of 2002 but $300 million overfunded at the end of last year, confirmed that it had asked key senators to correct what was an unintended consequence of the switch to corporate bonds.
"The intent was to craft legislation so that it would not penalize companies that had made substantial contributions to their pension funds or intended to make substantial contributions to their pension funds," said Jerry Dubrowski, a GM spokesman.