WASHINGTON — Hurricane Katrina delayed action by Congress on pension reform, but last week's bankruptcy filings by Delta Air Lines Inc. and Northwest Airlines Corp. should spur lawmakers to take up the pension bill as soon as the hurricane relief packages are done.
Despite the delay, observers said employers might still get guidance from the Labor Department before the end of the year clarifying that they'll be protected from employee lawsuits if they automatically enroll workers in the company retirement plan and invest assets on the participants' behalf.
While lawmakers are preoccupied with a slew of bills intended to provide financial and other forms of assistance to hurricane victims, sources agree it's not a matter of if, but when, lawmakers pass the pension package that would raise PBGC premiums, rewrite pension funding rules and clarify the legality of cash balance pension plans.
"The actions taken in the bankruptcy court (by Delta and Northwest) give a new sense of urgency in the minds of many in Congress to act on this issue. Often, Congress doesn't act but react, and something like this will undoubtedly propel forward the timetable for Congress to act on the pension legislation," said Jim Klein, president of the American Benefits Council, Washington, which represents many of the nation's largest corporate plan sponsors.
Senate Majority Leader Bill Frist, R-Tenn., had indicated he would try to make time on the Senate floor for a vote on the pension legislation. But marked differences between separate legislation passed by the Senate Finance Committee in July and by the Senate Health, Education, Labor and Pensions Committee on Sept. 8 make it less likely senators will agree on one package any time soon.
Also adding to the delay is the absence of a pension package from the House Ways and Means Committee. Although committee Chairman Bill Thomas, R-Calif., had promised in June to introduce a behemoth retirement package consisting of both pension and Social Security overhaul provisions, the committee has yet to produce anything. And Rep. Jim McCrery, R-La., who heads the House Social Security Subcommittee and represents constituents affected by the hurricane, has acknowledged that prospects for passage of Social Security legislation this year have faded.
"Even before Katrina, there was a very good chance that this (pension legislation) was going to carry into next year, and now there's an even greater chance of that happening," said Brigen Winters, a partner at the Groom Law Group, Washington.
Sticking points between the two Senate bills include clarifying the legality of cash balance plans. The Finance Committee bill said plans established after the passage of the law would be legal; the HELP Committee proposal offers retroactive protection but requires employers to pick among various possible types of protection for middle-aged and older workers. And the HELP Committee bill also omits protection for cash balance plans mired in lawsuits or plans with age discrimination charges pending before the Equal Employment Opportunity Commission.
Other provisions likely to make for a contentious debate are differences over allowing employers to average out the value of asset and liabilities, the treatment of credit balances or cushions built up through earlier contributions, and the link between an employer's credit ratings and higher premiums paid to the Pension Benefit Guaranty Corp.
Meanwhile, Assistant Labor Secretary Ann Combs, who heads the Employee Benefits Security Administration, has said in speeches that she hopes to propose guidance on automatic enrollment by the end of the year. Gloria Della, a spokeswoman for Ms Combs, declined to offer details of the proposal.
Under Section 404(c) of the Employee Retirement Income Security Act, employers are protected from employee lawsuits so long as participants pick their own investments from the retirement plan's offering. But the Internal Revenue Service has ruled that such protection is not available to employers if they invest on behalf of workers automatically enrolled in the employer-sponsored retirement plan, and the workers don't pick the investment options.
With a growing recognition that automatic enrollment hugely boosts participation, especially by low- and middle-income workers, employers are eager to have the IRS stance reversed and get broader protection from lawsuits over default investments. Fear of being sued has prompted employers to pick the most conservative investment as the default for employees who don't specify an investment option, but employers are now pressing regulators to be able to make appropriate, higher-yielding investments as the default choice.
Employers favor age-appropriate lifecycle funds, automatically rebalanced funds and managed funds as default options.
But, just in case the Labor Department issues guidance they don't like, employers have also persuaded several lawmakers to introduce legislation on the issue.
Among them are Sens. Gordon Smith, R-Ore., and Kent Conrad, D-N.D. Rep. Rahm Emanuel, D-Ill., also introduced legislation earlier this year, but employers don't care for the specificity of default investments in it, preferring to give the Labor Department a free hand in making that determination.