Employers give thumbs down to merged pension bill in Senate

WASHINGTON — Lobbyists for plan sponsors agree on one thing about the pension bill from the two key Senate committees: They hate it.

"The business community hates this bill so much that there's nothing you can do to sweeten it," said a source who did not wish to be identified.

The merged bill from the Senate Finance Committee and the Senate Health, Education, Labor and Pensions Committee now goes before the full Senate, where a vote is expected later this week. And even though employer representatives are hoping some of its provisions will be watered down by amendments, they still probably won't like the core bill.

Brian Graff, executive director of the American Society of Pension Professionals & Actuaries, the Arlington, Va., a trade group representing actuaries, record-keepers, third-party administrators and other service providers, agreed. "I don't think you'll ever get anybody in the employer community saying, ‘we like the bill.'"

Employer groups decry the bill for not giving companies enough time to set aside money to fund up their pension plans, assuming too strict a method for calculating liabilities, and linking the credit ratings of employers to the Pension Benefit Guaranty Corp. insurance premium they must pay. Moreover, they say failure to grant protection to employers from lawsuits for the hundreds of existing cash balance plans is going to hasten their exit from the defined benefit system.

Some pension experts, such as Michael Peskin, managing director of global capital markets at Morgan Stanley, New York, fear the bill does not deliver strong enough medicine to halt the PBGC's yawning deficit, and lawmakers "have compromised in a way that is unsatisfactory and allows the problems to grow."

Among the possible amendments that could ease a bit of the pain for employers are provisions clarifying that companies that automatically enroll workers in their retirement plans may invest that money in funds that pay a higher return than money market funds. Also, companies will be protected from employee lawsuits if they automatically enroll all workers in their retirement plans.

Other provisions would enable pension funds to cross-trade with each other and loosen rules regulating pension fund investments in hedge funds. Sen. Richard Burr, R-N.C., had introduced these and other provisions on the securities industry's wish list as an amendment to the Senate Health, Education, Labor and Pensions Committee pension bill, but withdrew it at the last minute. Last week, Sen. Charles Schumer, D-N.Y., whose constituents include Wall Street firms, tried to broker a deal on the provisions with key members of both Senate committees, according to an aide who declined to be identified. "There's a lot of support for including ERISA provisions" in the broader pension bill, the aide said.

Mr. Schumer has vetted the amendments with regulators at the Labor Department and the Securities and Exchange Commission, and held discussions with labor union officials about their objections to the amendments, his aide said. Labor unions oppose reducing participant protections in the Employee Retirement Income Security Act. However, the provisions stand a good chance of passage either as an amendment to the Senate bill or during the Senate-House conference because they're in the pension bill that cleared the House Education and the Workforce Committee in June. (Committee Chairman John Boehner, R-Ohio, said recently the full House could vote on a pension bill by the end of October.)

"It's in the House bill so it's a conference-able item," said Lynn Dudley, vice president and senior counsel at the American Benefits Council, Washington.

Ms. Dudley is more concerned about the contours of the overall pension package. She and other employer representatives say the legislation does not give employers enough time to budget for higher contributions before the new rules kick in. The bill has a three-year transition period, but Janice Gregory, vice president of the ERISA Industry Committee, a Washington trade group, says companies need at least 10 years.

Sponsors also complain that the seven-year cap in the Senate bill is much too short for companies to fully fund their pension plans. The House Education and the Workforce Committee had proposed giving companies as much as 10 years, but did not give any breaks to the airline industry. The Senate bill gives airlines up to 14 years to make up the shortfall. But some sources said senators with airlines based in their home states might push for as much as 20 years.

Also of concern to employers is the averaging of the interest rates on corporate bonds permitted under the legislation. The Senate bill would let them use an interest rate linked to investment-grade corporate bonds over a 12-month period to calculate their liabilities, but lobbyists say they'd prefer the three-year averaging permitted by the House Education and the Workforce Committee version. Mr. Graff said that he expects the bill that emerges from House and Senate negotiations will let employers use two-year averaging.

Lobbyists also were worried that the merged Senate pension bill does not clarify that the hundreds of pension plans already converted to cash balance plans do not discriminate against older workers. "Plan administrators wanted to have retroactive relief without any conditions tied to it," said Bill Sweetnam, a partner at the Groom Law Group, a Washington law firm, and a former benefits tax counsel at the Treasury Department. Since that's unlikely, employers might seek to remove the cash balance provision during the Senate-House negotiations, he said.

Finally, employers fear the merged Senate bill would tie higher, variable PBGC premiums to the credit ratings of companies. Companies whose bonds fall below investment grade would be treated as higher risk, and would have to pay a higher premium and face restrictions on increasing benefits.