Among the thorniest issues:
•Averaging of interest rates on corporate bonds. Employer groups want to use a three-year or longer average of interest rates on corporate bonds to calculate their pension liabilities — included in the House Ways and Means Committee bill — instead of the 12-month average contained in the Senate bill. The Bush administration and academics maintain that averaging the interest rate on which liability calculations are pegged distorts the funded levels of pension plans. Employers argue they need the longer averaging to better budget for their contributions. Any conference committee bill is going to "have to do more than split the difference" between the Senate and House bills, Mr. Ugoretz said.
•Credit rating. The Senate bill defines as risky those plans funded at or below 93% and sponsored by companies with a below-investment-grade credit rating for three consecutive years. The bill imposes more onerous funding requirements on those plans deemed risky. Employer groups are vocal in their opposition to this provision and want it stripped from the legislation. Instead of using credit ratings, the House bill treats plans as risky if they're funded at or below 60% of their promised benefits and imposes higher contribution requirements and higher PBGC premiums on them. Sources suggest lawmakers will yield to employers' pressure to strip this provision from the Senate bill. "Despite the veto signals the White House is sending, I can't see how it will have the credit rating (provision)," said a lobbyist who did not wish to be identified.
•Credit balances. Employers and unions oppose the House provision that requires employers to deduct excess contributions made in the past from calculating the funded status of their pension plans. In a Nov. 18 letter to lawmakers, the United Auto Workers, Washington, asked that the provision be removed from the House bill because it would especially penalize the big three automakers that built a cushion by contributing billions of dollars in excess contributions to their pension plans over the years.
•Airlines. The Senate bill lets airlines stretch out contributions to pension plans over 20 years using an interest rate selected by the plan's actuary. To opt for this rule, airlines would need to freeze their plans. The House bill offers no special treatment. Sources speculate House-Senate conferees might go with the Senate version, but reduce the maximum to 14 years. The Senate bill also includes a more generous PBGC guaranteed benefit for pilots, but some senators and members of the House object to that provision because of the PBGC's precarious financial condition.
•Cash balance plans. Employers are dissatisfied with the provision in both the Senate and the House bills that fails to clarify the legality of existing conversions of traditional defined benefit plans to cash balance plans. They also oppose protections the Senate bill requires employers to give older workers in conversions, such as maximum and minimum interest rates at which employers must credit participants' hypothetical accounts, and vesting of all participants after three years. The Washington-based AARP, on the other hand, is lobbying to ensure the Senate provision is the one that comes out on top. "There's going to be an effort by some companies to get rid of the whole thing and an effort by others to keep the provision in because if there are no cash balance plans, there's no future for defined benefit plans at all," said Brian H. Graff, executive director of the American Society of Pension Professionals and Actuaries, Arlington, Va.
•Fiduciary changes. The Senate bill removes all but a handful of provisions that passed the House Education and the Workforce Committee in June that would loosen the rules governing fiduciary responsibilities and conflicts of interest. Now, some sources say the Securities Industry Association, Washington, which had lobbied hard for inclusion of these provisions in the House bill, is pushing to let pension plans directly swap actively managed investments with each other.
•Contributions. The House Ways and Means Committee bill would make permanent higher contribution limits and benefits to defined contribution plans that were enacted as part of the 2001 tax law changes and are scheduled to expire at the end of 2010. Sources suggest these provisions may be stripped from the final pension bill that emerges from Congress because they would cost the Treasury billions in revenue.
•Investment advice. Some experts say the provision that permits service providers to offer investment advice to plan participants may survive the conference committee, as long as it includes a way to protect participants from getting self-serving advice from providers.