Lawmakers Working to Reconcile Private Pension System Legislation
Lawmakers in Washington continue trying to reconcile legislation that would overhaul the nation's private pension system. Despite involvement of Senate Majority Leader Bill Frist, R-Tenn, and House Speaker J. Dennis Hastert, R-Ill., over the past few weeks, conferees missed their third self-imposed cut-off date for completing legislation before the July Fourth recess which began last week. House Majority Leader John A. Boehner, R-Ohio, and other members of the conference had pushed for a vote on a conference report last week, but to no avail.
If enacted, Pension Reform would apply to all local pension funds. As written, both the House and Senate bills would raise the maximum deductibility level for multiemployer plans and would change funding rules to enhance plan viability. Both bills would require annual actuarial certification for plans and would establish additional notification and disclosure procedures. "Endangered" and "Critical" funding status would be determined by a number of tests and would require a Funding Improvement Plan (FIP) for "Endangered" plans and a Rehabilitation Plan for plans in "Critical" status. The FIP's and Rehabilitation Plans have statutory funding benchmarks which would have to be met.
However, only the House bill would give plans in critical status the authority to reduce certain ancillary, non-core benefits if vital to maintaining their viability. The option to reduce ancillary benefits is absolutely necessary for some plans in order to save normal retirement benefits at normal retirement age. Plans reaching a minimum funding deficiency would be certified as in critical status, would adopt a rehabilitation plan within a designated time frame but would be protected from devastating excise taxes. Importantly, the legislation as written would not protect employers from excise taxes if the plan does not meet the required statutory benchmarks while in critical status. After missing the benchmarks, an excise tax would apply even if the employers in the plan were complying with the rehabilitation plan and the benchmark failures were due to circumstances beyond their control. Multiemployer Pension Plans should also expect an increase in premiums from $2.90 per participant to $8.00. An increase was included in the Senate Budget Reconciliation bill and, while a pension bill, if enacted would supersede the budget bill, an increase for multi premiums is likely in a pension final bill as well.
While there is a reasonable possibility for a positive outcome, recent veto threats by the White House over portions of the bill indicates that work remains. Both the House and the Senate bills address complex issues for multiemployer and single employer defined benefit programs therefore final passage into law is not certain. Many members of Congress believe that this is the biggest and most important bill they will pass in the balance of this Congress.
Lawmakers have been wrestling with the pension legislation since last year, and since March 8 have been trying to reconcile the House and Senate passed measures. Core issues include how to determine which "at risk" firms must make additional contributions to their plans, whether to give airlines more time to make up for under funding, and how to provide legal certainty to cash-balance, or hybrid plans.
About the Author
Jessica Johnson Bennett was the Director of Government Affairs for MCAA. She has an extensive background in public affairs and government relations. Her expertise in strategic planning, PAC management and operations help on key policy issues.