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August 9, 2006 8:37 AM CDT

Partisan Politics Put Aside, Congress Passes Pension Reform


Some Lawmakers in Washington deem the Pension Protection Act as the most important piece of legislation the 109th Congress has dealt with.
Some Lawmakers in Washington deem the Pension Protection Act as the most important piece of legislation the 109th Congress has dealt with.

The 109th Congress has been dubbed by some as the "Do Nothing" Congress. Both Republicans and Democrats have been pointing fingers at each other for months, leading many in Washington and around the country to the conclusion that there was little chance any significant legislation would be passed before the mid-term elections in November. However, the last week before Congress headed home for the August recess proved to be one of the most productive all year. Lawmakers were able to put aside partisan politics, allowing both the House and Senate to pass what lawmakers considered to be one of the most critical pieces of legislation this Congress would take up. Much to the relief of labor, business groups and troubled airlines, pension reform legislation passed by a wide margin, just hours before both chambers adjourned for the month of August. This comes after years of debate and months of heated negotiations.

Since early 2005, Congress has worked on legislation that would strengthen the private pension system to make sure companies met promises to retirees and to shore up the finances of the Pension Benefit Guaranty Corporation (PBGC), the federal agency that insures private pensions.

Lawmakers considered the pension bill to be crucial, because it is designed to address the under-funded pension plans that have forced the federal government to step in after a series of high-profile bankruptcies. In recent years, the PBGC has reported record deficits, following a series of bankruptcies in the airlines, steel and auto parts industries, as well as the infamous case of the Enron Corporation. Lawmakers strove to balance the need to have companies quickly make up for shortfalls in their defined benefit pension plans with concerns that restrictive language could lead companies to foist their plans on the PBGC, which would place an even further strain on an already struggling agency.

The legislation would require companies to make payments to cover current shortfalls in the funding of their pension plans. Companies would have to fund 100 percent of pension liabilities, up from 90 percent under the current law. Most companies would have seven years to make up for shortfalls; however, airlines - which had been a driving force behind the legislation - were given a further respite, receiving up to 17 years to recover from shortfalls. In addition, companies will also be required to adjust the way they evaluate plan liabilities, revising current measures to better reflect when promised benefits would have to be paid.

Taking aim at companies that have chronically under-funded their plans, the bill prevents companies with plans that are less than 80 percent funded from promising additional benefits unless they could immediately pay for them. The measure also clarifies the legal status of "hybrid" plans that incorporate elements of defined benefit and defined contribution pensions, such as 401(k) plans. Hybrids have been in legal limbo since a 2003 court decision found they discriminate against older workers. The bill would impose non-discrimination rules on those plans and allow financial advisers to offer investment guidance to plan participants without running afoul of conflict-of-interest provisions.

The pension reform legislation will apply to all local pension funds. As written, the bill will raise the maximum deductibility level for multi-employer plans and will change funding rules to enhance plan viability. The bill will require annual actuarial certification for plans, and will 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 that will have to be met.

Passage of this bill gives embattled lawmakers returning to their districts a major victory in an environment that is plagued by election year politics. In victory speeches on the Senate floor following the bill's passage, both prominent Democratic and Republican senators praised their colleagues for their bipartisan support. Senator Mike Enzi (R-WY), chairman of the Senate Health Labor and Pensions Committee and also chairman of the pension conference, stated, "It's a package that will significantly strengthen pension funding rules, help curb record pension failures, and better protect the retirement dreams of 45 million Americans." From the other side of the aisle, his colleague Senator Edward Kennedy (D-MA) expressed his excitement, saying, "This bill says to millions of Americans 'Help is on the way.'"

The pension bill is now headed to the president's desk for his anticipated signature.

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.


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