House and Senate Must Now Reconcile Reform Bills

The Wall Street Journal points out that Representative John Boehner (R-Ohio), as former chairman of the Committee on Education and the Workforce, was instrumental in putting together the House bill geared toward helping the business community and Wall Street. Senator Charles Grassley (R-Iowa), who became interested in pension legislation after the bust up of Enron Corp. wiped out employee retirement savings, helped craft a more populist bill.   The two hold differing views on a handful of issues, the WSJ report says.

“There are enough controversial pieces to be worked out that this could be a drawn-out process,” David Certner, director of federal affairs at AARP, the retiree advocacy group, which generally supports the Senate version, says in the WSJ report.

The differing views, according to the news report, are:

• Investment Advice: The House version of the bill would allow investment firms to offer advice to participants in 401(k) plans even if the firms’ mutual funds are among employees’ investment choices. Federal labor laws long have banned this on the theory that the investment firms would favor their own funds, even if a competitor offered a better choice.   Boehner has been Wall Street’s champion on the issue, arguing for years that the law should be changed because employees with 401(k) plans need professional advice to earn better returns. Grassley, meanwhile, has fought to keep the restrictions and the Senate’s measure would continue the ban on direct advice from fund firms. It would encourage companies to hire neutral third-party advisers to tell employees where they should put their money.
• Hedge-Fund Investments: Financial-services firms could reap a windfall from a provision that would let many hedge-fund managers skirt fiduciary duties. Under current rules, if 25% or more of a hedge fund’s assets come from public or foreign pension plans, the entire investment pool must be managed according to strict pension-law fiduciary standards, such as considering pension clients’ interests first and investing prudently. The Securities Industry Association got Boehner’s House bill to include a proposal revising the rule so legal standards would not apply unless pension assets reached 50% of a hedge fund. The trade group argues that the current threshold is too low and restrictive and that the cost for relatively unregulated hedge funds to comply with pension-law standards is burdensome and expensive. Grassley has not supported the change because of his perception that the securities industry pushed the language into the House bill without exploring in hearings the potential for abuses.
• Multiemployer Pension Plans: Another hot-button issue is language in the House bill that would give employers, through collective bargaining, broader discretion to cut non-basic retirement benefits, such as early-retirement benefits and life insurance. Multiemployer plans, which cover about 10 million employees, were set up so that workers who move from employer to employer within unionized industries could maintain retirement-benefit plans negotiated under a common union contract. United Parcel Service Inc., which participates in 22 multiemployer plans, has been looking to lower its pension costs. The delivery company – one of Boehner’s top contributors – pushed for the provision. The Senate bill does not address the issue, which Grassley expects conferees to battle over. Under current law, a pension plan can’t change the rules to eliminate pension benefits already earned by workers. Modifying a core protection in the law would establish a dangerous precedent that could soon be extended to the majority of pensions, so-called single-employer plans, says Karen Friedman, policy director at the Pension Rights Center, a worker-advocacy group.
• Company Credit Ratings: A big issue for auto companies involves a provision – only in the Senate bill – that would require employers with credit ratings that are below investment grade to adopt certain actuarial assumptions that would have the effect of making them kick in additional contributions. Boehner said he believes “the actual financial status of the pension plan, and not the company’s credit rating, is the most important factor in determining how to ensure the plan gets back on track.”
• Airlines: The Senate bill would give major commercial airlines 20 years to fully fund their pension plans. The House bill has no airline provision. Boehner has said he opposed relief for any specific industry but has told the airlines that he now is open to compromise.

Other provisions regarding defined contribution plans that differ in the House bill from the Senate bill were pointed out by the Profit Sharing/401(k) Council of America soon after the House bill was passed (See  PSCA Pushes for DC Provisions in House Pension Reform).

According to the WSJ, even naming the conference committee has been contentious. The Senate is fighting internally over the size of its contingent, with Democrats seeking an extra slot.   Also, Senate and House members are being barraged by lobbyists pushing their positions. “It’s a veritable chorus line of interests lobbying prior to conference,” a Senate staff member said in the news report.

The Pension Security and Transparency Act, (S 1783), was passed by the Senate in November (See  Senate OKs Compromise Version of Pension Reform Measure).

The Pension Protection Act, HR 2830, was passed by the House in December (See  Pension Protection Act Approved by the House).